Request By:
Martha Belwood
Administrator, State Agency for Social Security
Department for Human Resources
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; Martin Glazer, Assistant Attorney General
You have asked this office to review Senate Bill 297 enacted by the 1980 General Assembly and advise it this legislation does give the state legal authority to make such leave payments. The purpose of this change in the law is to provide for a method by which payments "on account of sickness" may be excluded under the Social security Act, that is, that part of temuneration which is attributable to sick payments would not be wages to the employee, and, therefore, would not be calculated in determining deducations of social security payments.
The Act in question in section 1 amends KRS 61.420 and provides in new subsection 10, to wit: "'Sick leave with pay' means any payment made in lieu of salary on account of sickness or accident disability. " Section 2 of that Act amerds KRS 61.460 by adding a subsection 5, to wit: "Each political subdivision may exclude sick leave with pay from wages if such payments are made under a plan or system approved by the state agency for social security. Any such plan or system shall conform to the Social Security Act and to any requlations promulgated thereunder." That part of Senate Bill 297 dealing with the term "sick leave with pay" was intended to be an exclusion from the term "wages." It might have been cleaner It migh have been cleaner and clearer had the amendment been positioned in the section defining wages and specifying that sick leave with pay was an exclusion from the term "wages."
In any event, we believe that the amendment accomplishes a statutory change which authorizes sick leave with pay as an exclusion to the term "wages" when considered together with appropriate sick leave rules.
However, we do not believe that the mere passage of the amendatory language per se permits the deduction of sick pay from being considered as wages without some additional administrative acts.
For example, the Social Security Administration Handbook for State Social Security Administrators provides under section 413 therein that payments on account of sickness or accident disability are excluded from wages if made under a plan or system established by the employer.
Further, section 413.5 of that handbook provides that certain factors may be evidence of the existence of such a plan or system, to wit: that the plan or system is in writing, that there is a reference to the plan or system in the contract of employer, that employees contribute to the plan or system, or there is a special fund separate and apart from the Act.
Section 415 of that handbook provides that payments made by a state or local governmental employer can be excluded only if there is a legal authority to pay "on account of sickness" and evidence that the payments were made under this authority.
In the present situation, legal authority exists in the amendment to the state law by the enactment of Senate Bill 297, but changes still need to be made in the personnel rules dealing with sick leave.
For example, Personnel Rule 101 KAR 1:140, Section 3, authorizes each employee to be allowed sick leave with pay at the rate of one working day for each month of service. Full-time employees with ten or more years of service get an additional ten days of sick leave. Sick leave may be used for the employee's sickness and for sickness or injury of a member of the employee's immediate family. It may also be used where there has been a death of various persons related by blood or affinity.
It would seem that to be eligible as exclusion as wages the personnel rules would have to separate these types of leaves. Sick leave would have to be utilized only for the sickness or injury of the employee and not of some person related by blood or affinity. That type of leave would have to be separable. Secondly, there would need to be established appropriations for sick payments in the budget which is separate from salary. Thirdly, the Department of Finance would have to establish a separate account for sick payments on account of sickness. Money would be placed in the account each month to cover the employee's earned sick leave day in a sum equal to the one-day salary of that employee. As the employee uses his sick days, the money would be debited from that account and paid to the employee. In other words, the state would need to establish a plan that would meet federal requirements and would separate payments made on account of sickness from payments made on account of salary. Otherwise, the payments would still be part of wages and would have to be included in determining the social security taxes paid.
In the final analysis, any plan set up would have to be approved by the federal Social Security Administration, but in our view, the general guidelines we have set out should be a method by which such approval could be obtained.