Payroll Audit Common Errors

November 23, 2016

In 2015 – 2016, the Office of Retirement Service (ORS) rolled out the Payroll Audit reviewing reported information during the 2015 School Fiscal year. All reporting units were audited to ensure compliance with statutory requirements. The following are highlights of common errors identified during the Payroll Audit with an explanation on how to ensure you are reporting employees accurately.

Reporting Earnings for Retirees

• Report gross earnings. RIM section 9.01: Earnings for Retirees explains that retirees’ earnings on the Detail 2 (DTL2) record must include total gross earnings. This section offers examples of gross earnings and an example of reporting gross earnings.

• Report retiree earnings when paid, not when earned. Just like your active employees, retiree earnings must be reported when paid. Reporting these earnings accurately eliminates the need to make future adjustments on these records.

• Report retirement incentives when paid. There have been many interpretations on when, and if, you should report retirement incentives. Retirement incentives are considered gross earnings. Even if they are paid over many years, these earnings must be reported when paid. It is important to share with your retiree that these incentives are subject to earnings limitations, and will affect their earnings limit even if negotiated prior to retirement.

• Cash in lieu of an excluded benefit is considered gross earnings. If a retiree is paid any excluded benefit (including cash in lieu of a health benefit, AFLAC, or any other benefit paid directly in their pay) that payment is considered part of their gross earnings. This should be reported to ORS on a DTL2 record and will impact their earnings limit.

Reportable Compensation for Members on a DTL2 record

• Longevity payments – As per MCL 38.1303a, longevity payments are considered reportable towards a member’s retirement benefit account. Longevity payments paid to all employees should be reported on a DTL2 record with associated contributions remitted. If the employee has a DC/PHF component it also should be included on a DTL4 record as part of gross earnings.

• Tax-sheltered annuity (TSA) payments – Employer contributions into an employer-sponsored TSA (403b, 401k, etc.) are considered reportable towards a member’s retirement benefit account. Employer and employee contributions are due and should be reported on a DTL2 record. See RIM 4.04.02: Tax-Sheltered Annuity Investments.

• Workers’ compensation – WWC payments from a third party/insurer sponsored by the reporting unit are considered reportable compensation. Employer and employee contributions are due.

Public School Employees

• Retirement law defines a member as a public school employee who is not specifically excluded from membership.

• Athletic officials, referees, and umpires directly paid by the reporting unit serving in an athletic role are considered members of this retirement system. Their wages should be reported under class code 1560 – Coaches. This includes individuals paid through accounts payable. See RIM 3.03.09: Athletic Officials, Referees, and Umpires.

• Employees under the age of 19 in a temporary, intermittent or irregular seasonal or athletic position are not members of this retirement system. Please note: full-time employees under the age of 19 are considered members and should still be reported. See RIM 3.03.02: Full-time Student or Employee Under 19.