B-235638, Dec 4, 1990, 70 Comp.Gen. 124

B-235638: Dec 4, 1990

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CIVILIAN PERSONNEL - Compensation - Retroactive active compensation - Deductions - Outside employment An employee who was retroactively restored to duty and awarded backpay disputes the employing agency's determination to deduct the full amount the employee earned through outside employment during the period of the corrected action from the gross amount of the backpay award. accordance with 5 U.S.C. The repayment obligation for lump- sum leave payment is subject to waiver consideration under 5 U.S.C. Chung Yang Kido - Backpay Award - Deduction of Outside Earnings: The issue in this case is whether the Internal Revenue Service (IRS). This proposal is contrary to the computation method set forth in the applicable regulations and would have the effect of allowing the employee to retain a portion of her outside earnings and eliminate an indebtedness to the government which would otherwise result.

B-235638, Dec 4, 1990, 70 Comp.Gen. 124

CIVILIAN PERSONNEL - Compensation - Retroactive active compensation - Deductions - Outside employment An employee who was retroactively restored to duty and awarded backpay disputes the employing agency's determination to deduct the full amount the employee earned through outside employment during the period of the corrected action from the gross amount of the backpay award. accordance with 5 U.S.C. Sec. 5596(b)(1)(A)(i) (1988) and implementing regulations, the full amount earned by the employee through other employment during the period of improper separation must be deducted from the gross amount of the backpay award. The repayment obligation for lump- sum leave payment is subject to waiver consideration under 5 U.S.C. Sec. 5584. Refunded retirement contributions may be considered for waiver by the Office of Personnel Management under 5 U.S.C. Sec. 8346(b).

Chung Yang Kido - Backpay Award - Deduction of Outside Earnings:

The issue in this case is whether the Internal Revenue Service (IRS), Department of the Treasury, may compute the backpay awarded pursuant to an Equal Employment Opportunity Commission (EEOC) decision so as to deduct interim outside earnings from net backpay rather than from gross backpay due an employee, Ms. Chung Yang Kido.

This proposal is contrary to the computation method set forth in the applicable regulations and would have the effect of allowing the employee to retain a portion of her outside earnings and eliminate an indebtedness to the government which would otherwise result. Therefore, we hold that this proposed method may not be approved, and all interim outside earnings must be deducted in full from gross backpay. To the extent that the resulting net backpay is insufficient to satisfy the collection of erroneous payments made to Ms. Kido along with other required deductions, Ms. Kido is in debt.

BACKGROUND

In Ms. Kido's case, in which she claimed she had been forced to resign based on discrimination, a final order was issued by the EEOC Office of Review and Appeals. The final order directed IRS to comply with the Complaints Examiner's recommended decision, which included reinstatement and the payment of backpay under federal anti discrimination statutes, specifically under Title VII of the Civil Rights Act of 1964. /1/ action ordered by the EEOC Office of Review and Appeals is mandatory and binding on the agency. 29 C.F.R. Sec. 1613.234, 1613.237 (1988).

In an attempt to comply with the action ordered by the EEOC, IRS computed Ms. Kido's backpay in accordance with applicable guidance found in 5 C.F.R. Sec. 550.805(e), and the Federal Personnel Manual Supplement 990-2, Book 550, S8 (Backpay). Based upon this guidance, Ms. Kido's gross backpay was reduced by the amount of her interim outside earnings leaving net backpay from which erroneous payments received for accrued annual leave were collected. Then the refunded retirement contributions she had received were deducted, and other authorized deductions were made such as retirement contributions computed on gross basic pay for the period of separation, federal and state taxes computed on net backpay, Medicare, and health benefits premiums. This computation left her in debt to the government.

Ms. Kido has disputed this method of computation. To settle the dispute, Ms. Kido and the IRS have agreed to enter into a settlement, if approved by our Office, whereby the order of the backpay computations would be changed so as to make deductions for all erroneous payments and other authorized deductions from gross backpay before gross backpay is reduced by outside earnings. /2/ The agreement would then allow the interim net outside earnings to be deducted from the net adjusted backpay as a final adjustment. The IRS notes that by computing Ms. Kido's backpay in this manner, her outside earnings would exceed what she would have earned had she remained with the agency, thereby disposing of the backpay issue. addition, the parties have agreed that, by the adoption of this methodology, their financial obligations to each other would be deemed satisfied in full, i.e., Ms. Kido would avoid a net indebtedness to the government.

OPINION

The EEOC has provided in its regulations on remedial actions that when discrimination is found, an award of backpay under Title VII is to be computed in the manner required under regulations implementing the Back Pay Act, 5 U.S.C. Sec. 5596 (1988). See 29 C.F.R. Sec. 1613.271 (1989).

