Department of Health and Human Services
Departmental Appeals Board
QUALITY CONTROL REVIEW PANEL
SUBJECT: Iowa Department of
Human Services
Docket No. A-93-92
Decision No. QC42
DATE: April 30, 1993
DECISION
The Iowa Department of Human Services (Iowa) appealed the
quality control
(QC) review determination of the Regional
Administrator of the
Administration for Children and
Families (ACF) in State QC review number
91090. ACF
determined that Iowa QC erred in finding a $13
underpayment of the Aid to Families with Dependent
Children (AFDC) grant
to the assistance unit (AU) for the
review month of May 1992. Iowa QC
found that the
underpayment resulted from the local agency's decision to
prorate the "vacation pay" received by a stepparent
living with the AU
over a twelve-month period which
included the budget month used to calculate
the grant.
According to Iowa QC, the full amount of the vacation pay
should have been treated as earned income in the month in
which it was
received, which was prior to the budget
month. ACF found, however,
that the vacation pay was
properly prorated and that there was thus no
underpayment.
For the reasons discussed below, we reverse ACF's
determination that Iowa
QC erred in finding an
underpayment in the amount of the grant. In the
absence
of a definitive guideline requiring ACF's approach to
vacation
pay, Iowa's treatment was reasonable.
Relevant Authority
Under the AFDC program, a state must take into
consideration an AU's
earned income less certain
permitted disregards in computing the AU's
eligibility
and grant amounts. Sections 402(a)(7)(A) and 402(a)(8)
of the Social Security Act. The income of a stepparent
who lives
with the natural parent and dependent child is
counted as income to the
AU. 45 C.F.R. §
233.20(a)(3)(xiv). The implementing regulations
provide
that states "may prorate intermittent income received
quarterly,
semi-annually, or yearly over the period
covered by the income" and use the
prorated amount to
determine need and the amount of the assistance payment.
45 C.F.R. § 233.20(a)(3)(iii).
In addition, the QC Manual issued by ACF provides in
pertinent part that
"[w]hen an AU receives income . . .
at intermittent intervals, such as
annual payment for
sale of crops, the State may count the income for the
month in which payment was received, or it may prorate
the income over
the period of time covered by the
income." QC Manual dated September
9, 1991, section
3551. Iowa's policy on intermittent income stated
that
"[i]ncome received . . . intermittently shall be prorated
over the
period covered by the income and applied to the
grant for the same number of
months. . . ." Iowa
Employees' Manual (State Manual) at IV-B(3)-103,
dated
January 23, 1990 (at ACF Exhibit (Ex.) 1).
Factual Background and Parties' Arguments
G.M., the stepfather of the dependent child, received a
check from his
employer, Pinkerton's Inc., in the amount
of $158.40, the treatment of which
is at issue here. 1/
According to information provided by
Pinkerton's to the
local agency on September 19, 1991, this check was
received on April 9, 1991 and represented "vacation pay"
for 36 hours of
vacation. ACF Exhibit (Ex.) 5. Based on
other information
provided in the same document, it
appears that G.M. was compensated for this
vacation at
his regular hourly rate of pay. 2/ Information
provided by Pinkerton's to Iowa QC on July 2, 1992
indicated that the
vacation check was received on April
17, 1991, and that G.M. was on vacation
from April 17,
1991 through April 24, 1991. ACF Ex. 2. While
there is
thus some question as to the precise date the check was
received, the check was clearly received on or about the
time that G.M.
took his vacation in April 1991. 3/ It
appears from the
record that G.M. did not receive any
other pay for the time he was on
vacation. 4/ G.M.
quit his job at Pinkerton's in September
1991. He did
not receive any severance pay or vacation pay at that
time. ACF Ex. 5.
The local agency determined that the $158.40 represented
intermittent
income that should be prorated over a
twelve-month period, and counted
$13.20 per month as
income for the months beginning April 1991 and ending
March 1992. March 1992 was the budget month used to
determine the
grant amount for the review month of May
1992. Thus, the prorating of
the vacation pay increased
the AU's income and reduced the amount of the
AFDC grant
for May 1992.
Iowa QC determined that the $158.40 should not have been
prorated because
the check "was received on 4-9-91 at the
time of vacation, not in 9-91 at
the time of
termination." Iowa appeal dated 1/19/93, attachment,
State form PA-2135-0, dated 8/11/92. Iowa QC cited as
the
applicable State Manual references a provision
identifying vacation pay as
earned income and a provision
containing instructions for treatment of
stepparent
income. Id. at 2.
Federal QC found Iowa QC's determination in error,
stating that the
references to the State Manual cited by
Iowa QC "provide no reason to stop
projecting the income
after [G.M.'s] employment terminated in September
1991."
Letter from Allen to Palmer dated 11/6/92, at 1.
In its request for reconsideration of the federal QC
determination, Iowa
QC contended that the payment in
question was not intermittent income, but
was rather
"ongoing earned income received on a weekly basis." Iowa
appeal dated 1/19/93, attachment, letter from Sammon to
Allen dated
12/7/92, enclosed "State Response to
Difference Letters," at 1-2. Iowa
QC pointed out that
while periodic or intermittent income covers a period of
time over which it is to be averaged, the payment here
did not reflect
or cover a twelve-month period of time.
