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NLRB now requires employers who owe back pay to submit paperwork to the SSA and to reimburse discriminatees for any additional federal and state income tax burden

The NLRB has issued a ruling finding that in awarding back pay, it will now require respondents to submit documentation to the Social Security Administration (SSA) so that back pay is allocated to the appropriate calendar quarters, and to pay for any excess federal and state income taxes owed by the discriminatee as a result of receiving a lump-sum payment (Latino Express, Inc, December 18, 2012). The Board has decided to retroactively apply the new requirements.

In the underlying case, the Board found that the company committed multiple unfair labor practices, including illegally dismissing two employees, during the course of a union organizing campaign. The Board severed the two remedial issues, and invited interested parties to submit briefs on the issue because the remedies would represent a change to Board practice.

SSA documentation. The Board calculates backpay awards on the basis of separate calendar quarters or portions thereof, but pays the back pay in one lump sum. That back pay is considered wages under the Social Security Act, requiring employers to withhold Social Security taxes from a discriminatee’s backpay award and remit that money to the federal government along with the Social Security tax owed by the respondent. Regardless of the length of time for which back pay is owed, backpay awards are posted to the employee’s Social Security earnings record in the year received, unless a separate report allocating the back pay to the respective periods is filed with the SSA. The Board found that the failure to properly allocate back pay to the correct years covered under a backpay award can disadvantage discriminatees in three ways.

In order to qualify for old-age Social Security benefits, individuals must accumulate 40 Social Security credits. Individuals earn a maximum of four credits each calendar year, and the Board found that improper allocation could result in an individual not getting the appropriate credit. That could, thus, deprive them of their ability to qualify for old-age benefits. In addition, improper allocation could result in the SSA treating a discriminatee as having received wages in excess of the annual contribution and benefit base for a given year, which could result in the employer and employee not paying Social Security taxes on the excess, which in turn reduces the discriminatee’s eventual monthly benefit, “because participants receive a greater benefit when they have paid more into the system.” Finally, the Board found that improper allocations also can result in retiring discriminatees getting a smaller monthly benefit when a multi-year award is posted to one year. Under each of these scenarios, the Board found that a discriminatee would continue to suffer the effects of unlawful discrimination and would not, in fact, have been made whole by the backpay award as intended under the NLRA. Therefore, the Board decided to routinely require the filing of a report with the SSA allocating backpay awards to the appropriate calendar quarters.

Tax payments. The Board also decided to require respondents to pay the additional state and federal taxes incurred by discriminatees as a result of a backpay award. The Board noted that discriminatees who receive a backpay award covering more than one calendar year could, as a result of that year, move into a higher tax bracket. This would, in turn, impose a higher tax burden upon those employees. The Board noted that federal courts and other agencies have also required respondents to pay this tax burden, and decided to follow suit. To do otherwise, the Board reasoned, would result in discriminatees not being made whole. The Board held that the new tax compensation component applies only to backpay awards that cover more than one calendar year in a shorter period. The General Counsel will have the responsibility of proving and quantifying the extent of the adverse tax consequences that arise as a result of a backpay award.

The Board also decided to apply both new requirements retroactively, finding that the requirement is a remedial issue.

The case number is 359 NLRB No 44.

By Matt Pavich, J.D.