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1972-9 Inclusion of vacation and holiday benefits in total compensation. 1972-10 Measuring cost of living increases. 1972-11 Retroactive bona fide promotions.

[Pay Board Ruling 1971-1]

CORPORATE FISCAL YEAR
ACCOUNTING

Facts. For the purposes of filing income tax returns, preparing financial statements, and its general business operations, Corporation X maintains its books and records according to a fiscal year ended December 31st. On November 14, 1971, Phase II of the Economic Stabilization Act of 1970 became operative.

Issue. Whether or not Corporation X must change from a fiscal year ended December 31st to a fiscal year ended November 13th.

Ruling. Corporation X may continue to maintain its books and records on the basis of a fiscal year ended December 31st. Although November 14, 1971, is a reference date or starting point which may, in certain instances, be determinative of whether the wage standard of 5.5 percent and other requirements may be operative with respect to the granting and implementation of certain pay adjustments, there is no mandate in the Act or the regulations that the fiscal year of Corporation X be changed to end on November 13th. Moreover, this

same rule would apply regardless of what date the fiscal year of Corporation X ended upon. Further, it is to be noted that the "fiscal year" referred to in this ruling is intended to mean a period of 12 months.

This ruling has been approved by the General Counsel of the Pay Board. [36 F.R. 23324, Dec. 8, 1971]

[Pay Board Ruling 1972-1]

CONTINUED PAYMENT OF CHALLENGED PAY ADJUSTMENTS

Facts. Corporation A has a contract with its employees that was in existence prior to November 14, 1971, which provides for pay adjustments to take effect thereafter which exceed the 5.5 percent standard established by the Pay Board. The contract is challenged and the challenge is pending before the Pay Board.

Issue. May the employer continue to pay its employees the increased wages provided in the contract during the period the challenge to the pay adjustments is pending before the Pay Board.

Ruling. So long as the pay adjustments were provided for in a contract that was existing prior to November 14, 1971, the employer may continue to pay the employees at the increased rate during the period the pay adjustments are under challenge unless and until the Pay Board rules otherwise.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 2987, Feb. 10, 1972]

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[Pay Board Ruling 1972-2]

EXISTING CONTRACTS

Facts. As the result of negotiations with the union representative for the employees of Corp. A, Corp. A agreed on October 25, 1971, to increase the wages of its employees effective December 1, 1971, to an amount representing 10 percent of all wages and salaries paid its employees.

Issue. Is Corp. A prohibited from making payments under the agreement?

Ruling. No. The agreement will be allowed to operate according to its terms even though it exceeds the 5.5 percent standard, for it was entered into prior to November 14, 1971. It will be subject to review if challenged by a party at interest or five or more members of the Pay Board. Economic Stabilization Regulations, 6 CFR 201.14, 36 F.R. 21791 (November 13, 1971).

The ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 2893, Feb. 9, 1972]

[Pay Board Ruling 1972-8] APPROPRIATE EMPLOYEE UNIT

Facts. Corp. A has 200 employees and 4 different labor unions representing different units of employees. One of the unions seeks a contract which would increase the wages of its particular unit of employees 10 percent over the present wages of the unit, but not more than 5.5 percent of total wages paid by the corporation.

Issue. Is the wage increase sought by the union prohibited?

Ruling. Yes. The 5.5 percent standard is applied to the aggregate annual wage and salary increase within any appropriate employee unit and not to the total payroll of the corporation. In the absence of unusual circumstances, the established collective bargaining units, where they exist, are presumed to be the "appropriate employee units" for the measurement of changes in wage and salary levels.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 2988, Feb. 10, 1972]

[Pay Board Ruling 1972-4]

BONA FIDE PROMOTIONS Facts. Due to a vacancy Corp. A promoted one of its office managers to be a vice president of the corporation. The starting salary for the position as vice president represented an increase in salary of 30 percent over what the employee had been receiving.

Issue. Is the increase of salary prohibited?

Ruling. No. Bona fide promotions to positions of greater skill, effort, and responsibility are excluded from the 5.5 percent limitation since remuneration goes with the job, not the man.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 2988, Feb. 10, 1972]

[Pay Board Ruling 1972–5]

COSTS OF LIVING INCREASES AS PART OF EXISTING CONTRACTS AND PAY PRACTICES

Facts. Employer A and his employees negotiated a new labor contract, effective July 1, 1971, providing for an automatic cost of living increase every 3

months. The increment due October 1, 1971, was precluded by Phase I. The employer wants to make said increase effective November 14, 1971, and continue to make future 3-month increases under the labor contract.

