No. 29685 (Repeal and Reenact): R994-208. Definition of Wages

DAR File No.: 29685
Filed: 03/15/2007, 03:38
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

This proposed repeal and reenactment is to ensure the rule accurately reflects current law and practice.

Summary of the rule or change:

These changes are being made as part of the Department's effort to rewrite all of its rules. This rule was changed to more accurately reflect current practice and state and federal law. Archaic language has been removed and additional explanations and clarifying language have been added throughout. Federal definitions have been added to assist the industry in determining coverage. There were so many, mostly minor changes that the underlining and strikeout method of amending the rule made it too difficult to read and understand. For that reason, the Department determined to repeal and reenact the rule. The current rule and this proposed new rule are essentially equivalent in substance.

State statutory or constitutional authorization for this rule:

Section 35A-1-104, and Subsections 35A-1-104(4) and 35A-4-502(1)(b)

Anticipated cost or savings to:

the state budget:

This is a federally-funded program so there are no costs or savings to the state budget.

local governments:

This is a federally-funded program so there are no costs or savings to local government.

other persons:

There are no costs or savings to any other persons as there are no fees associated with this program and it is federally funded.

Compliance costs for affected persons:

There are no costs or savings to any affected persons as there are no fees associated with this program and it is federally funded. These changes will not impact any employer's contribution rate.

Comments by the department head on the fiscal impact the rule may have on businesses:

There are no compliance costs associated with this change. There are no fees associated with this change. There will be no cost to anyone to comply with these changes. There will be no fiscal impact on any business. These changes will have no impact on any employer's contribution tax rate. Tani Downing, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Workforce Services
Unemployment Insurance
140 E 300 S
SALT LAKE CITY UT 84111-2333

Direct questions regarding this rule to:

Suzan Pixton at the above address, by phone at 801-526-9645, by FAX at 801-526-9211, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

05/01/2007

This rule may become effective on:

05/09/2007

Authorized by:

Tani Downing, Executive Director

RULE TEXT

R994. Workforce Services, Unemployment Insurance.

[R994-208. Definition of Wages.

R994-208-101. General Definition.

Section 35A-4-208 defines "wages." Remuneration is wages only if it is for the performance of personal services. Wages are subject to the Act only if they are for services which are in "employment" as defined in Subsection 35A-4-204. Wages subject to the Act are taxable only to the extent of the yearly taxable wage base; wages in excess of the taxable wage base are reportable but not taxable. This taxable wage base applies to wages paid to an individual in any calendar year and is established pursuant to Subsection 35A-4-208(2)(a). The employer must report all wages subject to the Act and pay contributions on the taxable wages quarterly. To determine in which quarter wages are reportable, see the definition of "wages paid" in Section 994-401-204. A definition of the "wages" the claimant must report on his weekly claim is found in Subsection 35A-4-401(3) and Subsections R994-401-201 through R994-401-207.

 

R994-208-102. "Wages" Include.

(1) Wages include all remuneration for personal services and the following:

(a) Payments by the hour, by the job, piece rate, salary, commission; and

(b) Meals, lodging and other payments in kind.

(i) Meals, lodging and other payments in kind which are furnished to promote good will, to attract prospective employees or as part of remuneration for services are wages except as noted in Subsection R994-208-103. The value of these payments in kind shall be determined as follows:

(A) If a cash value for payments in kind is agreed upon in any contract, the amount agreed upon shall be deemed to be the value of such payments in kind provided such value equals or exceeds the cash value prevailing under similar conditions in the locality.

(ii) If a cash value for payments in kind is not agreed upon, the Department will determine the value on the basis of the cash value prevailing under similar conditions in the locality.

(c) Tips and Gratuities.

Tips or gratuities accounted for by the employee to the employer are wages whether paid directly to the employee by the customer or his employer. If an employee's only remuneration for services is tips or tips are used to supplement the employee's regular wages in order to meet the applicable federal or state minimum wage laws, the Department will determine the employee's wages. However, such wages will not be less than the applicable federal or state minimum wage.

(d) Remuneration for Services of Employee with Equipment.

Where an employee is hired with equipment, the fair value of the remuneration for the employee's services, as distinguished from an allowance for use of his equipment, if specified in the contract of hire, will be considered "wages." The Department will determine the employee's wages based on the prevailing wages for similar work under comparable conditions if the contract of hire does not specify the employee's wages, or the value of wages agreed upon in the contract of hire is not a fair value.

