PURPOSE: To enunciate the Social Security Administration's (SSA) position that back pay under a statute is not excluded from wages solely because the employee attained age 62 and, due to the illegal conduct of the employer, did not work for the employer in the period for which the payment was made.
CITATIONS (AUTHORITY): Section 209(i) of the Social Security Act (the Act); Regulations No. 4, sections 404.822(e)(6) and 404.1059(g); Social Security Board v. Nierotko, 327 U.S. 358 (1946).
PERTINENT HISTORY: Back pay is a payment received in one period for actual or deemed employment in a prior period. Payment under a statute is payment by the employer pursuant to an award, determination, or agreement approved or sanctioned by a court or administrative agency charged with enforcing a Federal or State statute protecting an employee's right to employment or wages. Some examples of these laws are:
This list is not all-inclusive. Payments based on legislation comparable to and having a similar effect as those enumerated may also qualify as having been made under a statute for purposes of this policy statement.
"Back pay under a statute" is payment awarded under a particular statute to correct a wrongful or improper action as it relates to a specific employee or group of employees. This includes situations where an employee was prevented from working by an unlawful refusal to hire or reemploy or by an unlawful discharge. Back pay under a statute may also be awarded where an employee was not paid a statutorily prescribed minimum wage.
While the Act is silent on how back pay should be allocated, SSA relies on the rationale of the United States Supreme Court decision in Nierotko for the treatment of back pay under a statute. In Nierotko the claimant sought Social Security coverage for wages retroactively paid under a particular statute, the National Labor Relations Act. The Supreme Court held that employee "service" includes an employment relationship in recognition of which back pay for nonwork periods is awarded under a statute protecting employee rights. The Court interpreted "service" as encompassing the entire employer-employee relationship for which remuneration is paid regardless of whether any work is actually performed. The Court further held that back payments made to Mr. Nierotko by his employer constituted wages and should be allocated to the periods in which they should have been paid. Because employers are liable for Federal Insurance Contributions Act tax payments on back pay on the basis of when the payment is made, the Internal Revenue Service does not allocate the back pay. However, SSA does allocate back pay.
Social Security Rulings, SSR 80-30a (C.E. 1980, p. 54), relying on the intent of the Nierotko decision, concluded that back pay constitutes "earnings" within the meaning of section 203 of the Act (pertaining to deductions from benefits under the earnings test) even though the employee performed no actual work for the employer. That ruling, however, did not address the application of section 209(i) of the Act.
Section 209(i) of the Act excludes from the definition of "wages" any payment (except vacation and sick pay) made to an employee after the month of attainment of age 62 if the employee did not work for the employer in the period for which the payment is made. When back pay under a statute is allocated to previous periods, the question arises as to whether the payment is excluded from wages under section 290(i) of the Act if the employee is over age 62 at the time the payment is made and did not work for the employer in part or all of the period for which the payment is made.
Although SSA's policy in this regard is explained in its operating instructions, the policy has not been enunciated in regulations or rulings. This policy statement sets forth SSA's interpretation of the provisions relating to back pay under a statute after age 62 for the benefit of those relying on published agency rules for guidance.
POLICY STATEMENT: All back pay, whether or not under a statute, is wages unless it is determined to be otherwise; for example, damages. Although back pay generally must be credited as wages only in the period in which it is paid and cannot be allocated to a past period, back pay under a qualifying statute is allocated to the period in which it should have been paid.
It is SSA's policy that the wage exclusion in section 209(i) of the Act does not apply where back pay under a statute has been made, if section 209(i) would not have applied had the person not been wrongfully discharged or otherwise wrongfully treated and had he or she actually been paid in the period for which the award is made. That is, such back pay is not excluded from wages under section 209(i) of the Act even though the person awarded the back pay was over age 62 and did not actually work for the employer in the period for which the back pay is made.
The rationale for this policy is that, under the Nierotko decision, the employee is considered to have performed the services for which back pay is awarded. Thus, the payment is not excluded from wages under section 209(i) unless it would be so excluded if it had been regularly earned and paid as a nonback pay case. To hold otherwise would defeat the intent of the Supreme Court decision requiring SSA to credit and allocate a back pay award so as to place the employee in the position he or she would have been but for the wrongful action that was the basis for the award.
It is SSA's position that, based upon the Nierotko decision, SSA must allocate back pay under a statute in any claim for benefits where such allocation could affect the benefit amount or the payment of benefits. Where the intent of the award is to place the person involved in all respects in the position he or she would have been had there been no wrongful action, the wages, so far as crediting to the earnings record is concerned, are to be treated as though the person actually performed the services.
EXAMPLE: On January 31, 1969, Jane Dawson was forced by her employer to retire from her job because of age. She performed no work for the employer after that date. In October 1970, she attained age 62 and was awarded Retirement Insurance Benefits. In 1972, she sued the employer to enforce her rights under the Age Discrimination in Employment Act of 1967. She was awarded $35,000 in back pay for the period February 1, 1969, to May 30, 1972. The back pay constitutes back pay under a statute and must be allocated to the period for which it should have been paid; i.e., February 1, 1969, to May 30, 1972. Although the claimant attained age 62 in October 1970, back pay paid to her for months from November 1970 through May 1972 is wages and is not excluded under section 209(i) of the Act as payments for nonwork periods. She is considered to have worked for the employer during that period. The back pay must be credited to the claimant's earnings record and counted for the purpose of deductions under the earnings test.
EFFECTIVE DATE: This is already established policy based on the application of the Nierotko rationale to section 209(i) of the Act.
CROSS-REFERENCES: Program Operations Manual System sections RS 01402.030 and RS 01402.350ff.; SSR 80-30a.
 Prior to 1975, age 65 for men and prior to November 1, 1956, age 65 for women.
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