In light of record numbers of districts freezing salaries, many are looking for other ways to reward employees without making an unsustainable salary commitment. As a result, some districts are turning to one-time, lump sum payments for their employees, giving employees a single payment without adding to base salary costs.
For districts, these are one-time expenses that don’t increase ongoing costs. For employees, the payment will be viewed as a bonus, a payment that they can’t count on in the following year.
Some districts have chosen this practice because they can’t afford to sustain a salary increase but want to reward employees or offset the impact of insurance premium costs using the available fund balance. Because these are one-time payments and not included in base pay, lump sum payments do nothing to maintain or improve competitive pay levels.
There are several things to consider when planning for a lump sum payment. Foremost, it may not be legal to provide employees with such a payment unless:
Making extra payments to contract employees after work has been performed or compensation has been agreed upon is considered a gift of public funds, which is prohibited by the Article III section 53 of the Texas Constitution.
The best way to prevent this type of violation is to authorize the lump sum payment as a possibility in the budget adopted by the board for the school year. The board of trustees could then take action later in the year to approve the payment or not.
Next, a lump sum payment may also affect overtime payments for nonexempt staff. If the payment is nondiscretionary, it must be factored into the regular rate of pay for determining the overtime wage rate. A payment would be nondiscretionary if the employer planned for it in advance, especially if the timing and amount is predetermined.
Lastly, a lump sum payment may not be creditable compensation for the Teacher Retirement System of Texas (TRS). TRS defines creditable compensation as salaries and wages paid for services rendered during a year through normal periodic payments. Bonuses, incentives, or other “at risk” pay (meaning it might not be paid each year) are not considered creditable compensation unless required by state law.
In addition to the legal considerations and requirements, districts also have to contend with practical matters regarding one-time payments. The obvious issues are determining the amount of the lump sum payment and scheduling the payment.
However, there are other considerations. For example, who will be eligible? If the payment is made in mid-December, would an employee who started Dec. 1 receive the payment? If the purpose of the payment is to reward continued employment, it may make sense to exclude recently hired employees.
School districts have full-time and part-time employees plus jobs that are assigned for 10 months up to 12 months. How will the lump sum be prorated for employees with varying schedules? If the amount is small or only intended to offset benefits costs, it may not make sense to prorate for varying duty schedules, but it may be important to reduce or eliminate the payment for part-time positions.
For larger payments including payments to recognize a year of district service, prorating for duty time or job level assignment is appropriate. A $1,000 payment to a bus driver earning $10,000 for part-time work is 10 percent but that same $1,000 is 2 percent for an experienced teacher paid $50,000.
The message to staff regarding a one-time, lump sum payment should be clear and understandable. Important points to reinforce include:
A lump sum payment for employees is a nice gesture and affirms that the district values its staff, but giving one is not as simple as cutting an extra check. There are potential legal issues that require careful thought and planning. The district must also follow up with good communication with employees to ensure they understand why the payment was given.