(e) Vacation Pay and Sick Pay Included as Wages.

Vacation and sick payments made by the employer during the employment relationship or upon termination of employment are wages. However, sick pay is not wages if paid after the end of six calendar months following the calendar month the employee last worked for the employer. Sick pay, if paid by a third party such as an insurance company, is not wages reportable by the employer unless the third party notifies the employer of the sick pay payments. If the third party does not notify the employer of the sick pay payments, the third party is liable for the unemployment contributions due on these payments. These provisions regarding sick pay are established to comply with the Federal Unemployment Tax Act (FUTA) provisions. For reference, see Internal Revenue Code Section 3306(b).

(f) Bonuses and Gifts.

Bonuses and gifts to employees are wages unless they are of a nonmonetary nature and of nominal value which is less than $25 per quarter.

(g) Stock Payments.

Payments of stock for services performed are wages. The value of the stock is its cash value at the time of transfer to the employee.

(h) Contributions to Deferred Compensation Plans.

Contributions by either the employer or the employee to deferred compensation plans including 401(k) plans are wages. For reference, see Section 3306(r) of the Internal Revenue Code.

(i) Residual Payments.

Performers in the television, radio and motion picture industry may receive additional payments, termed "residuals" by the industry as a result of the re-use of a recording or the re-showing of a film or taped television production. Residuals are deferred compensation and are wages if the performer, at the time of the original performance, was an employee.

(i) Residual payments are reportable by the employer in the quarter they are paid.

(ii) Residual payments are reportable by the claimant only for the weeks in which the service was originally performed.

(iii) Since residual payments are reportable as wages by the employer and the claimant, they can be used for the purpose of establishing a monetary base for future unemployment benefits. These wages can be used to purge a disqualification made under the Utah Employment Security Act only if the original work was performed subsequent to the disqualification.

 

R994-208-103. "Wages" Do Not Include.

(1) "Wages" do not include the following:

(a) Meals and Lodging Furnished for Employer's Convenience.

Meals and Lodging provided by an employer to an employee shall not be considered wages if excluded from the definition of wages by the Internal Revenue Service as under the following conditions:

(i) they are provided at the employer's place of business; and

(ii) in the case of lodging, the employee must accept the lodging as a condition of his employment; and

(iii) they are provided for the employer's convenience. Meals and lodging will be considered to be for the convenience of the employer if there is a good business reason for providing them including:

(A) To have employees available at all times or for emergency calls.

(B) Employees have a short meal period.

(C) Adequate eating and lodging facilities are not otherwise available.

(b) Expense Reimbursement.

Reimbursement and advances for bona fide, ordinary and necessary employment related expenses are not wages. The Department may require an accounting of the actual expenses or may determine whether the expenses are reasonable and necessary.

(c) Insurance Premiums Paid by the Employer.

Insurance premiums for health or life insurance paid by the employer for his employees generally or a class of his employees are not wages under Subsection 35A-4-208(2)(b).

(d) Sick Pay Excluded as Wages.

Sick pay is not wages if paid after the end of six months following the calendar month the employee last worked for the employer. Sick pay, if paid by a third party such as an insurance company, is not wages reportable by the employer unless the third party notifies the employer of such sick pay payments. If the third party does not notify the employer of the sick pay payments, the third party will be liable for the unemployment contributions due on these payments. Payments made to an employee which are received under a worker's compensation law are not wages. These provisions regarding sick pay are established to comply with the FUTA provisions. For reference, see Internal Revenue Code Section 3306(b).

(e) The Employer's Share of the Social Security Tax.

(f) Retirement Plan Payments Made by the Employer.

Payments made by the employer to certain retirement plans are NOT included as wages. The retirement plans which are excluded are described in Section 3306(b)(5) of the Internal Revenue Code.

(g) Training Allowances.

Employment related training allowances such as payments for expenses necessary for school including tuition, fees, books and travel expenses are not wages. However, payments for services performed as part of the training, such as on-the-job training, are wages.

(h) Director's Fees.

Remuneration paid to directors of a corporation for director services are not wages. Director services include attending Board of Director's meetings, reviewing and studying reports, establishing general company policies, etc. Director services DO NOT include managerial services or other services which are part of the routine activities of a corporation.

(i) Finder or Referral Fees.

