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Reduced Contracts, Reduced FTE and Leave Without Pay (LWOP)…

What Does It Mean To Me?

There’s been a lot of talk around the university about how to address the budget shortfall. One thing departments have been considering is reducing payroll costs while retaining valuable staff. This is usually achieved by a couple of methods.

Reducing contract length is done by having an employee work fewer pay periods over the course of the year. This usually means taking a twelve-month employee down to an eleven, ten or nine-month contract. The time the employee is not working is considered leave without pay (LWOP).

Impacts to the employee include having fewer payrolls to deduct benefits from, so those deductions are larger (but accrue to the same goal amounts as twelve-month employees). Retirement contributions are reduced because there are fewer pay periods, and total annual salary will be reduced according to the reduction in contract. For employees in the university’s Optional Retirement Program (ORP), the time in LWOP does not affect vesting. For employees in PERS, however, time spent in LWOP in excess of ten days a year does not count for vesting or total service credit.

Employees in the PERS program have a “free pass” of up to ten days of LWOP in a year (prorated for part time service). If LWOP exceeds ten days, however, the entire amount will count as a reduction in service credit. This is something every employee considering a reduced contract length will need to be aware of.

PERS counts service credit and leave based on the pay period end dates. If a pay period ends in a particular year, the service (or leave) credit counts in the year the payroll is earned, not when paid. The holiday hard closure is nearly always credited to a January payrun and therefore belongs to that service year. For instance this year, if you’d taken the three hard closure days as LWOP, those days would fall in 2015, not 2014, since they are counted in the pay period ending January 10. This is in part because the university’s pay cycle is two weeks later than the recorded service dates. This is also why PERS salary credit does not match your W2 earnings.

Reducing full-time equivalency (FTE) is another approach to save payroll dollars and can be structured to minimize impact on vesting and service credit accrual. While any reduction in contract or effort is going to naturally result in less pay, we can take advantage of PERS service credit rules to keep employees on track to vest and earn service credit. At the University of Alaska, full time is 40 hours per week. PERS, however, considers regularly scheduled service of 30 hours a week or more as full time. This means an employee at UA could work 75 percent of a full-time contract (.75 FTE) and still accrue full time service credit. Part time employees (working less than 30 hours per week) are credited for every hour they work. It takes 1,560 hours in a PERS payroll year to earn a full year of service credit.

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