Benefit payouts costly
City delays replacing some staff due to accrued sick leave
By Angie Landsverk
The benefits payout city of Waupaca employees receive when they resign or retire and its effect on rehiring for the positions will be topics for the common council in August.
Mayor Brian Smith requested that it be put on the agenda for either the council’s Tuesday, Aug. 1, meeting or Tuesday, Aug. 15, meeting.
Open to the public, council meetings begin at 6 p.m. and are held in the council chambers, in the lower level of City Hall.
It is the city’s policy to wait until the payouts of employees who resign or retire are covered within approved budgets before rehiring for the positions.
During each of the past few years, this policy has affected various city departments.
The library is the latest department being affected, and its director brought the issue before the council during its July 18 meeting.
“I know it’s not a popular subject, and I will be in trouble with some of my fellow employees,” Peg Burington said when she addressed the council during the public input portion of its meeting.
She referred to the more than $70,000 payout the city’s former public works director received when he resigned in 2015 and now the payout her department must cover due to the resignation of the assistant library director.
Dominic Frandrup submitted his resignation July 5, and his accumulated sick and vacation payout will be $37,087.
Burington described it as a loss for taxpayers and the departments that have to figure out how to come up with covering the payout.
She likened it to winning a lottery, saying those who work for the city and qualify for full sick leave reimbursement are able to go onto their next positions in other communities with large sums of money to put toward a new house or car.
“It has to be a policy we look at,” Burington said, “so we don’t cripple a department when someone leaves.”
In a July 19 memo to the Library Board, she wrote, “We do not have the funds in our current budget for this expense. Kathy Kasza, city finance director, suggested that we use some of our fund balance to help with this expense.
“If we don’t use fund balance, we will need to delay hiring until March of 2018, In order to be able to hire as soon as possible, we will need to keep part-time hours to a minimum. We will be working to cover duties and shifts as well as we are able.”
Sick leave payout is not uncommon in Wisconsin municipalities and was often found in labor agreements, explained City Administrator Henry Veleker.
The city revised its employee handbook after the passage of Act 10 in 2011, with the most recent update in 2016.
“Essentially, employees could accrue up to 1,200 hours (150 days) of sick leave before the changes to the handbook. Now new employees can accrue up to 720 hours (or 90 days),” he said.
Regular full-time city employees accrue paid sick leave at the rate of eight hours per month.
The maximum accrual of 150 days is for those hired before Nov. 15, 2011.
For those hired after that date, the maximum accrual is 90 days.
Veleker said the payout schedule was changed for employees hired after the handbook’s most recent update.
The sick leave payout for employees hired before Sept. 20, 2016 is 50 percent for those who worked one to five years for the city, 60 percent for those who worked six to 10 years, 70 percent for those who worked 11 to 15 years and 100 percent for those who worked 16 or more years.
Since Frandrup worked for the city 16 years, he falls under this schedule and qualifies for the 100 percent sick leave payout.
The payout for those hired after Sept. 20, 2016 is now 50 percent for those who worked 10 years for the city, 75 percent for those who worked 15 or more years and 100 percent at retirement.
Veleker said when city employees resign through retirement or to take another job, taking their accumulated sick leave as a cash payment is an option.
“Giving employees that option makes both options taxable, thereby reducing the actual cost of the benefit to the employee,” he said. “If there is only the option of using accumulated sick leave towards qualified medical expenses then the benefit would not be taxed, thereby giving the employee the full value of their benefit as well as saving the city some money vis-à-vis a cash payout.”
The reason why the sick leave cash payout has been kept in the employee handbook is because employees expressed a concern that if they retire and pass away, any balance in their sick leave accrual would be lost, Veleker said.
Taking the cash payout would allow the spouse to keep some of the benefit, he said.
Veleker noted the current employee plus one premium for health insurance is about $900 per month.
In the spring of 2015, the city’s former public works director resigned after working for the city almost 19 years.
It took four months for the city to recoup the cost of his accumulated sick and vacation payout, which totaled $73,989.
The city’s new public works director came on board Sept. 1, 2015.
In January of 2016, the Public Works Department again experienced being down an employee after a member of the Street Department retired after working for the city 28 years.
Veleker said the employee had the maximum hours of sick leave and vacation, and the cost to the department’s budget was about $36,000 plus FICA and Social Security.
The employee received 60 percent of that amount as net pay, and as a result of that payout, there was a delay in hiring the replacement, he said.
It took until last October for the Public Works Department to get back to full staffing within the funds budgeted by the common council.
Last year, Waupaca’s Police Department also saw the effect of the city’s policy when its former police chief retired, effective June 3, 2016.
The cost to the department’s budget was about $26,000, plus FICA and Social Security, Veleker said.
The department delayed filling the position until the approved budget covered the cost.
That was about four months later.
After the Police and Fire Commission appointed Brian Hoelzel interim chief at the time of the former chief’s retirement, it then offered him the position on Oct. 11, 2016.
Veleker said sometimes, the city knows in advance someone plans to retire.
Other times, that is not the case.
He also said there have been exceptions to the city’s policy of waiting until payouts are covered before rehiring.
When two long-serving Public Works employees announced early one year they were retiring, that meant the loss of two snowplow drivers for the city, he said.
“In this case, council approved the use of some reserves to help defray the cost of the payouts so that the positions could be filled quicker in anticipation of the winter and needing snowplowers,” Veleker said.