A fee paid to an individual for the referral of a potential customer, provided that the transaction is in the nature of a single or infrequent occurrence and does not involve a continuing relationship with the person paying the fee, is not wages.

(j) "S Corporation" Payments to Shareholders.

Distributions made to bona fide shareholders based solely on stock ownership and without regard to services performed are not wages.

(k) Remuneration to Sole Proprietors or Partners.

Payments to sole proprietors or partners whether draws or remuneration for services are not wages. Sole proprietors or partners are the employing unit rather than employees. Limited partners, however, do not have the same rights and responsibilities as general partners and remuneration for services paid to limited partners is wages.

(l) Supplemental Unemployment Benefits (SUB).

Supplemental Unemployment Benefits are not wages if they meet the requirements specified in Revenue Rulings 56-249, 58-128 and 60-330. Because of the complexity of the factors involved, employers should request a declaratory ruling from the Department on their specific SUB plan. The factors required are as follows:

(i) the benefits are paid only to unemployed former employees of the employer who is providing the SUB Plan;

(ii) eligibility for benefits depends on the meeting of prescribed conditions subsequent to the termination of the employment relationship with the employer;

(iii) eligibility for benefits is contingent upon the former employee's maintaining eligibility for state unemployment insurance benefits;

(iv) the benefits ultimately paid are not attributable to the performance of any service by the recipient for the employer during the period of unemployment;

(v) no employee has any vested right, title, or interest in or to the funds from which the SUB benefits will be paid; and

(vi) the funds for the payment of SUB benefits is either established as an independent trust fund administered by trustees, or as a separate account on the employer's general accounting records.]

R994-208. Wages.

R994-208-101. Definition of Wages.

Section 35A-4-208 defines "wages".

(1) Wages means all payments for employment including the cash value of all payments in any medium other than cash, except payments excluded under Subsection 35A-4-208(5) and Section R994-208-103. Wages are subject to the Act only if they are for services that are employment as defined in Section 35A-4-204.

(2) Wages are reportable by the employer in the quarter actually paid or constructively paid. Wages are constructively paid, as defined in 26 CFR 31.3301-4. Wages are constructively paid when they are credited to the account of or set apart for a worker so that they may be drawn upon by the worker at any time without any substantial limitation or restriction as to the time, manner, or condition upon which the payment is to be made. The payment must also be within the worker's control and disposition.

(3) Wages subject to the Act are taxable only to the extent of the yearly taxable wage base. Wages in excess of the taxable wage base are reportable but not taxable. The taxable wage base applies to wages paid to each worker in any calendar year and is established pursuant to Subsection 35A-4-208(2). The employer must report all wages subject to the Act and pay contributions on the taxable wages as specified in the contribution payment due date Section R994-302-102.

 

R994-208-102. Wages Include.

Wages include the following:

(1) Payments for Personal Services.

All payments by the hour, by the job, piece rate, salary, or commission are wages.

(2) Meals, Lodging and Other Payments in Kind.

Meals, lodging and payments in kind that are furnished to promote good will, to attract prospective workers, or as part of payment for services are wages except as noted in Section R994-208-103. The value of these payments in kind shall be determined as follows:

(a) If a cash value for payments in kind is agreed upon in any contract, the amount agreed upon shall be deemed to be the value of such payments in kind provided such value equals or exceeds the cash value prevailing under similar conditions in the locality.

(b) If a cash value for payments in kind is not agreed upon, the Department will determine the value on the basis of the cash value prevailing under similar conditions in the locality.

(3) Tips and Gratuities.

(a) Tips or gratuities accounted for by the worker to the employer are wages whether paid directly to the worker by the customer or by the employer.

(b) If a worker's only payment for services is tips or tips are used to supplement the worker's regular wages in order to meet the applicable federal or state minimum wage laws, the Department will determine the worker's wages. However, such wages will not be less than the applicable federal or state minimum wage.

(c) Wages also include any allocated tips calculated by the employer.

(4) Payment for Services of Worker with Equipment.

When a worker is hired with equipment, the fair value of the payment for the worker's services, as distinguished from an allowance for use of equipment, if specified in the contract of hire, will be considered "wages". The Department will determine the worker's wages based on the prevailing wages for similar work under comparable conditions if the contract of hire does not specify the worker's wages, or the value of wages agreed upon in the contract of hire is not a fair value.

(5) Vacation Pay

Vacation payments made by the employer during the employment relationship or upon termination of employment are wages.

(6) Sick Pay.

