In the meantime, NTEU is distributing this information to all Revenue Agents and other FLSA-exempt employees who might be affected.  It is important that you are aware of this regulation in case you are called upon to perform customer service work during the 2001 tax filing season.  You must be informed that you will not be eligible for uncapped overtime unless their primary duty for more than 30 consecutive calendar days is nonexempt work. 

Agreement Follows:

The National Treasury Employees Union

 January 2001

Re: “Blanket” overtime grievance: payment for back overtime and compensatory time 

Dear current or former IRS employee:        

IRS is now in the process of making payments pursuant to the terms of a settlement  agreement signed on Apr11 13, 1999, between NTEU and IRS to resolve the so-called “blanket grievance.” This agreement provides for back pay and liquidated damages to employees in certain positions and grades who had been improperly exempted from coverage under the Fair Labor Standards Act and who were therefore paid overtime “capped” at the hourly rate for GS10, step 1, rather than full time-and-a-half overtime. The covered positions and grades are listed in the attachment.

The payments now being made under the settlement agreement consist of (1) back overtime from October 1, 1994 (or the date on which the employee entered the affected position, whichever is later) until the date on which the position was changed to FLSA-covered status; and (2) payments for compensatory time earned in lieu of capped overtime during this same period. This remedy mirrors the remedy that was earlier provided to computer specialists,  telecommunications specialists, and program and management analysts.        

Employees covered by this settlement:
The settlement agreement for this so-called “blanket grievance” covers all current and former bargaining unit employees in a wide variety of positions, at various grades, as listed in the attachment. Employees are entitled back pay only if they worked “capped” overtime as a  GS 9, step 5, or higher in a covered position. Employees are similarly entitled to payment only for compensatory time earned in lieu of capped overtime. Employees below Grade 9, step 5, have already received full compensation for overtime hours worked.        

Back pay computations for “capped” overtime:
If you are covered by the agreement, you are entitled to back pay for “capped” overtime worked between October 1, 1994, and the date on which your position was converted to FLSA-covered status (or the date on which you were separated from the IRS). Your position should have been converted to FLSA-covered status in the NFC records as of October 22, 1998.

Back pay is the difference between the amount of overtime that you received at the time and the amount of overtime that you should have received under the FLSA. In addition, you will receive, as liquidated damages, an amount equal to back pay. In other words, you will receive double back pay for capped overtime. Finally, you will receive interest from May 14, 1999 (the original promised payment date), to compensate for the delay in payment.

 Compensatory time computations:  
The settlement agreement also provides for payments for compensatory time earned in lieu of capped overtime. Thus, you will receive payments from October 14, 1994, until the date your position was converted to FLSA-covered status (or you were separated from IRS). This is the same time period as that covered by the second payment for capped overtime. 

To understand the computations for this portion of the remedy, you must first understand that employees who earned compensatory time have received the equivalent of straight time, rather than overtime. Put another way, they have received “time,” not “time and a half.” The agreement therefore calls for the payment of the additional “half’ that they did not receive. That total is reduced by 10%, a reduction negotiated by the parties as part of the compromise settlement.

 Under the agreement, employees are also entitled to the payment of liquidated damages of a like amount. Finally, employees are entitled to interest from May 14, 1999, calculated on the back pay portion of the award, to compensate for the delay in payments.

The formula thus provides that employees will receive half of their regular rate of pay for each hour of compensatory time earned during this period, minus 10%, plus liquidated damages of an equal amount, and interest. The following example illustrates this formula:

Example:  Assume that an employee, whose hourly rate of pay is $10.50, earned 100 hours of compensatory time during this period.

                   $10.50/hr. = hourly rate of pay

                  1/2 of $10.50 = $5.25 Representing half of regular rate of pay, or the
                                                  “half’ of the “time and a half’ that employees lost        

                  $5.25 x 100 hours = $525  Representing compensatory time back pay
                                                     “owed”        

                   minus 10% = $472.50 Representing the amount owed after the
                                                         negotiated reduction.        

