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Holiday Pay

August 8, 2024
Circular Letter: 200-037-24
Topic: Special Compensation

To: All Contracting Public Agencies and Schools

Purpose

This Circular Letter (CL) provides information regarding the difference in reportability of holiday pay for the California Public Employees’ Retirement System (CalPERS) classic and Public Employees’ Pension Reform Act of 2013 (PEPRA) members. The information contained in this CL is to help ensure employers correctly report holiday pay to CalPERS, highlight the differences in reportability for classic and PEPRA members, and identify common reporting errors.

This CL supersedes and replaces the information related to holiday pay in Circular Letter 200-064-17 (PDF).

Defining Holiday Pay

Classic Members

For CalPERS classic members, special compensation is a component of compensation earnable, as defined in Government (Gov.) Code sections 20636 and 20636.1. Holiday pay is an item of special compensation, defined in section 571(a)(5) of title 2 of the California Code of Regulations (CCR):

Additional compensation for employees who are normally required to work on an approved holiday because they work in positions that require scheduled staffing without regard to holidays. If these employees are paid over and above their normal monthly rate of pay for approved holidays, the additional compensation is holiday pay and reportable to PERS.

For those employees with written labor agreements providing holiday credit and allowing employees to cash out accumulated holiday credit, the cash out must be done at least annually and reported in the period earned. If a written labor agreement allows an employee to accumulate holiday credit beyond the year in which it is earned, and an employee later elects to cash out accumulated holiday credit, it is not compensation for PERS purposes.

If an employee utilizes the cash out option only during his/her final compensation period, it will be considered final settlement pay and excluded from reportable compensation. If the cash out option is also utilized near his/her final compensation period, it may still be excluded based upon a review of the contracting agency or school employer’s experience relating to: the number of employees in the group with this option, the number of employees who exercise this option; the frequency with which employees exercise this option; whether or not the cash out is paid periodically, and in a manner that is historically consistent; and whether or not the cash out would create an unfunded liability over and above PERS’ actuarial assumptions. This review will be conducted by PERS on a case-by-case basis.

PEPRA Members

For PEPRA members, pensionable compensation is defined in Gov. Code section 7522.34 and CCR section 571.1. Holiday pay is an item of pensionable compensation, defined in CCR section 571.1(b)(4):

Additional compensation for employees who are normally required to work on an approved holiday because they work in positions that require scheduled staffing without regard to holidays.

Requirements for documenting holiday pay in a written labor agreement are further defined in CCR section 571.1(a)(4)(H), which provides that pensionable compensation must be paid pursuant to a publicly available pay schedule that:

Does not reference another document in lieu of disclosing the item of pensionable compensation other than those outlined in Government Code section 20049.

Gov. Code section 20049 provides the definition of a Labor Policy or Agreement referenced in CCR section 571.1(a)(4)(H) as follows:

“Labor policy or agreement” means any written policy, agreement, memorandum of understanding, legislative action of the elected or appointed body governing the employer, or any other document used by the employer to specify the payrate, special compensation, and benefits of represented and unrepresented employees.

Reporting Holiday Pay

In addition to meeting all other requirements for special compensation or pensionable compensation, as applicable, holiday pay must meet the following criteria:

  • Holiday pay must be for services rendered during “normal working hours.”
  • Holiday pay must be for employees normally required to work on an approved holiday because they work in positions that require scheduled staffing without regard to holidays.
  • The eligible holidays, precise conditions of payment and accrual process for holiday pay must be properly documented in accordance with Gov. Code sections 20636, 20636.1, and 7522.34 and CCR sections 571 and 571.1, as applicable.
  • Holiday pay must be reported in the period earned.
    • The period earned is the period in which the holiday pay was accrued and cannot exceed one year.
    • Holiday pay must be reported for all Memorandum of Understanding (MOU) approved holidays in the period earned.
    • For purposes of reporting, holiday pay must be prorated over the period earned (e.g., if reported quarterly, then over four months).
  • When a member receives a pay increase during the fiscal year in which the holiday pay was accrued, holiday pay must be calculated based on the payrate at the time earned.

Classic Members Only

  • When the written labor agreement allows for cash out of Holiday Pay, the cash out must be at least annually and reported to CalPERS in the period earned.
    • The period earned is the period in which the Holiday Pay was accrued and cannot exceed one year. For purposes of reporting, Holiday Pay must be prorated over the period earned.
    • If a written labor agreement allows an employee to accumulate holiday credit beyond the year in which it is earned and an employee later elects to cash out accumulated holiday credit, it is not compensation for CalPERS purposes.

PEPRA Members Only

  • Pensionable compensation for PEPRA Members does not include a cash out for unused vacation, annual leave, personal leave, sick leave, or compensatory time of off (CTO). Accordingly, holiday pay may not be reported if it is eligible to be used as time off in lieu of compensation such as CTO or another leave. Holiday pay must be paid at least annually and reported to CalPERS in the period earned.
    • The period earned is the period in which the holiday pay was accrued and cannot exceed one year. For purposes of reporting, holiday pay must be prorated over the period earned.

Common Holiday Pay Reporting Errors for Classic and PEPRA Members

  • Error: Holiday pay is reported as a lump sum.
    • Holiday pay must be prorated over the period earned.
  • Error: Holiday pay is only reported in the member’s final compensation period.
    • If the Holiday pay is only reported in the final compensation period, it must be removed by the employer, and it will not be included in the member’s final compensation.
  • Error: Holiday pay pay rate based on pay rate at time of payment.
    • Holiday pay must be paid in the same year it is accrued and must be paid based on pay rate when earned.
  • Error: Holiday pay reported in two different fiscal years.
    • Holiday pay must be paid in the same year it is accrued and must be paid based on pay rate when earned.
  • Error: Holiday pay reported for a floating holiday.
    • Floating holidays cannot be reported as holiday pay.

Common Holiday Pay Reporting Errors for PEPRA Members

  • Error: Holiday pay is credited and can be used as CTO or another form of leave. The balance of the holiday pay is then cashed out.
    • If holiday pay is available to use as CTO or another form of leave, the holiday pay is not eligible to be reported as pensionable compensation.

When holiday pay is misreported or reported incorrectly, CalPERS employers may experience delays in payroll posting, and members may experience delays in retirement estimates and retirement processing. If misreported holiday pay is discovered after retirement, this will result in retirement allowance recalculations and collection of overpayments.

Additional Resources

Additional information related to holiday pay, compensation earnable, pensionable compensation, special compensation, labor agreement language, publicly available pay schedules, and Circular Letters can be found on the CalPERS Compliance in Compensation Reporting webpage.

Questions

Questions related to holiday pay compliance and reporting can be emailed to the Employer Account Management Division, Audit Compliance and Resolution Unit at: MOU_Review@calpers.ca.gov.

If you have other questions, call our CalPERS Customer Contact Center at 888 CalPERS (or 888-225-7377888-225-7377).

 

Brad Hanson, Chief
Employer Account Management Division