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Salary Schedules and Allowable Salary Increase FAQs

Salary Schedules and Allowable Salary Increase

Based on the Michigan Supreme Court’s June 2, 2023, order, the Normal Salary Increase (NSI) schedules described in the Reporting Instruction Manual (RIM) will no longer be used for compensation earned after June 30, 2020 (fiscal year 2020). In its place, the Office of Retirement Services (ORS) will periodically request a normal salary schedule for those positions that generally have fewer than three members in the same job classification. If a normal salary schedule doesn’t exist for that position, then ORS will request one for the most nearly identical job classification in that reporting unit.

Determining reportable or nonreportable increases

When the position being reviewed has a salary schedule, or a nearly identical job classification salary schedule, ORS will verify that the reported wages followed the schedule. If so, the wage increase is considered reportable. Wages above the salary schedule increase may be considered nonreportable. ORS will use the salary schedule provided by the reporting unit to determine the allowable salary increase for the position.

Frequently asked questions

1. What is the normal salary increase limitation?

The Retirement Act limits the crediting of pay increases (relative to that which was credited for the previous year) to the extent that an increase is supported by the normal salary schedule for the member’s position. If the member works in a job classification with fewer than three members, the normal salary schedule for the most nearly identical job classification in the reporting unit or in similar reporting units shall be used.

2. What is a normal salary schedule?

A salary schedule is an outline of the base salary that an employee can achieve. The Michigan Public School Employees Retirement Act refers to them as normal salary schedules (MCL 38.1303a(3f)). See the RIM section 4.05: Normal salary schedule for more information.

3. Why is there a requirement to follow a normal salary schedule when determining reportable compensation?

The Michigan Public School Employees Retirement Act requires that all compensation increases fall under an established normal salary schedule. See RIM section 4.05: Normal salary schedule for more information. Note that an employer can offer, and pay, any increase amount to an employee, but only the allowable salary increase, as determined using a salary schedule, will be included as part of that employee’s reportable compensation.

4. Are the Normal Salary Increase (NSI) schedules, or percentage tables, still in use?

The NSI schedules provided in the RIM will only be used for compensation earned through June 30, 2020 (FY 2020). For historical purposes, you can access the tables in RIM sections: 4.05.01: Normal salary increase (NSI) schedules for K12, charter schools/PSAs, ISDs, and libraries (employment class codes 1110, 1120, and 1130) and 4.05.02: Normal salary increase (NSI) schedule for colleges and universities (employment class codes 1110, 1120, and 1130).

5. If the NSI schedules are no longer used, how will ORS determine allowable salary increases?

During annual wage reviews, the wage inflation rate will be used as a baseline for allowable salary increases. When an employee retires, ORS will request a salary schedule to determine the employee’s allowable salary increase for each fiscal year (beginning with FY 2021).

6. If a salary paid in FY 2020 met the NSI schedule in FY 2020, will that become the new “baseline” for future year increases?

ORS will still compare the reportable compensation reported in FY 2020 to reportable compensation in FY 2021. The allowable salary increase percentage will be based on the salary schedule submitted by the employer. The allowable salary with increases for one fiscal year becomes the base salary upon which the next year's allowable increase is calculated.

7. How will ORS handle significant raises intended to pay a competitive salary or to retain an employee (keep them from leaving for another district offering higher compensation)?

An employer can offer, and pay, any increase amount to an employee, but only increases supported by the normal salary schedule for the member’s position (or for the most nearly identical position in the reporting unit or in similar reporting units), known as the allowable salary increase, will be included as part of that employee’s reportable compensation.

8. What happens if a salary schedule doesn’t exist for a position?

If a salary schedule doesn’t exist for that position, ORS will request a salary schedule for the most nearly identical job classification in that reporting unit. It is the reporting unit’s responsibility to determine the salary schedule to provide.

9. How will ORS use the salary schedule from a similar position to determine the reporting compensation for a position?

ORS will compare the salary increases of the two similar positions. ORS will use the similar salary schedule to calculate the percentage increase, and will use only the percentage increase, not the actual wages, to determine the reportable compensation in the similar position. For example: if a director position salary schedule is used for comparison to a superintendent position, the actual director wages are not considered, just the percent of the increase.

Reporting Unit Impact

10. Will ORS provide an example of a salary schedule?

ORS has not established a preferred format for a salary schedule. The expectations are to receive clear and specific documentation supporting the salary increase(s), as well as clear documentation of the approval by the board of control. This could be information explicitly included in an approved contract, information clearly captured in an adopted board resolution, or something else entirely that meets the criteria.

11. Do salary schedules need to be formally established as an appendix? If it is written into individual contracts, would that be acceptable?

