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May 15, 1972
Honorable Paul Klasen
Ephrata, Washington 98823
Cite as: AGLO 1972 No. 39 (not official)
We are in receipt of your letter dated May 11, 1972, requesting our opinion as to the scope of the term "compensation earnable" as defined in RCW 41.40.010 (8) ‑ a part of the law governing the Washington public employees' retirement system. You have asked the following three questions:
(1) "Does compensation earnable include pay for hours worked in excess of 40 hours per week?"
(2) "If overtime compensation is included, should it be at double time or other special pay rate?"
(3) "Does it include a lump sum payment for accrued vacation or other form of termination pay given to the employee at the time of terminating employment?"
"Compensation earnable" is a term used throughout the statutes governing the Washington public employees' retirement system. Basically, this term serves two separate functions:
(1) It establishes the basis for determining the amount of employer and employee contributions to be paid into the retirement fund for or on behalf of each employee who is covered by the retirement system; and
(2) it constitutes one of the factors in the overall formula which is to be applied in determining the amount of a member's retirement allowance.1/
[[Orig. Op. Page 2]]
RCW 41.40.010, the definitions section of the retirement act, defines "compensation earnable" to mean
". . . salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money maintenance compensation shall be included upon the basis of the schedules established by the member's employer."
No distinction whatsoever is made in this definition between straight-time pay and overtime compensation. Accordingly, applying the literal language of the definition, it is our opinion that "compensation earnable" does include pay for hours worked in excess of forty hours per week ‑ and we answer your first question in the affirmative.
Obviously, such "compensation earnable" as is measured on the basis of overtime pay should be calculated on the basis of the actual amount of pay thus received. In other words, the answer to your second question is simply that all overtime pay, by whatever means it is calculated by the particular employer pursuant to his contract of employment with the covered employee, is included within the scope of "compensation earnable" at the rate of which it is paid.
Under Article VIII, §§ 5 and 7 of the Washington Constitution, any lump sum payments to a separating employee for accrued vacation or the like must be regarded as compensation for services previously rendered; otherwise, the payments would constitute an unconstitutional gift of public moneys.
For this reason, any such payments must also be regarded as constituting "compensation earnable" for purposes of the retirement law. We understand that this has been the standard interpretation given by the administrators of the retirement system since its inception, and we believe that this approach is legally proper.
[[Orig. Op. Page 3]]
We trust that the foregoing will be of some assistance to you.
Very truly yours,
Philip H. Austin
Deputy Attorney General
*** FOOTNOTES ***
1/See, RCW 41.40.330 with regard to employee contributions; RCW 41.40.361 with regard to employer contributions; and RCW 41.40.185 and 41.40.190 for the formula to be applied in determining the amount of a retirement allowance.