Issue. May the past due increase be made, effective November 14, 1971? May future increases be made at 3-month intervals, as provided by the labor contract, assuming that the cost of living continues to rise?

Ruling. Yes. Economic Stabilization Regulations, 6 CFR 201.3, 36 F.R. 21790 (November 13, 1971), defines "wages and salaries" as including:

all forms of direct and indirect remuneration or inducement to employees by their employers for personal services, which are reasonably subject to valuation, including * cost-of-living allowances *

Economic Stabilization Regulations, 6 CFR 201.14, 36 F.R. 21790 (November 13, 1971), states that:

Existing contracts and pay practices previously set forth will be allowed to operate according to their terms except that specific contracts or pay practices are subject to review, when challenged by a party at interest or by five or more members of the Pay Board, to determine whether any increase is unreasonably inconsistent with the criteria established by the Board.

Although a cost-of-living increase comes within the Regulations § 201.3 definition of "wages and salaries", and is subject to the post-freeze 5.5-percent limitation, the contract predated November 14, 1971, and therefore is permitted by § 201.14 of the Regulations to take effect as of November 14, 1971, subject to the above-stated Pay Board review. In addition, all increases which affect more than 1,000 employees must be reported by the employer to the Pay Board no later than January 31, 1972. Subject to the above review, however, the cost of living increases may be continued in the future pursuant to the contract provisions.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 2988, Feb. 10, 1972]

[Pay Board Ruling 1972-6]

PAY ADJUSTMENTS AND APPROPRIATE EMPLOYEE UNITS

Facts. Corporation X is engaged in the manufacture of automobile seat covers. X employs 600 employees. X's present

contract with its employees expired on November 27, 1971. Under this contract, X's employees earned an average of $3 per hour. In negotiating with the appropriate representatives of Y union (which is the recognized bargaining representative for X's employees), X accepted the following new contractual wage terms: 300 employees would receive a $0.15 per hour increase (i.e., a 5-percent increase); and the remaining 300 employees would receive a $0.18 per hour increase (i.e., a 6-percent increase).

Issue. 1. Whether the wage increases contained in X's new contract are pay adjustments that are subject to the general 5.5-percent general wage and salary standard?

2. Whether the 6-percent increase granted to 300 of X's employees violates the 5.5-percent general wage and salary standard?

Ruling. With respect to the first issue, X's wage increases for its employees are pay adjustments within the definition of "Pay Adjustments" provided by Economic Stabilization Regulations, 6 CFR 101.51, 36 F.R. 21790 (November 13, 1971). Thus, X's wages increases for its employees are subject to the 5.5-percent general wage and salary standard established in Economic Stabilization Regulations, 6 CFR 201.10, 36 F.R. 21790 (November 13, 1971).

With respect to the second issue, the 6percent wage increase granted to 300 of X's employees is not the controlling percentile for determining whether the 5.5percent general wage and salary standard has been exceeded. Instead, § 201.10 provides that the 5.5-percent general standard applies to the increase granted to an appropriate employee unit. Since all 600 of X's employees comprise the "appropriate employee unit" under the present facts (see Economic Stabilization Regulations, 6 CFR 201.3, 36 F.R. 25428 (December 31, 1971)), the wage increase granted to all of X's employees must be computed to determine whether the 5.5percent general wage and salary standard has been exceeded. In the instant case, 300 employees received a 6-percent increase, and 300 employees received a 5percent increase. Thus, since the increase to the appropriate employee unit was 5.5 percent, the standard has not been exceeded.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 3450, Feb. 16, 1972]

[Pay Board Ruling 1972-7]

COMPETITIVE WAGE AND SALARY INCREASES TO RETAIN KEY EMPLOYEES

Facts. Employer A has had difficulty retaining his key employees or attracting replacements because his salary scale is below that of his competitors. He refrained from increasing salaries and wages during the freeze period; now, however, he would like to increase his wage scale so as to become more competitive.

