HomeMy WebLinkAbout05. Adopt Management Support/Confidential Group Memorandum of Understanding Constructive Receipt Amendment Page 1 of 6
Item 5.
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
MEETING DATE: AUGUST 19, 2021
SUBJECT: ADOPT THE CONSTRUCTIVE RECEI PTAMENDMENT TO MANAGEMENT
SUPPORT/CONFIDENTIAL GROUP MEMORANDUM OF UNDERSTANDING
SUBMITTED BY: INITIATING DEPARTMENT:
TEJI O'MALLEY, HUMAN RESOURCES AND OFFICE OF THE GENERAL MANAGER -
ORGANIZATIONAL DEVELOPMENT HUMAN RESOURCES
MANAGER
Roger S. Bailey
General Manager
ISSUE
Board approval is required to adopt any changes to a Memorandum of Understanding (MOU).
BACKGROUND
The District has completed the meet and confer process with representatives of the three bargaining units
to discuss the current accrued leave cash-out practices being subject to the constructive receipt
doctrine pursuant to the Internal Revenue Code (I RC), which could result in tax implications
and/or penalties for both the employees and the District.
Currently, the District taxes employees on the amount of leave they have cashed out, not the total amount
they have available to cash out. This manner in which the leave cash-out provision is currently structured
may lead the Internal Revenue Service (IRS)to determine that:
1. All accrued leave that an employee has the option to convert into cash each year is constructively
received and, therefore, taxable in the year made available.
2. The cash-outs could be considered an ineligible deferred compensation arrangement and, therefore,
taxable in the year made available (I RC Section 457(f)).
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1 n order to update the current practices so they are no longer subject to the constructive receipt doctrine
pursuant to the I RC, and after consulting with legal counsel, the District presented the bargaining units and
unrepresented employees with five options summarized below:
1. Require Emplo-yees to Irrevocably Elect an Accrued Leave Cash-Out in Advance:The District
could require that employees irrevocably elect a cash-out of all or a portion of their accrued leave
prior to the taxable year in which any leave that is subject to the cash-out is earned.
2. Make a Certain Level ofAccrued Leave Cash-Outs Mandatory: The District could require that
accrued leave over a designated maximum accrual would be automatically cashed out each year for
all District employees.
3. Aaal-y a "Haircut"to Accrued Leave Cash-Out Pa-yments:The District could reduce the value of
the amount received for the accrued leave when the employee receives the payment.
4. Provide Cash-Out Option through a Code Section 125 Cafeteria Plan:The District could amend
its cafeteria plan to allow District employees to cash-out accrued leave through the cafeteria plan.
5. Eliminate the Option to Cash-OutAccrued Leave:The District could eliminate the option to cash-
out accrued leave.
Consensus with all three bargaining units has been reached on how to resolve the issue. The Management
Group, Management Support/Confidential Group (MS/CG) and Public Employees Union, Local #1 have
all agreed to implement Option#1 as detailed above. This change to the current MOU provision will
require employees to irrevocably elect a cash-out of all or a portion of their accrued leave prior to the
taxable year in which any leave that is subject to the cash-out is earned.
The attached proposed MOU provision (Attachment 1) has been reviewed and approved by MS/CG. The
amendment of this provision is reflected in the attached MOU (Attachment 2), which has been marked to
show tracked changes.
ALTERNATIVES/CONSIDERATIONS
Do not approve the amendment to the MOU and leave the current accrued leave cash-out practice as-is
for MS/CG. This is not recommended as the current practice is subject to the constructive receipt doctrine
pursuant to the I RC. If this change does not occur, the employees and the District could be subject
to tax implications and/or penalties.
FINANCIAL IMPACTS
None by this action. The proposed revisions only change the timing of the election to receive a payment of
accrued leave time and limit it to the amount that has already been earned and accrued.
COMMITTEE RECOMMENDATION
The Administration Committee reviewed this matter at its August 3, 2021 meeting and recommended
approval.
RECOMMENDED BOARD ACTION
Adopt the proposed Constructive Receipt Amendment to the Memorandum of Understanding with
Management Support/Confidential Group.
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Strategic Plan re-In
GOAL THREE: Fiscal Responsibility
Strategy 2—Ensure integrity and transparency in financial management
ATTACHMENTS:
1. Proposed Amended Section of MS/CG MOU
2. Red-line of proposed change to MS/CG MOU
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Article IV—Leaves
Attachment 1
Termination
If an employee leaves the District for any reason, he/she will be paid
for any earned vacation time not used.