(a) Sick payments made by the employer during the employment relationship or upon termination of employment are wages.

(b) Sick pay is not wages if paid after the end of six calendar months following the calendar month the employee last worked for the employer.

(c) Sick pay, if paid by a third party such as an insurance company, is not wages reportable by the employer unless the third party notifies the employer of the sick pay payments. If the third party does not notify the employer of the sick pay payments, the third party is liable for the unemployment contributions due on these payments. These provisions regarding sick pay are established to comply with the Federal Unemployment Tax Act (FUTA) provisions. For reference, see Internal Revenue Code Section 3306(b).

(7) Bonuses and Gifts.

(a) Bonuses and gifts to employees are wages unless the value is so small that it would be unreasonable for the employer to account for it. The value of benefits such as store discounts, discounts at company cafeterias, and company picnics are not wages.

(b) The value of gifts such as a turkey, ham, or other item of nominal value at Christmas or other holidays are not wages. However, gifts of cash, gift certificates, or similar items that can easily be exchanged for cash, are wages.

(8) Stock Payments.

Payments of stock for services performed are wages. The value of the stock is its cash value at the time of transfer to the employee.

(9) Stock options included as wages.

There are three kinds of stock options: incentive stock options, employee stock purchase plan options, and non-statutory, also known as non-qualified stock options. There are wage implications only with respect to non-qualified stock options.

(a) Non-qualified stock options are defined by the Internal Revenue Service as those that do not meet all of the requirements of the Internal Revenue Code to qualify as incentive stock options or employee stock purchase plan options.

(b) A worker may receive an option as payment for services. The granting of the option is not wages.

(c) A worker exercises an option when the worker takes an action to buy the stock.

(d) The difference between the exercise price, the value of stock at the time the option is issued, and the fair market value of the stock at the time of exercise is called the spread. The amount of a positive spread at the time the option is exercised is wages.

(10) Contributions to Deferred Compensation Plans.

Contributions by either the employer or the worker to deferred compensation plans including 401(k) plans are wages. For reference, see Section 3306(r) of the Internal Revenue Code.

(11) Residual Payments.

Performers in the television, radio and motion picture industry may receive additional payments, termed "residuals" by the industry as a result of the re-use of a recording or the re-showing of a film or taped television production. Residuals are deferred compensation and are wages if the performer, at the time of the original performance, was an employee.

(a) Residual payments are reportable by the employer in the quarter they are paid.

(b) Residual payments are reportable by the claimant only for the weeks in which the service was originally performed.

(c) Since residual payments are reportable as wages by the employer and the claimant, they can be used for the purpose of establishing a monetary base for future unemployment benefits. These wages can be used to purge a disqualification made under the Utah Employment Security Act only if the original work was performed subsequent to the disqualification.

 

R994-208-103. Wages Do Not Include.

Wages do not include any of the following:

(1) Meals and Lodging Furnished for Employer's Convenience.

Meals and Lodging provided by an employer to a worker shall not be considered wages if excluded from the definition of wages by the Internal Revenue Service under the following conditions:

(a) they are provided at the employer's place of business; and

(b) in the case of lodging, the worker must accept the lodging as a condition of employment; and

(c) they are provided for the employer's convenience. Meals and lodging will be considered to be for the convenience of the employer if there is a good business reason for providing them including:

(i) To have workers available at all times or for emergency calls.

(ii) Workers have a short meal period.

(iii) Adequate eating and lodging facilities are not otherwise available.

(2) Expense Reimbursement.

Expense reimbursements are excluded from the definition of wages based upon the existence of an accountable plan as defined in Section 62 of the Internal Revenue Code.

(a) An accountable plan is any reimbursement or other expense allowance arrangement, including per diem allowances providing for ordinary and necessary expenses of traveling away from home, that meets all of the following requirements:

(i) There is a business connection. The expenses are paid or incurred by the worker in connection with the performance of services as an employee of the employer;

(ii) Information sufficient to substantiate the amount, time, and business purpose of the expenses must be submitted to the employer; and

(iii) Excess reimbursement amounts, as a result of advances, are returned to the employer.

(b) A nonaccountable plan is any plan that fails to meet any one or more of the requirements of an accountable plan. Reimbursements in a nonaccountable plan are wages.

(3) Insurance Premiums Paid by the Employer.

Insurance premiums for health or life insurance paid by the employer for workers generally or a class of workers are not wages under Subsection 35A-4-208(5)(a).

