B-140961, DECEMBER 1, 1959, 39 COMP. GEN. 409

B-140961: Dec 1, 1959

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IS NOT FOR CONSIDERATION IN FIXING THE COMPENSATION OF FORMER CANAL ZONE EMPLOYEES UPON TRANSFER TO POSITIONS IN THE UNITED STATES. THE EFFECT OF THE TAX ADDITIVE WHICH IS ALLOWED TO UNITED STATES CITIZEN EMPLOYEES SERVING IN THE CANAL ZONE IS TO RESTORE TO SUCH EMPLOYEES A RATE OF COMPENSATION EQUIVALENT TO THAT PAID FOR THE SAME OR SIMILAR GOVERNMENT WORK IN THE CONTINENTAL UNITED STATES RATES. WE HAVE INFORMALLY ASCERTAINED THAT THOSE QUESTIONS REFER TO AN EMPLOYEE WHO WAS SERVING IN THE CANAL ZONE IN THE EQUIVALENT OF GRADE GS-12 UNDER THE CLASSIFICATION ACT OF 1949. WHO WAS TRANSFERRED TO A POSITION IN GRADE GS-11 IN THE UNITED STATES. WHO NOW IS BEING PROMOTED TO A POSITION IN GRADE GS-12.

B-140961, DECEMBER 1, 1959, 39 COMP. GEN. 409

CIVILIAN PERSONNEL - COMPENSATION - HIGHEST PREVIOUS SALARY RATE RULE - CANAL ZONE EMPLOYEES - DIFFERENTIAL AND TAX ADDITIVE THE RULE WHICH PERMITS PREVIOUS RATES OF COMPENSATION TO BE USED IN FIXING INITIAL SALARY RATES UPON TRANSFER, REINSTATEMENT, PROMOTION, DEMOTION, ETC., HAS BEEN APPLIED IN TERMS OF RATES PREVAILING IN THE UNITED STATES SO THAT THE TROPICAL DIFFERENTIAL PAID TO EMPLOYEES WHO SERVED IN THE CANAL ZONE, EVEN THOUGH REGARDED AS BASIC COMPENSATION, RESULTS IN AN INCREASE OF CANAL ZONE RATES OVER UNITED STATES RATES AND, THEREFORE, IS NOT FOR CONSIDERATION IN FIXING THE COMPENSATION OF FORMER CANAL ZONE EMPLOYEES UPON TRANSFER TO POSITIONS IN THE UNITED STATES. THE EFFECT OF THE TAX ADDITIVE WHICH IS ALLOWED TO UNITED STATES CITIZEN EMPLOYEES SERVING IN THE CANAL ZONE IS TO RESTORE TO SUCH EMPLOYEES A RATE OF COMPENSATION EQUIVALENT TO THAT PAID FOR THE SAME OR SIMILAR GOVERNMENT WORK IN THE CONTINENTAL UNITED STATES RATES, THE TAX FACTOR MAY BE ADDED TO THE BASIC CANAL ZONE RATE (EXCLUSIVE OF TROPICAL DIFFERENTIAL) AND THE AGGREGATE RATHER THUS OBTAINED USED AS THE HIGHEST PREVIOUS RATE IN ESTABLISHMENT OF THE RATE OF COMPENSATION UPON TRANSFER TO A POSITION IN THE UNITED STATES.

TO THE SECRETARY OF THE NAVY, DECEMBER 1, 1959:

ON OCTOBER 8, 1959, THE ASSISTANT SECRETARY ( PERSONNEL AND RESERVE FORCES) REQUESTED OUR DECISION ON THE FOLLOWING QUESTIONS:

(A) DOES SECTION 9 OF PUBLIC LAW 85-550 AUTHORIZE CONSIDERATION OF BOTH THE TAX ADDITIVE AND TROPICAL DIFFERENTIAL AS PART OF BASIC COMPENSATION FOR PAY-FIXING PURPOSES UPON SUBSEQUENT EMPLOYMENT OUTSIDE THE PANAMA CANAL ZONE?

(B) IF NOT, MAY THE TAX ADDITIVE BE INCLUDED FOR THIS PURPOSE?