No, they do not need to be established as an appendix. ORS has not established a preferred format for a salary schedule. The expectations are to receive clear and specific documentation supporting the salary increase(s), as well as clear documentation of the approval by the board of control. This could be information explicitly included in an approved contract, information clearly captured in an adopted board resolution, or something else entirely that meets the criteria.

12. Will ORS accept retrospective salary schedules created to reflect the compensation that was paid for the years in question?

No. Salary schedules must be in place prior to when the compensation was earned. ORS will not accept supporting documentation that has been postdated. If a salary schedule doesn’t exist for the position being reviewed, ORS will request a salary schedule for the position that is the most nearly identical job classification in that reporting unit. Using the normal salary schedule and the associated documentation, ORS will evaluate reported compensation in view of the allowable percentage amounts indicated, as described above.

13. If we can’t offer supporting documentation for the increases above the normal salary schedule, will contributions be returned to the employee and employer?

The rules for processing record adjustments have not changed. When an adjustment is required to remove nonreportable compensation, the employer will receive a credit of employee and employer contributions at the time the adjustments post. It is the responsibility of the employer to refund the contributions to their employee.

14. Will the types of documentation ORS accepts be changing as part of this new process?

The type of documentation ORS accepts has not changed. ORS will continue to ask for supporting documentation for all reportable compensation. Supporting documentation must be approved prior to the employee earning the wage. The supporting document cannot be accepted if amended or postdated. See RIM section 1.02.01: Targeted audits and reviews.

15. Should salary schedules contain all reportable compensation (e.g., longevity and merit pay) or just base salary?

No, salary schedules do not need to contain all reportable compensation; however, all types of additional compensation should be documented. ORS has not established a preferred format for a salary schedule. The expectations are to receive clear and specific documentation supporting the salary increase(s), as well as clear documentation of the approval by the board of control. This could be information explicitly included in an approved contract, information clearly captured in an adopted board resolution, or something else entirely that meets the criteria.

16. Will ORS still review compensation for additional duties for reportability when determining increases that exceed the allowable salary increase?

Yes, we will still review compensation for additional duties. Sometimes salary increases are intended to provide additional compensation to employees who have taken on additional duties and responsibilities (not resulting from an increase in volume of the same duties). Yet the additional duties are not enough to warrant reclassification to a higher job grade level or a different title. Additional duties are considered reportable compensation if both the following criteria are met:

  • The additional duties taken on are not compensated for in the normal base salary.
  • The payment is not resulting from an increase in volume of the same duties.

See RIM 4.04: Special situations for more information.

17. Would the principal group salary schedule be an acceptable substitution for a business director?

If the positions are deemed to be the most nearly identical, then yes. We rely on the employer to make the determination of “most nearly identical.” If a salary schedule doesn’t exist for that position, ORS will request a salary schedule for the most nearly identical job classification in that reporting unit. It is the reporting unit’s responsibility to determine the salary schedule to provide.

18. Does a salary schedule need to include compensation for future fiscal years?

Typically, salary schedules cover multiple years, including future years. If the salary schedule provided by the reporting unit is set to expire or covers only one year, ORS will contact the reporting unit the next year for another salary schedule.

Active and Retired Member Impact

19. How will a retiree be affected by the removal of the NSI tables?

The NSI rate tables will not be used past FY 2020. ORS does not plan to review anyone who retired prior to the Supreme Court Ruling issued June 2, 2023.

20. Are employees notified that their salary increase may impact their retirement benefits?

Yes. At the time ORS finds an employee’s reported wages exceeded the allowable salary increase, we notify both the employer and employee of the adjustments.

21. As an employer, will I receive notification once a review is completed?

No, ORS will not notify the employer; however, we send the employee a final letter once their retirement application has been finalized.

22. How far back will ORS look to determine an employee’s final average compensation (FAC)?

The process to calculate an applicant’s FAC has not changed. ORS is responsible for finding the highest consecutive years of reportable wages to calculate an applicant’s FAC. The number of years in the calculation depends on the member’s retirement plan. The member website explains Final Average Compensation in more detail.

23. Which employees are likely to have salary schedules requested for review?

The Retirement Act’s normal salary increase limitation applies to all members. In cases where a member’s position is governed by a normal salary schedule (e.g., teachers, paraprofessionals, food-service workers, etc.), the normal salary schedule for the member’s position is used. However, in cases where a member’s pay is not determined by a normal salary schedule, ORS will evaluate reported compensation increases with respect to the normal salary schedule for the position most similar to the member’s, as discussed above. ORS strives to minimize any processing delay, but it is important to understand that all reported compensation increases are subject to validation.

24. What can help minimize delays in processing an employee’s retirement?

As an employer, send ORS supporting documentation, such as contracts, salary schedules, and documentation for additional payments as soon as requested. ORS needs this documentation to complete the review for the fiscal years requested. In addition, documentation that clearly states why the employee earned any additional payment will help to prevent delays.