Payment of Accumulated Vacation Time
An employee may request a payment of the cash equivalent of
vacation accruals subject to the following:
A. Employee must make an irrevocable election before the end of
each calendar year to either(a) receive payment in the following
calendar year of the cash equivalent of all or a portion of the
vacation hours that will accrue during the following calendar year,
or(b)to accrue those vacation hours as paid vacation during the
following calendar year. Elections must be made every year and
will not carry over from one calendar year to the next. If an
employee fails to make an election, the employee will be deemed
to have irrevocably elected to accrue all of the vacation hours
earned in the following calendar year as paid time off.
B. The election must designate the number of vacation hours being
requested for payment. The payment cannot exceed the value of
the maximum vacation accruals based on the employee's years of
service in the year of payment up to a maximum of one hundred
sixty (160) hours. An employee may request cash payment of the
value of vacation hours the employee elected to convert to cash
compensation before the end of the previous calendar year at any
time during the current calendar year; provided, however, that no
cash payment for the value of vacation hours will be made unless
and until the vacation hours have been earned and accrued as
detailed in the above accrual schedule.
C. Vacation hours an employee elects to convert to cash
compensation in the following calendar year as described above
will be converted to cash compensation based on the employee's
hourly rate of pay in effect at the time of the payment request.
D. Note the following exception to the above: payment of
accumulated vacation time above the maximum annual accrual
shall occur automatically on the anniversary date on which the
time would be lost.
The above policies do not apply to termination of employment or
retirement.
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ArticleIV—Leaves Attachment 2
Termination
If an employee leaves the District for any reason, he/she will be paid
for any earned vacation time not used.
Payment of Accumulated Vacation Time
An employee may request a payment of the cash equivalent of
vacation accruals subject to the following:
A. Employee must make an irrevocable election before the end of
each calendar year to either(a) receive payment in the following
calendar year of the cash equivalent of all or a portion of the
vacation hours that will accrue during the following calendar year,
or(b)to accrue those vacation hours as paid vacation during the
following calendar year. Elections must be made every year and
will not carry over from one calendar year to the next. If an
employee fails to make an election, the employee will be deemed
to have irrevocably elected to accrue all of the vacation hours
earned in the following calendar year as paid time off.
B. The election must designate the number of vacation hours being
requested for payment. The payment cannot exceed the value of
the maximum vacation accruals based on the employee's years of
service in the year of payment up to a maximum of one hundred
sixty (160) hours. An employee may request cash payment of the
value of vacation hours the employee elected to convert to cash
compensation before the end of the previous calendar year at any
time during the current calendar year; provided, however, that no
cash payment for the value of vacation hours will be made unless
and until the vacation hours have been earned and accrued as
detailed in the above accrual schedule.
C. Vacation hours an employee elects to convert to cash
compensation in the following calendar year as described above
will be converted to cash compensation based on the employee's
hourly rate of pay in effect at the time of the payment request.
D. Note the following exception to the above: payment of
accumulated vacation time above the maximum annual accrual
shall occur automatically on the anniversary date on which the
time would be lost.
A. Cmp!Gy000 m Fequest payoff.,f y GatiE)R tomo
n
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Article IV-Leaves
B. Employees must have either taken ten (10) clays of vaGatieR time
0thin the oalenrlar year of annliea+ien or have a ger! sUffioient
oatien time+e take a nrla+ery+en (10)days of vada+ie.. +ime
eff y ithin the oalenrlar year of annlioatien
G. The Maximum number of days which will he considered for
Payment in any one calendar year shall he twenty (20) clays
B. The employee shall submit a letter of request fer payneRt of
accumulated vacation to his/her Department Director, which shall
Enol de the number of clays nasi requested. The request will then
hesubmitted to the General Manager. If all of the conditions
specified abode are satisfied the request will he considered
Note ate the fol ngeXGepttieenrto the "iabove—payment evaGGUrf
mulated oa+ien time shove the m murnannuala al
shall OGGLIr automatically en thea ry date o which the
time would he les+ nyided that a nleyee has used at least
ten (10)y Gatien clays during the last twelve (12) menths
The above policies do not apply to termination of employment or
retirement.
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