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Page 1 of 2 <br /> <br /> <br /> <br />AGENDA ITEM – 1G <br /> <br />MEMORANDUM <br /> <br />DATE: December 21, 2020 <br /> <br />TO: Honorable Mayor and City Councilmembers <br /> <br />FROM: Dave Perrault, City Administrator <br /> <br />SUBJECT: Accrual Payouts Upon Employee Separation <br /> <br /> Budgeted Amount: Actual Amount: Funding Source: <br /> N/A N/A N/A <br /> <br />For Council Consideration <br /> <br />The Council may consider giving staff further direction on refining the City’s policy surrounding <br />accrual payments when an employee separates from the City. <br /> <br />Background <br /> <br />The City’s current policy surrounding the payout of accrued Paid Time Off (PTO), Flex Time, <br />and Comp Time is that any accrued time shall be converted to cash and paid directly into an <br />employee’s Health Care Savings Plan (HCSP); these payouts are capped at their respective <br />maximums in the Personnel Policy at 240 hours for PTO, 40 hours for Comp Time, and 80 hours <br />for Flex Time. The HCSP is very limited in scope and can only be used for reimbursement of <br />medical expenses following the separation from public service. As a result, an employee leaving <br />the City can only use their respective payouts from accrued balances for medical related <br />expenses. This does not give the employee much flexibility in-terms of access to those dollars, <br />and restricts access to funds if needed for other purposes. It is believed this policy was originally <br />implemented as a tool to save the City from paying employer taxes on high leave balances. <br />While this reason is understandable, the Council may want to consider amending its policy and <br />allow for either a direct payment to employees of accrued balances and/or giving employees the <br />option of a payout upon separation into a deferred compensation account (457). While this would <br />result in employer taxes when an employee separates, the effect is not significant to the budget; <br />for example, an employee earning $30 per hour with 100 hours of PTO accrued would be paid <br />$3,000 (less normal taxes), and the City would be responsible for approximately $229.50 in <br />employer taxes (note the City would be paying the $3,000 to the employee regardless, the