Rescinded 1984

SSR 62-63: Section 209.—Wages—Vacation Pay Paid During Absence Due to Sickness

SSR 62-63

The X Corporation permits its employees on request, under certain circumstances, to be paid earned vacation allowances for a period during which they are unable to work because of sickness or accident. Held, such allowances are vacation pay rather than sick pay and are wages within the meaning of section 209 of the Act.

The X Corporation has a written sick-pay plan or system for its salaried employees, which provides for payment of certain amounts because of absence due to sickness or accident for a maximum period of 26 weeks. For its hourly-paid employees, the corporation makes payments to a private insurance company for a group insurance policy which provides for the payment to such employees of weekly benefits for sickness or accident disability for a maximum period of 26 weeks, beginning after the first 7 days of such disability.

Both salaried and hourly-paid employees are also eligible for a vacation allowance in any calendar year if they meet certain requirements involving length and continuity of service in the previous year. An employee meeting the requirements thus has an earned right to a vacation with pay or a vacation allowance at any time after January 1 of the vacation year. Ordinarily, vacations are scheduled for a definite period between April 15 and December 31 of the vacation year. However, on request both salaried and hourly-paid employees may, while absent from work because of sickness or accident, be paid any vacation allowance for which they are then eligible. When so requested, the vacation allowance may be paid during the 7-day waiting period of hourly-paid employees or after an employee's sick leave is exhausted, or prior to his retirement on a disability pension.

Section 209 of the Social Security Act provides, in pertinent part, that the term "wages" means remuneration for employment, with certain specified exclusions. Subsection (b) of section 209 excludes from wages any payments made on account of sickness or accident disability to or on behalf of any employee under a plan or system established by an employer providing for such payments. This exclusion also applies to amounts paid by an employer for insurance to provide such payments. Vacation pay, however, is not excluded from wages by any provision of the Social Security Act; and Regulations No. 4. ยง404.1026(b) expressly provides that vacation allowances are wages.

Thus section 209(b) of the Act excludes from wages the payments made to employees of the X Corporation under either its sick-pay plan for salaried employees or the group insurance policy for hourly-paid employees, and excludes also the payments made by the X Corporation to the insurance company. On the other hand, vacation allowances paid to employees for regularly scheduled vacations are wages.

The question to be decided is whether a payment for earned vacation leave which is paid during or for a period in which the person is unable to work because of sickness or accident is an extended sick leave payment (i.e., sick pay excluded from wages) or an accelerated vacation payment (i.e., vacation pay which is wages). If such payment is wages, it may be used in determining a person's eligibility for, and the amount of, benefits under the old-age, survivors, and disability insurance program. Also, if it is wages, it must be counted as earnings for deduction purposes under section 203 of the Act. On the other hand, if such payment is not wages, it may not be counted for either benefit or deduction purposes.

Under the vacation plan of the X Corporation, an employee who meets the eligibility requirements has an earned right to a vacation with pay or a vacation allowance at any time after January 1 of the vacation year. The fact that the employee elects to receive such pay for a period during which he is unable to work because of sickness or accident disability does not change its nature as vacation pay. Moreover, the payment is not made because the employee is sick and therefore absent from his work, but because he is entitled to the payment as a vacation allowance without regard to his sickness. Thus, the payments in question are vacation pay and, therefore, wages.

Accordingly, it is held that vacation allowances paid to an employee of the X Corporation, even though paid for periods in which he is unable to work because of sickness or accident disability, are wages within the meaning of section 209 of the Act.


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