Issue. May Employer A increase his wage rate to a competitive level without regard to the 5.5 percent general wage and salary standard?

Ruling. In Economic Stabilization Regulations, 6 CFR 201.11(a)(2), 36 F.R. 25427 (December 31, 1971), the Pay Board has attempted to permit an employer to become more competitive in his wage rate so that he might attract or retain employees essential to an efficient operation of his firm. An employer will be permitted to increase his wage rate by as much as 7 percent, if he can demonstrate to the Board:

(1) That he has experienced a significant proportion of vacancies in an employee unit, despite intensive recruiting activity over a period of at least 3 months.

(2) That there has been no significant deterioration or reduction in other conditions of employment, and

(3) That there is a reasonable expectation that higher wages will be effective in recruiting and maintaining a supply of qualified employees.

Within these limitations, the employer may disregard the general wage and salary standard, thereby increasing his wage rate by a maximum of 7 percent. However, if he fails to satisfy the specific criteria as set forth by the Pay Board, the employer will be subject to the 5.5percent limitation. Furthermore, the employer must notify the Board and receive its approval before the increase permitted under this exception may be implemented.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 3994, Feb. 25, 1972]

[Pay Board Ruling 1972-8] INCORPORATION OF AN EXISTING BUSINESS

Facts. A grocer with four employees was operating his store as a sole-proprietorship on November 13, 1971. Sometime after that date, he incorporated his business.

Issue. Whether a business in existence before November 13, 1971, which is incorporated after November 13, 1971, will be treated as an existing business or as a new business under the stabilization regulations.

Ruling. In cases where an existing business is incorporated after November 13, 1971, the appropriate employee units, the wage and salary bases of these units, and the wage years of these units of the existing business organization shall be carried over into the newly incorporated business. The wages and salaries for the positions in the new corporation would thus be subject to the same standards and criteria as would have been the lawful rates for the same or comparable jobs in the business organization had it not incorporated.

A determination of the appropriate employee unit of the grocer himself would take into account the contractual or historical wage and salary relationships within the business organization. If treated as such in the old business, the employer-as-employee of the newly incorporated grocery store may be treated as a separate, appropriate employee unit, which would be distinguished from the unit (or units) formed by the other employees of the store.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 3994, Feb. 25, 1972]

[Pay Board Ruling 1972–9]

INCLUSION OF VACATION AND HOLIDAY BENEFITS IN TOTAL COMPENSATION PACKAGE

Facts. X corporation has 1,500 production workers, all represented by one bargaining representative. X's present contract with these employees was entered into on November 30, 1970, and expires November 30, 1974. The contract provides (i) that these employees will receive an average wage increase of 5 percent commencing on November 30, 1971, and (ii) that X's employees generally will receive additional vacation and holiday benefits beginning November 30, 1971. The average value of the increase in incidental benefits is 1 percent of the employee's total remuneration.

Issue. 1. Are pay adjustments that result from existing contracts and pay practices subject to the 5.5 percent general wage and salary standard?

2. Is the 1 percent general increase in the incidental benefits accorded to X's employees included in determining whether the 5.5 percent general wage and salary standard has been exceeded?

Ruling. With respect to the first issue, Economic Stabilization Regulations' 6 CFR 201.14, 36 F.R. 21791 (November 13, 1971) provides that pay adjustments under contracts and pay practices existing prior to November 14, 1971, will be permitted to operate according to their terms, except that, if such pay adjustments are challenged by five members of the Pay Board or by a party at interest, the pay adjustments are subject to review by the Pay Board to determine if they are unreasonably inconsistent with criteria established by the Pay Board. (Since X's pay adjustments apply to or affect more than 1,000 employees, the pay adjustments must be reported to the Pay Board. Pay adjustments in the building and construction trades, regardless of the number of employees affected and regardless of when agreed upon, must be prenotified to and approved by the Construction Industry Stabilization Committee under criteria established by the Board.

