In the Matter of the Petition by 	)   July 20, 1999
					)
SHERLENE T. CARRUTH			)
34 Silver Canyon Place			)
					)
	at				)
					)
The Woodlands, TX 77381-3089 		)   P.S. Docket No. DCA 99-157


APPEARANCE FOR PETITIONER:		Sherlene T. Carruth
					34 Silver Canyon Place
					The Woodlands, TX 77381-3089

APPEARANCE FOR RESPONDENT: 		L. Terrance Finley
					Inspector Attorney
					United States Postal Service
					222 S. Riverside Plaza, Suite 1250
					Chicago, IL 60606-6100

Petitioner, Sherlene Carruth, filed this Petition after receiving a Notice of Involuntary Administrative Salary Offsets, dated April 1, 1999, from the Acting Manager, Human Resources, Postal Inspection Service. This Notice stated the Postal Service's intention to withhold $762.53 from Petitioner's salary to recover an overpayment made in FY 1997. A hearing was held in Houston, Texas on June 23, 1999.⁽¹⁾ The Postal Service presented testimony from Cheryl Hubbard, a payroll accountant at Postal Service Headquarters. Ms. Carruth testified in her own behalf. The following findings of fact are based on the entire record, including observation of the witnesses and their demeanor.

1. For the last several years the United States Postal Service has had an incentive-type bonus program for management-level employees, called a variable pay program. In FY-95, both "exempt" and "non-exempt" employees participated. Exempt employees were paid a 6% bonus, and non-exempt employees were paid 3%. The terms "exempt" and "non-exempt" refer to whether employees are covered by the Fair Labor Standards Act, or whether they are "exempt" from it. The significant difference, for purposes of this case, is that employees covered by FLSA are entitled to be paid for any overtime worked, and exempt employees are not. For this reason, and also because exempt employees are usually at a higher management level, the bonus program is designed to pay a higher bonus to exempt employees. (Tr. 8-10).⁽²⁾

2. Beginning in FY-96, the program was based on what is called "Economic Value Added (EVA)," a measurement of the financial success of the Postal Service as a whole. In FY-96 only exempt employees were covered by the EVA program. They were paid a 10.47% bonus. Of this, 67% was paid directly to them, and the remaining 33% was put into a "reserve" account.⁽³⁾ Non-exempt employees were paid a flat $500.00 bonus. (Tr. 8-9; PS Ex. 1, pp. 5-6; PS Ex. 15).

3. In FY-97, the year in issue in this case, the program was modified again. The bonus for exempt employees was 9.89%, ½ (4.945%) to be paid directly and ½ (4.945%) to be put into reserve. Non-exempt employees were not participants in the EVA program, but were to get a special payment, equal to ½ of the percentage that was paid directly to exempt employees (2.47%). They were not entitled to have anything paid into reserve. (Tr. 10-11; PS Ex. 14).

4. Whether an employee is entitled to participate in the program is determined by his/her status, i.e., exempt or non-exempt, on the last day of the fiscal year (Tr. 7; PS Ex. 1, p. 6). Nevertheless, an employee who was non-exempt at the end of FY-97, but who had been exempt for part of the year, was to be paid pro-rated shares, based on the amount of time in each status. As stated above, these employees were completely excluded from the reserve part of the EVA program. (Tr. 13).

5. In FY-95, FY-96, and for the first half of FY-97, Petitioner worked in New Orleans. Her job title was "operations coordinator," which was classified as an exempt position, but she was also the personal secretary to the Postal Inspector-in-Charge of the New Orleans Division. For FY-95 and FY-96 she was paid the bonuses that applied to exempt employees, as described in Findings of Fact #1 and #2. (Tr. 11-12, 40-41).

6. In early 1997, the Postal Inspection Service merged the New Orleans Division with the Houston Division, to be headquartered in Houston. At the request of her boss, who became the Inspector-in-Charge of the new Division, Petitioner moved to Houston to continue to serve as his personal secretary. Although her pay level remained the same, and her duties did not change greatly, her position title did, and she was re-classified as a non-exempt employee. Therefore, for the first half of FY-97, 13 pay periods, Ms. Carruth was an exempt employee, and for the second half, 13 pay periods, she was a non-exempt employee. (Tr. 40-43, 58).⁽⁴⁾

7. Under the rules described in Findings of Fact #3 and #4, Ms. Carruth should have received an EVA payment for FY-97 as follows: (1) for the half year that she was non-exempt she should have been paid 2.47% of her salary (x 50%, because it was for only one-half of the year) - this amount was $475.22; (2) for the half year that she was exempt she should have been paid 4.945% of her salary (x 50%, because it was for only one-half of the year) - this amount was $951.40. Her total payment, therefore, should have been $1,426.62. Part (1) above was done correctly. Part (2) was not. As noted in Findings of Fact #3 and #4, an employee's status at the end of the fiscal year determines his/her eligibility, and a non-exempt employee is not entitled to have any amount paid into the reserve portion of the EVA bonus. In the case of Petitioner, and some 300 other Postal Service employees who had also been exempt for part of the year but non-exempt at the end, what would have been the reserve portion of their bonus was paid directly to them instead of being deleted altogether as it should have been. Petitioner, therefore, was paid an additional gross amount of $951.40. The net amount of this overpayment, after re-crediting taxes and Medicare deductions is $762.53. (Tr. 13-15, 20, 32, 37-38).

Respondent's position is simply that an administrative error was made in computing the amount of Petitioner's FY-97 bonus and, even though Petitioner was not at fault in any way, she is not entitled to keep the overpayment.

Petitioner's argument is primarily an "equity" argument, i.e., that she moved from New Orleans to Houston at her employer's request, that a number of administrative mistakes were made in implementing the EVA program, that attempting to understand the practical effect of all the modifications to the program has been confusing, and that she has acted properly at each step once she was notified of the alleged debt. In this regard, I am aware that Ms. Carruth has submitted a formal request, under Postal Service procedures, that the alleged debt be waived, and that this request is still pending. Both parties were advised early on that a Hearing Official in a Debt Collection Act proceeding has no authority to approve, or disapprove, a waiver, and I take no position on whether waiver is appropriate.

The explanation by Ms. Hubbard of the bonus program, and of the computations made in Petitioner's case, along with the supporting documents, make it clear that Petitioner was, in fact, overpaid by the amount alleged. There is no basis in the record for relieving her of the obligation to repay that overpayment. Accordingly, the Petition is denied. Respondent may collect $762.53 from Petitioner's salary.

2. "Tr." references are to pages in the hearing transcript. Postal Service Exhibits ("PS Ex.") are documents in the case file attached to the Answer.

3. The purpose of the "reserve" account is to encourage sustained good performance. Portions of the reserve account are paid out in subsequent years, depending on success in meeting goals. (Tr. 75-76; PS Ex. 1, p. 6).

4. Neither Petitioner nor her supervisor challenged her re-classification, perhaps because they were unaware of the effect it would have on her EVA entitlement. There is no evidence whether such a challenge would have been successful.