A change in the way state employees are paid could end up costing the state more than $47 million in increased pay for salaried employees over the next 10 years, Legislative Manager Aaron Allred advised legislative leaders Sunday.
The change in pay periods from twice monthly to biweekly could also increase pension benefits by a total of $22.5 million over the next decade, his analysis concluded.
Essentially, the issue with the switch to biweekly pay is that it creates 26 14-day pay periods each year. That 364-day year gives salaried employees a bonus day each year, which approximately every 11 years creates what Allred termed a "pay period leap year" with 27 paychecks. Ultimately, that would increase salaries and pension by a little over 1.2 percent.
"Part of the problem here is size," Allred told the legislative Post Audits Committee. "When you're dealing with an annual payroll of $1.6 [billion] to 1.7 billion, that decimal point makes a difference."
Citing a letter from state Treasurer John Perdue calling for a halt in the conversion of additional employees to biweekly pay until a thorough analysis of the impact can be completed, Allred stated in a letter to legislative leaders, "Like the state treasurer, my office recommends the further conversion of employees to biweekly be stopped until a reassessment of the impact on public employees and the state budget [can] be conducted."
However, Auditor Glen Gainer told the legislative Post-Audits Committee said the switch to biweekly pay will produce at least $4.5 million a year and probably closer to $10 million a year of savings by standardizing payroll practices for all employees.
The new system will eliminate time-keeping errors and improper calculations of overtime and leave time, he said.
Allred said the governor's office contacted him with concerns that the new system would push the governor's annual pay to $150,206 a year -- above his statutory salary of $150,000.
Allred noted that other statewide elected officials and some high-level state employees who have their salaries set by law would be exceeding those salaries with the change.
Because state pensions are calculated based on each retiree's highest three-year salary period, the pay period leap year phenomenon is projected to increase the cost of state pensions by $22.5 million, the analysis concludes.
However, Consolidated Public Retirement Board executive director Jeff Fleck told legislators it would be an easy fix to change state pension law so that the 27th pay check in "leap years" is not used to calculate pensions.
Allred noted that the pay period change benefits 24,607 salaried state employees, but has no impact on 23,271 hourly employees.
Noting that two dozen state employees have filed a grievance contending the switch from twice monthly to biweekly pay will cost them about six days' pay in the transition year, Allred said, "We believe the employees were not shorted pay, and that it is a timing issue. In fact, if these are salaried employees, over time, they will receive a small pay raise." In a Gazette-Mail article Aug. 28, Gainer addressed concerns by employees who filed the grievance, saying they would actually benefit with the 27-paycheck year and with increased pension benefits.
"The system is designed to benefit employees. It is not designed to harm employees," Gainer said at the time.
Gainer reasserted that position on Sunday.
However, Senate President Bill Cole, R-Mercer, repeatedly stated that a state employee who agreed to a salary of $40,000 should not be paid $40,125 a year "because of fuzzy math."
"I don't believe paying somebody more than what we agreed to pay is accurate," he said, adding, "These are huge for our state budget. I don't see it as something our state can afford."
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