Generally, the maximum amount that would be recoverable under Title VII when, as here, a finding of discrimination is made is the gross amount of backpay the employee lost minus any interim earnings and other deductions listed in 5 C.F.R. Sec. 550.805(e), and Federal Personnel Manual (FPM) Supplement 990-2, Book 550, subchapter 8 (Backpay) (April 1984). See Equal Employment Opportunity Commission, 62 Comp.Gen. 239 (1983). Section 550.805(e) of Title 5, Code of Federal Regulations, implementing the Back Pay Act, provides that in computing the amount of backpay an agency shall deduct any amounts earned by an employee from other employment during the period covered by the corrective action "to take the place of" the employment from which he or she had been separated.

The Office of Personnel Management (OPM) has issued instructions pertaining to deduction of interim earnings and other deductions from backpay, which are set forth in subparagraph S8-7(c) of the revised FPM Supplement 990-2, Book 550, subchapter 8-7 (April 20, 1984; revised in part Aug. 18, 1988). In applying the test prescribed in 5 C.F.R. Sec. 550.805(e), the current instructions provide that the computation of net backpay is a three-step process. First, the agency must deduct any outside earnings received by the employee during the period of the unjustified or unwarranted personnel action. Second, the agency must deduct erroneous payments the employee received as a result of the improper personnel action. If the net amount of backpay is insufficient to cover all deductions for erroneous payments, these payments must be deducted in the following order: (1) retirement annuity payments; (2) refunds of retirement contributions; (3) payments of severance pay; and (4) lump-sum payments for annual leave. Finally, the agency must deduct from backpay "other authorized deductions," such as unpaid retirement contributions for the period of the separation, federal and state taxes computed on net backpay, and health benefits premiums, if any.

We have consistently held that the order of precedence for deductions from backpay contained in the regulations and instructions must be followed in computing the backpay award. See Angel F. Rivera, 64 Comp.Gen. 86 (1984); Victor Crichton, 66 Comp.Gen. 570, B-223588, July 17, 1987. Specifically regarding outside earnings, we held in 55 Comp.Gen. 48 (1975) that total interim earnings from private enterprise are for offset against total federal backpay otherwise due, even though this results in no backpay payment and a net indebtedness. See also 48 Comp.Gen. 572 (1969).

In this case, then, the IRS is without authority to alter the order in which deductions must be taken from the backpay award. Accordingly, Ms. Kido's backpay award must first be reduced by interim outside earnings to arrive at net backpay. Next, refunds of retirement contributions and lump -sum payments for annual leave must be deducted. In Ms. Kido's case this results in a net indebtedness for those contributions and payments.

Under the Back Pay Act, an employee who is restored to duty following an erroneous separation is deemed for all purposes to have performed government service during the period of the separation, and such service is creditable for retirement purposes. See 5 U.S.C. Sec. 5596(b)(1)(B); and FPM Supplement 831-1, paragraph S3-4j (September 21, 1981). Therefore, all federal pay that would have been earned during the period of the separation is subject to deductions for retirement fund contributions. Even if no amount of backpay is due the employee because of excessive deductions, the employee must remit the appropriate amount of retirement contributions to the agency in order to receive full credit for the period of the separation. See 5 U.S.C. Sec. 8334(c) (1988).

Accordingly, Ms. Kido must pay retirement contributions in order to receive credit for service during the period of her separation. Collection of that amount may not be waived under 5 U.S.C. Sec. 5584, since no erroneous payment of pay has been made. Angel Rivera, 64 Comp.Gen. at 93; 55 Comp.Gen.at 52. However, the provisions of 5 U.S.C. Sec. 8346(b), as implemented by 5 C.F.R. Part 831, authorize OPM to waive erroneous payments from the Civil Service Retirement and Disability Fund. See Angel Rivera, 64 Comp.Gen. at 91. Ms. Kido may request that OPM waive her net indebtedness for the refunded retirement contributions under that authority.

Further, Ms. Kido's indebtedness for the lump-sum leave payment is appropriate for waiver consideration, not to exceed the extent necessary to relieve her net indebtedness, since the payments constitute "erroneous payments" within the meaning of the waiver statute, 5 U.S.C. Sec. 5584. See Vincent T. Oliver, 59 Comp.Gen. 395, at 397 (1980).

Settlement of Ms. Kido's backpay award should be effectuated in accordance with the above.

/1/ Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sec. 2000e-16 (1988).

/2/ While we do not have the authority to review the merits of allegations of discrimination in employment in other agencies of the government, we have held that we may determine the legality of awards agreed to by agencies in informal settlements of discrimination complaints, based upon our authority to determine the legality of expenditures of appropriated funds. Albert D. Parker, 64 Comp.Gen. 349, 351 (1985).