Iowa QC thus took the position
that the usual rules for
the treatment of earned income applied, requiring
that
the payment be budgeted in full on the date the employer
distributed the check (in April 1991).
On reconsideration, the ACF Regional Administrator
sustained the federal
QC determination, finding Iowa's
contention that the vacation pay did not
reflect or cover
a twelve-month period of time to be "unsupported or
directly contradicted by the record." Letter from Carson
to Palmer
dated 12/18/92, at 2.
On appeal to this Panel, Iowa asserted that Pinkerton's
written statement
provided to Iowa QC (at ACF Ex. 2)
showed that G.M.'s payment covered the 36
hours of
vacation he took upon receipt of the payment, so that it
was
properly considered earned income for that period.
Iowa emphasized
that the amount of the payment was
determined by the number of vacation
hours G.M. used at
that time, rather than by how long it took him to accrue
the vacation leave.
In response to the appeal, ACF noted that there was a
telephone contact
with Pinkerton's on October 10, 1992.
5/ A memorandum of
the contact notes that Pinkerton's
stated that "the $158.40 vacation pay
received in 4/91
represented the preceding 12 months." ACF Ex.
2. ACF
argued that the payment thus "represented vacation
compensation earned over twelve months," and was an
intermittent payment
because it was received "[w]hen the
employee elected to take vacation and
draw the pay." ACF
response dated 2/16/93, at 3.
6/
Analysis
We conclude that Iowa QC did not err in determining that
G.M.'s vacation
pay should not have been prorated.
Prorating income is appropriate
where a lump-sum payment
is made which covers a period longer than a month,
the
unit of time usually considered in determining an AU's
income.
In that case, a portion of the payment can
reasonably be attributed to each
of the months covered by
the payment. Thus, in the example given in
the QC
Manual, income from the sale of crops is subject to
proration because several months of work are necessary to
grow and
harvest the crops.
Iowa's policy requiring the proration of intermittent
payments is simply
inapplicable to the facts of this
case, however. As noted previously,
G.M. did not receive
his regular wages for the week when he was on
vacation.
However, his "vacation pay" was equal in amount to what
his regular wages would have been. Thus, the "vacation
pay"
constituted income in lieu of wages. It was
therefore clearly
attributable only to the week G.M. was
on vacation, and cannot reasonably be
treated as
intermittent income.
The last statement by Pinkerton's, that the vacation pay
"represented the
preceding 12 months," does not require a
different conclusion. ACF
took Pinkerton's statement to
mean that the vacation leave was accrued over
the twelve
months prior to the month the payment was received.
However, even if G.M. was entitled to a week's paid
vacation after
working twelve months, that would not
alter the fact that the pay related
specifically to the
week G.M. was on vacation. Moreover, if G.M. was
not
entitled to use any vacation leave until he had worked a
full twelve
months, the period of time it took to earn
the leave was irrelevant.
Furthermore, even if the vacation pay could logically be
prorated over
the time it took to accrue the vacation
leave, that does not explain why the
local agency
prorated the payment over the twelve-month period
following
receipt of the payment rather than prior to its
receipt. ACF also
failed to explain the logic of
prorating the vacation pay to the months
following the
termination of G.M.'s employment with Pinkerton's in
September 1991, during which G.M. had no other income
from
Pinkerton's.
Our conclusion is not intended to imply that there are no
situations in
which vacation pay could properly be
prorated. If, for example, G.M.
had not taken the week's
vacation which he had earned, but had been paid for
the
vacation in addition to his regular wages, that payment
would be
attributable to the several months over which
the vacation leave was accrued
rather than to a specific
period of time worked, and proration would be
proper.
However, the case now before us is different since the
vacation pay was clearly attributable only to the week
G.M. took his
vacation.
Conclusion
For the reasons discussed above, we conclude that Iowa QC
reasonably
determined that the vacation pay should have
been treated as income to the
AU for the month in which
it was received rather than prorated over twelve
months,
as was done by the local agency. Accordingly, we reverse
ACF's finding that Iowa QC erred in finding an
underpayment in the
review month.
__________________________
Carmen
Cafasso
__________________________
Peggy
McFadden-Elmore
__________________________
Carolyn
Reines-Graubard
* * * Footnotes * * *
1. We identify this
individual by his initials to
protect his
privacy.
2. ACF Ex. 5 shows
that G.M. was to receive a
final check of $105.60 for 24 hours' work
performed prior
to the date his employment terminated. His regular
hourly rate of pay was thus $4.40, the same as the rate
at which he was
paid for 36 hours of vacation ($158.40
divided by 36).
3. The information
provided by Pinkerton's on
July 2, 1992 about the length of G.M.'s vacation
is not
necessarily inconsistent with the information provided by
Pinkerton's earlier, since April 17-24 represents one
working week, and
G.M. might have worked a 36-hour week.
4. Iowa asserted, and ACF did not dispute, that
the
payment "was simply paid vacation while [G.M.] was
taking some time off from
the job." Iowa appeal dated
1/19/93, attachment, letter from Sammon to
Allen dated
12/7/92, enclosed "State Response to Difference Letters"
at
1-2.
5. It is not
clear from the record whether this
contact was made by Iowa QC or by federal
QC.
6. ACF also asserted
that Iowa had effectively
agreed that the payment was intermittent and that
Iowa
disputed only the period of time over which the payment
should be
prorated. We see nothing in the record which
suggests that this was
Iowa's position, however.