                  $472.50 x 2 = $945   Representing back pay plus an equal amount in
                                                       liquidated damages        

                   $945 plus interest on $472.50 from May 1999 = grand total back pay
                 

Please note that under the terms of the agreement, employees are entitled to payment only for compensatory hours reflected in NFC records. Therefore, employees may not claim additional payments for compensatory time that was “off the books” or otherwise informally recorded.        

Interpreting the Printout:  
This letter is accompanied by one or two computer printouts, depending on the payments to which you are entitled:        

             (1) The printout for the capped overtime portion of your payment:        

If IRS believes that you are entitled to back pay for capped overtime, you will receive a printout indicating the number of overtime hours per pay period that IRS believes you worked during this period. It then lists the overtime that you were actually paid, which was your “capped” overtime (“TITLE 5 O/T PAID”), and the overtime that you should have received under the FLSA (“FLSA Off PAID”). The difference between the two is your back pay (“FLSA BACK PAY”). You are also entitled, under the terms of the settlement agreement, to an amount equal to your back pay, as liquidated damages, and to a small amount of interest for IRS’ delay in meeting its agreed-upon deadline in making this second payment. The liquidated damages and interest are combined in the final column, as “TOTAL INT/DAMAGES.” The total of the back pay and interest/damages is your gross pay.        

The printout indicates your gross pay. You will not receive a separate statement from IRS showing your FLSA back pay earnings. You can determine your net pay and deductions by examining the year-to-date column on your regular earnings and leave statements.

             (2) The printout for the compensatory time payments:

If IRS believes that you are entitled to payment for compensatory time earned, you will receive a printout indicating the number of compensatory hours per pay period that IRS believes you earned during this period as a OS 9, step 5, or higher in a position covered by this settlement agreement. For each pay period, it lists the back pay for the compensatory hours, as calculated above, and the liquidated damages (an amount equal to your back pay), and your  interest. The back pay, damages and interest are totaled separately, and then a grand total is set forth. Again, the printout will indicate your gross pay; you can determine your net pay and deductions by examining the year-to-date column on your regular leave and earnings statements.        

Timing of the Payments:
IRS expects to forward payment lists to NEC in the week of January 29 for current  employees, as well as for those separated employees for whom it has addresses. NFC issues payments only on regular pay dates and requires up to two full pay periods to process the payments. IRS therefore expects NFC to issue the checks by mid- to late-March; the exact timing, however, is out of IRS’ control. If you are on direct deposit, payment will be sent directly to your designated account. If you receive your regular salary check at your home address, a separate check will be mailed to you by NFC.        

Former employees whose addresses are not immediately available will be contacted by other offices within IRS for their addresses and will be paid separately, at a later date.        

Dispute procedure:
You may check the computer printout against whatever leave and earnings statements you may have kept on file, or other records showing overtime worked or compensatory time earned to ensure that the correct number of hours was captured for each pay period. If you detect an error or have any objections to the IRS’ calculations, you may dispute the payment. You may also file a claim to dispute IRS’ failure to make any payment to you, either because IRS does not believe that you fall within the group of employees covered by this settlement or because IRS’ overtime records are inaccurate.

            Under the terms of the settlement agreement, your claim for additional compensation should be filed with IRS not NTEU. Claims (and any questions) should be mailed to:       

                   IRS (Blanket)
                   A:PS:TP CP6, 2nd Floor
                   1111 Constitution Avenue, N.W.
                   Washington, D.C. 20224        

Important:  Your claim must be received by IRS within 90 days of your receipt of the payment you are challenging. (Employees who did not receive any payment should file a protest within 90 days of IRS’ final payment to employees.)        

You must support your claim of error with documentation. It is your burden to show that IRS has made a mistake in its computations. Supporting documentation must include the position description number or position description title of the position for which payment is claimed. It may also include, but is not limited to, copies of leave and earnings statements.  Finally, it would greatly assist IRS in processing your dispute if you included a copy of the printout you received from IRS.        