WE HAVE INFORMALLY ASCERTAINED THAT THOSE QUESTIONS REFER TO AN EMPLOYEE WHO WAS SERVING IN THE CANAL ZONE IN THE EQUIVALENT OF GRADE GS-12 UNDER THE CLASSIFICATION ACT OF 1949, AS AMENDED; WHO WAS TRANSFERRED TO A POSITION IN GRADE GS-11 IN THE UNITED STATES; AND WHO NOW IS BEING PROMOTED TO A POSITION IN GRADE GS-12. ALSO, WE UNDERSTAND THAT THE "PAY- FIXING PURPOSES" INVOLVED IN THE QUESTIONS REFER TO THE "HIGHEST RATE" RULE OF THE FEDERAL EMPLOYEES PAY REGULATIONS, 5 C.F.R. 25.103, PROMULGATED BY THE CIVIL SERVICE COMMISSION UNDER AUTHORITY OF SECTION 802 OF THE CLASSIFICATION ACT, AS AMENDED, 5 U.S.C. 1132, PURSUANT TO WHICH, UPON REEMPLOYMENT, TRANSFER, REASSIGNMENT, PROMOTION, REPROMOTION, OR DEMOTION, AN EMPLOYEE'S INITIAL SALARY RATE MAY BE FIXED AT ANY SCHEDULE RATE OF HIS GRADE WHICH DOES NOT EXCEED HIS HIGHEST PREVIOUS BASIC SALARY RATE.

AS INDICATED IN THE TITLE OF PUBLIC LAW 85-550, APPROVED JULY 25, 1958, 72 STAT. 405, THE PURPOSE OF THE ACT IS TO IMPLEMENT ITEM 1 OF A MEMORANDUM OF UNDERSTANDING ATTACHED TO THE TREATY OF JANUARY 25, 1955, ENTERED INTO BY THE GOVERNMENT OF THE UNITED STATES AND THE GOVERNMENT OF THE REPUBLIC OF PANAMA CONCERNING WAGE AND EMPLOYMENT PRACTICES OF THE UNITED STATES GOVERNMENT IN THE CANAL ZONE. THE PORTIONS OF SUCH ITEM 1 HERE PERTINENT ARE RECITED IN SECTION 1 (B) OF THE ACT, AS FOLLOWS:

"1. LEGISLATION WILL BE SOUGHT WHICH WILL AUTHORIZE EACH AGENCY OF THE UNITED STATES GOVERNMENT IN THE CANAL ZONE TO CONFORM ITS EXISTING WAGE PRACTICES IN THE ZONE TO THE FOLLOWING PRINCIPLES:

"/A) THE BASIC WAGE FOR ANY GIVEN GRADE LEVEL WILL BE THE SAME FOR ANY EMPLOYEE ELIGIBLE FOR APPOINTMENT TO THE POSITION WITHOUT REGARD TO WHETHER HE IS A CITIZEN OF THE UNITED STATES OR OF THE REPUBLIC OF PANAMA.

"/B) IN THE CASE OF AN EMPLOYEE WHO IS A CITIZEN OF THE UNITED STATES, THERE MAY BE ADDED TO THE BASE PAY AN INCREMENT REPRESENTING AN OVERSEA DIFFERENTIAL PLUS AN ALLOWANCE FOR THOSE ELEMENTS, SUCH AS TAXES, WHICH OPERATE TO REDUCE THE DISPOSABLE INCOME OF SUCH AN EMPLOYEE AS COMPARED WITH AN EMPLOYEE WHO IS A RESIDENT OF THE AREA.'

SECTION 5 OF THE ACT, 72 STAT. 407, AUTHORIZES THE HEADS OF DEPARTMENTS CONDUCTING OPERATIONS IN THE CANAL ZONE TO ESTABLISH AND REVISE FROM TIME TO TIME RATES OF BASIC COMPENSATION IN RELATION TO RATES OF COMPENSATION FOR THE SAME OR SIMILAR WORK PERFORMED IN THE CONTINENTAL UNITED STATES OR, IN CERTAIN CASES, IN AREAS OUTSIDE THE UNITED STATES, SUBJECT TO THE RESTRICTION THAT NO RATE OF BASIC COMPENSATION SHALL EXCEED BY MORE THAN 25 PERCENT, WHEN INCREASED BY THE AMOUNTS OF THE ALLOWANCE AND DIFFERENTIAL AUTHORIZED BY SECTION 7, THE RATE OF BASIC COMPENSATION FOR THE SAME OR SIMILAR WORK PERFORMED IN THE CONTINENTAL UNITED STATES BY EMPLOYEES OF THE GOVERNMENT OF THE UNITED STATES. SECTION 7, 72 STAT. 407, PROVIDES FOR AN ALLOWANCE AND DIFFERENTIAL AS FOLLOWS:

(A) EACH EMPLOYEE WHO IS A CITIZEN OF THE UNITED STATES, SHALL RECEIVE, IN ADDITION TO BASIC COMPENSATION AT THE RATE ESTABLISHED UNDER SECTION 5 OF THIS ACT, SUCH AMOUNTS AS THE HEAD OF THE DEPARTMENT CONCERNED MAY DETERMINE TO BE PAYABLE, AS FOLLOWS:

(1) AN ALLOWANCE FOR TAXES WHICH OPERATE TO REDUCE THE DISPOSABLE INCOME OF SUCH UNITED STATES CITIZEN EMPLOYEE IN COMPARISON WITH THE DISPOSABLE INCOME OF THOSE EMPLOYEES WHO ARE NOT CITIZENS OF THE UNITED STATES; AND

(2)AN OVERSEAS (TROPICAL) DIFFERENTIAL NOT IN EXCESS OF AN AMOUNT EQUAL TO 25 PERCENTUM OF THE AGGREGATE AMOUNT OF THE RATE OF BASIC COMPENSATION ESTABLISHED UNDER SECTION 5 OF THIS ACT AND THE AMOUNT OF THE ALLOWANCE PROVIDED IN ACCORDANCE WITH PARAGRAPH (1) OF THIS SUBSECTION.

UNDER SECTION 9, 72 STAT. 408, OF THE ACT CITED IN THE ABOVE-QUOTED QUESTION (A), THE RATE OF BASIC COMPENSATION ESTABLISHED UNDER SECTION 5 AND THE ALLOWANCE AND DIFFERENTIAL DETERMINED UNDER SECTION 7 ARE TO BE INCLUDED AS BASIC COMPENSATION OF EMPLOYEES WHO ARE CITIZENS OF THE UNITED STATES FOR THE PURPOSES OF DETERMINING THE AMOUNTS OF INSURANCE UNDER THE FEDERAL EMPLOYEES GROUP LIFE INSURANCE ACT OF 1954, 5 U.S.C. 2091 NOTE, THE AMOUNTS OF COMPENSATION FOR DEATH OR DISABILITY, AMOUNTS OF OVERTIME PAY OR OTHER PREMIUM COMPENSATION, BENEFITS UNDER THE CIVIL SERVICE RETIREMENT ACT, ANNUAL LEAVE BENEFITS, AND "ANY OTHER BENEFITS WHICH ARE RELATED TO BASIC COMPENSATION.'

THE SECOND SENTENCE OF SECTION 204.8 OF THE REGULATIONS PROMULGATED BY THE SECRETARY OF THE ARMY UNDER APPROPRIATE AUTHORITY, 24 F.R. 347, PROVIDES FOR ESTABLISHING THE BASIC SALARY OR WAGE RATES FOR POSITIONS ABOVE CERTAIN GRADES OR LEVELS AND FOR ALL "SECURITY POSITIONS" IN RELATION TO RATES FOR THE SAME OR SIMILAR WORK PERFORMED FOR THE UNITED STATES GOVERNMENT IN THE CONTINENTAL UNITED STATES, LESS A TAX FACTOR AS DEFINED IN SECTION 204.11. THE LAST-MENTIONED SECTION PRESCRIBES A FORMULA FOR COMPUTING THE TAX FACTOR IN AN AMOUNT EQUIVALENT TO THE EXCESS OF THE INCOME TAX WHICH THE TYPICAL U.S. CITIZEN EMPLOYEE NORMALLY WOULD EXPECT TO PAY TO THE U.S. GOVERNMENT ON HIS SALARY INCLUDING THE TROPICAL DIFFERENTIAL OVER THE AMOUNT OF INCOME TAX THE TYPICAL PANAMANIAN CITIZEN EMPLOYEE WOULD NORMALLY PAY TO THE PANAMANIAN GOVERNMENT ON THE SAME SALARY WITHOUT THE TROPICAL DIFFERENTIAL. SECTION 204.10 PROVIDES THAT THE RATES OF PAY FOR UNITED STATES CITIZEN EMPLOYEES SHALL BE THE BASE SALARY OR WAGE RATES, PLUS SUCH ADDITIVES AS ARE PROVIDED BY THE REGULATIONS. THOSE ADDITIVES ARE THE TAX FACTOR JUST MENTIONED AND THE TROPICAL DIFFERENTIAL NOT IN EXCESS OF AN AMOUNT EQUAL TO 25 PERCENT OF THE AGGREGATE COMPENSATION ESTABLISHED UNDER SECTIONS 204.10 AND 204.11, AS AUTHORIZED BY SECTION 204.12.