(4) Sick Pay Excluded as Wages.

The following provisions regarding sick pay are established to comply with the FUTA provisions contained in Section 3306(b)of the Internal Revenue Code.

(a) Sick pay is not wages if paid after the end of six months following the calendar month the worker last worked for the employer.

(b) Sick pay, if paid by a third party such as an insurance company, is not wages reportable by the employer unless the third party notifies the employer of such sick pay payments. If the third party does not notify the employer of the sick pay payments, the third party will be liable for the unemployment contributions due on these payments.

(c) Payments made to a worker that are received under a workers' compensation law are not wages.

(5) The Employer's Share of the Social Security Tax and Medicare Tax.

(6) Retirement Plan Payments Made by the Employer.

Payments made by the employer to retirement plans described in Section 3306(b)(5) of the Internal Revenue Code are not wages.

(7) Training Allowances.

Employment-related training allowances such as payments for expenses necessary for school including tuition, fees, books and travel expenses are not wages. However, payments for services performed as part of the training, such as on-the-job training, are wages.

(8) Corporate Payments Not Considered Wages.

(a) The following payments are not considered wages:

(i) Directors fees paid to directors of a corporation for attending Board of Directors' meetings, reviewing and studying reports, and establishing general company policies. Director services do not include managerial services or other services that are part of the routine activities of a corporation;

(ii) Distributions made to shareholders based on stock ownership;

(iii) Reimbursement for expenses that are reasonable and documented;

(iv) Loans supported by notes and reasonable repayment schedules. Non-interest bearing notes that are payable upon demand with no payment schedule are considered wages if the officer is performing services for the corporation; and

(v) Documented returns of investment where the officer has loaned or invested money in the corporation.

(b) If the amount of compensation, if any, paid to a corporate officer is inadequate given the nature, duration, frequency or significance of the service performed by that officer, other payments made to the officer may be reclassified as wages if there is a lack of documentation or insufficient document to support those other payments. This applies to all corporations regardless of income tax reporting status.

(9) Finder or Referral Fees.

A fee paid to an individual for the referral of a potential customer, provided that the transaction is in the nature of a single or infrequent occurrence and does not involve a continuing relationship with the person paying the fee, is not wages.

(10) Payments to Sole Proprietors.

Payments to sole proprietors, whether draws or payment for services, are not wages. The sole proprietor is the employing unit rather than an employee.

(11) Payments to Partners.

Payments to partners, including draws and payment for services, are not wages. The partners are the employing unit rather than employees. However, payments to limited partners are wages because they do not have the same rights and responsibilities as general partners.

(l2) Supplemental Unemployment Benefits (SUB).

Supplemental Unemployment Benefits are not wages if they meet the requirements specified in Revenue Rulings 56-249, 58-128 and 60-330. Because of the complexity of the factors involved, employers should request a declaratory ruling from the Department on their specific SUB plan. The factors required are as follows:

(a) the benefits are paid only to unemployed former employees of the employer who is providing the SUB Plan;

(b) eligibility for benefits depends on the meeting of prescribed conditions subsequent to the termination of the employment relationship with the employer;

(c) eligibility for benefits is contingent upon the former employee's maintaining eligibility for state unemployment insurance benefits;

(d) the benefits ultimately paid are not attributable to the performance of any service by the recipient for the employer during the period of unemployment;

(e) no employee has any vested right, title, or interest in or to the funds from which the SUB benefits will be paid; and

(f) the funds for the payment of SUB benefits is either established as an independent trust fund administered by trustees, or as a separate account on the employer's general accounting records.

(13) Stock Options Excluded From Wages.

(a) There are three kinds of stock options: incentive stock options, employee stock purchase plan options, and non-statutory, also known as non-qualified stock options.

(b) Incentive Stock Options and Employee Stock Purchase Plan Options are defined by the Internal Revenue Code.

(c) Payments resulting from the exercise of an incentive stock option or an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option are not wages.

(14) Stipends.

Stipend payments are not wages. Stipends are payments in lieu of actual expense reimbursements that help cover the costs of expenses such as transportation, meals, and supplies associated with training, schooling, meetings, and volunteer activities.

 

KEY: unemployment compensation, wages

Date of Enactment or Last Substantive Amendment: [1992]2007

Notice of Continuation: May 23, 2003

Authorizing, and Implemented or Interpreted Law: 35A-4-208