With respect to the second issue, Economic Stabilization Regulations, 6 CFR 101.51, 36 F.R. 21790 (November 13, 1971) provides that the increased vacation and holiday benefits which are subject to being reasonably valued, must be considered in calculating the total compensation package granted to X's employees. Accordingly, X's combined wage and benefits increase will be considered in calculating the total compensation package granted to X's employees. Accordingly, X's combined wage and benefits increase will be considered by the Pay Board (assuming that X's pay adjustments are challenged) in determining whether the increase is unreasonably inconsistent with the criteria established by the Pay Board. It must be noted, however, that section 203(g) of the Economic Stabilization Act of 1970, as amended, exempts from the term "wages and salaries" employer contributions to the following fringe benefits: (1) Pension, profit sharing, and annuity and savings plans meeting the requirements of section 401(a), 404 (a) (2), or 403(b) of the Internal Revenue Code of 1954; (2) group insurance plans; and (3) disability and health plans to the extent that employer contributions to such plans are not unreasonably inconsistent

with the wage and salary standard. The Pay Board will develop regulations governing what constitutes permissible employer contributions to such plans.

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 3995, Feb. 25, 1972]

[Pay Board Ruling 1972-10] MEASURING COST OF LIVING INCREASES

Facts. A local union has negotiated with Employer X a labor contract whereby he has agreed to grant cost-ofliving increases to his employees on a semi-annual basis. That is, a 2 percent cost of living increase at the end of the third month of the twelve month period, commencing with the contract date, and a 6 percent increase at the end of the ninth month. The employer asserts that he is unable to grant the increases, the first of which is due April 1, because the total increase, 8 percent, would exceed the 5.5 percent general wage and salary standard.

Issue. May cost of living increases be made without regard to the general wage and salary standard?

Ruling. Economic Stabilization Regulations, 6 CFR 201.11(a)(4), 36 F.R. 25427 (December 31, 1971), provides that:

If a wage and salary increase in a new contract or pay practice is composed of two parts, wages and salaries other than cost of living adjustments and cost of living adjustments pursuant to and justified by a generally accepted escalator formula, the wage and salary part shall be calculated by the sum of the percentage increases method, and the cost of living part shall be calculated by multiplying each cost of living adjustment by a fraction, the numerator of which shall be the number of months within the appropriate 12-month period such cost of living adjustment is in effect, and the denominator of which shall be 12. These two parts shall be added together to determine the maximum permissible annual aggregate wage and salary increase.

That is, the cost of living increase for a portion of a 12-month year would be averaged over the 12 months, thus reducing the percentage increase. If the employer provided a 2 percent cost of living increase at the end of the third month of the year and a 6 percent increase at the end of the ninth month and the "sum of the percentages" method were used the total increase would be computed as 8 percent, far in excess of the General

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Wage and Salary Standard. However, using the formula applicable to cost of living adjustments, the 2 percent increase for the nine-month period would be averaged over 12 months, producing a 11⁄2 percent annual increase and the 6 percent increase for the three-month period, averaged over 12 months, would produce only a 12 percent annual increase.

Therefore, the total annual cost-ofliving increase would be 3 percent, determined by combining the averaged percentage for both cost of living increases; this could be combined with a 21⁄2 percent increase in other "wages and salaries" and still be within the General Wage and Salary Standard. The appropriate 12-month period means the 12month period beginning on the date that the wage and salary increases became effective.

However, such a benefit is available only if the cost-of-living increase is pursuant to a "generally accepted escalator formula"; it cannot be subject merely to the whim of the employer. Moreover, such an exemption would be subject to the prenotification requirements for Category I wage and salary increases, as defined in the Economic Stabilization Regulations, 6 CFR 101.21, 36 F.R. 21788 (November 13, 1971), and as set forth in regulations, 6 CFR 202.10, 36 F.R. 25429 (December 31, 1971), or the reporting requirements for Category II wage and salary increases, as defined in regulations 6 CFR 101.23, 36 F.R. 101.23, 36 F.R. 21788 (November 13, 1971), and set forth in regulations 6 CFR 202.20, 36 F.R. 25429 (December 31, 1971).

This ruling has been approved by the General Counsel of the Pay Board. [37 F.R. 3995, Feb. 25, 1972]

[Pay Board Ruling 1972-11] RETROACTIVE BONA FIDE

PROMOTIONS

Facts. Employee A receives a bona fide promotion in June 1971, but does not automatically receive the increased salary for the new job. The Board of Directors for the employer passes a resolution in late November 1971, directing that the employee be paid the salary designated for the position to which he has been promoted granting the salary increase.

Issue. Can the employer now pay the employee a retroactive pay increase, ef

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