CONCERNING THE TROPICAL DIFFERENTIAL, WE HELD IN 24 COMP. GEN. 181, DECIDING A QUESTION WHICH AROSE UNDER LAWS AND PRACTICES IN EFFECT PRIOR TO THE ENACTMENT OF PUBLIC LAW 85-550, THAT THE DIFFERENTIAL PAID IN A CLASSIFIED POSITION WITHIN THE UNITED STATES, EVEN THOUGH THE DIFFERENTIAL WAS REGARDED AS BASIC COMPENSATION FOR THE CANAL ZONE POSITION. IN OTHER WORDS, THE RULES ALLOWING PREVIOUS RATES OF COMPENSATION TO BE USED IN FIXING INITIAL SALARY RATES UPON TRANSFER, REINSTATEMENT, PROMOTION, DEMOTION, AND THE LIKE, HAVE BEEN APPLIED IN TERMS OF RATES PREVAILING IN THE UNITED STATES. WE FIND NOTHING IN PUBLIC LAW 85-550, ITS LEGISLATIVE HISTORY, OR ITS PURPOSE TO REQUIRE A DEPARTURE FROM THE RULE OF THE DECISION JUST CITED. WE VIEW THE PHRASE "ANY OTHER BENEFITS WHICH ARE RELATED TO BASIC COMPENSATION" APPEARING IN SECTION 9 (6) OF PUBLIC LAW 85 -550 AS REFERRING TO EMOLUMENTS AND PERQUISITES FLOWING DIRECTLY FROM EMPLOYMENT IN THE CANAL ZONE IN THE SAME MANNER AS THOSE SPECIFICALLY ENUMERATED IN SECTION 9; AND OUR OPINION IS THAT SUCH PHRASE IS NOT TO BE CONSTRUED AS CONFERRING BENEFITS IN CONNECTION WITH SUBSEQUENT EMPLOYMENT ELSEWHERE. CF. B 140607, OCTOBER 21, 1959, 39 COMP. GEN. 302, COPY ENCLOSED.

IN CONTRAST TO THE TROPICAL DIFFERENTIAL, WHICH RESULTS IN AN INCREASE OF CANAL ZONE RATES OVER UNITED STATES RATES, THE EFFECT OF THE TREATMENT GIVEN THE TAX FACTOR BY THE REGULATIONS IS TO RESTORE TO THE UNITED STATES CITIZEN EMPLOYEE IN THE CANAL ZONE A RATE OF COMPENSATION (DISREGARDING THE TROPICAL DIFFERENTIAL) EQUIVALENT TO THAT PAID FOR THE SAME OR SIMILAR GOVERNMENT WORK IN THE CONTINENTAL UNITED STATES, WHICH, IN THE CASE UNDERSTOOD TO BE HERE INVOLVED, WAS A SCHEDULED RATE OF GRADE GS-12 UNDER THE CLASSIFICATION ACT OF 1949, AS AMENDED. AS HEREINBEFORE POINTED OUT, THE INITIAL SALARY RATE RULES HAVE EVOLVED IN TERMS OF UNITED STATES RATES. CONSEQUENTLY, WE SEE NO OBJECTION TO YOUR INCREASING THE CANAL ZONE BASIC RATE DETERMINED UNDER THE SECOND SENTENCE OF SECTION 204.8 OF THE REGULATIONS BY THE AMOUNT OF THE TAX FACTOR COMPUTED UNDER SECTION 204.11, AND USING THE AGGREGATE RATE THUS OBTAINED AS THE HIGHEST PREVIOUS RATE FOR THE PURPOSE OF FIXING THE INITIAL SALARY RATE UNDER SECTION 25.103 OF THE FEDERAL EMPLOYEES PAY REGULATIONS.

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