IRS is to consider the claims promptly upon receipt and make supplemental payments, when found warranted by the documentary evidence, no later than 120 days of receipt of each claim. You will receive an explanation if IRS concludes that no supplementary payment is warranted. If you disagree with IRS, you may file an objection with NTEU’s National Office within 60 days of your receipt of IRS’ rejection of your claim. That objection should include a copy of the supporting documentation sent to IRS and a copy of the computer printout with the error highlighted. NTEU will investigate your objections and pursue those reasonably believed to have merit. The agreement establishes a dispute resolution procedure that includes arbitration, if necessary and appropriate.

Again, please remember that IRS is responsible for resolving claims in the first instance and that NTEU is to be involved only if IRS is unable to resolve your claim to your satisfaction. Please do not contact NTEU until you have exhausted the claims procedure before IRS.        

Tax information:
To assist you, we provide the following basic information about tax implications of your recovery. This information does not constitute legal advice in connection with your specific tax situation. For information specific to your own situation, you should consult your own tax advisor.        

             a.    What will be included in my recovery?

            Your recovery will be made up of two or three parts, depending on your individual circumstances. You may receive (1) back pay for the capped overtime, or the difference between the overtime you originally received and the overtime you should have received under the FLSA, and/or (2) back payment for compensatory time earned in lieu of capped overtime, under the formula described above. In addition, if you receive either form of back pay, you will also receive liquidated damages, which is an amount equal to your back pay for capped overtime and/or compensatory time, plus interest. The net amount that you will receive is the sum of these amounts, reduced by the amount withheld from the basic back pay portion for federal and state income taxes and employment taxes. Again, you can determine the net amount only from your regular leave and earnings statements; you will not receive a separate statement for this payment.

              b.    Is my recovery taxable?

IRS’ position is that back pay awards under the FLSA, as well as liquidated damages and interest, are fully taxable. See Revenue Ruling 72-268, 1972-1 C.B. 313, and Revenue Ruling 80-364, 19802, C.B. 294. The recovery is includible in income in the year that you receive it,  rather than the year(s) in which you performed the services to which the back pay relates.        

             c.    How much of my recovery will be withheld to pay income and employment taxes?        

Although, as noted above, IRS considers the liquidated damages and interest portion of your recovery to be taxable, it is not subject to withholding.        

The basic back pay portion of your recovery, on the other hand, will be subject to Federal income tax withholding at the rate of 28%. In addition, state tax will also be withheld from the back pay portion, at the rate of 2%. (Where applicable, no state tax will be withheld.) Finally, the basic back pay portion will be subject to employment tax withholding of 7.65% if you are enrolled in FERS, to cover applicable Social Security (6.2%) and Medicare (1.45%) taxes. If you are enrolled in CSRS, a 1.45% deduction for employment taxes will be made, to cover Medicare taxes.        

             d. Will I need to make Quarterly estimated tax payments?        

Whether you will be required to file quarterly estimated tax payments as a result of a recovery under this grievance should be addressed by your own tax advisor. Alternatively, you can determine whether estimated tax deposits will be required by obtaining and completing the worksheet that is part of Form 1040-ES. While the need to make estimated payments will depend on your individual circumstances and the size of your recovery, in general the larger the recovery, the higher the probability that estimated tax payments should be made. This is because over half of your recovery (the liquidated damages and interest portion) will not have been subject to withholding. 

If you have questions about this letter or the grievance, you can call the hotline at (202) 783-4945, ext. 1307. You can also seek information from your chapter representatives.

This settlement is a dramatic illustration of the benefits of NTEU representation. If you are not currently an NTEU member, please support our ongoing efforts on behalf of you and your  colleagues by completing the enclosed SF 1187 and returning it to NTEU or by contacting your local chapter for information on retiree or non-bargaining unit membership. If you are currently an NTEU member, NTEU and your co-workers thank you.

Sincerely, 

Colleen M. Kelley
National President

Attachment