Third Quarter 2018
By: Ryan T. Locke
Question: In an otherwise compensable workers’ compensation case, is an employer permitted to use salary continuation and can payments of it serve as a credit against TTD obligations?
Short Answer: Yes. Under 8(j) 2 of the Act, so long as the payments an employee receives are limited to occupational related disabilities – not a benefit the employee would be entitled to irrespective of the occupational related disability – the employer will receive a credit for each payment made, but only to the extent of the compensation that would have been payable during that period.
Discussion: An injured employee in an otherwise compensable claim is entitled to TTD payments while s/he is off of work due to work related illness. Generally, TTD payments are the equivalent of 66- 2/3% of the employee’s average weekly wage. 820 ILCS 305/8(d) 2. Under Section 8(j) 2 of the Act, an employer is entitled to credit for compensation payments made pursuant to the Act. 820 ILCS 305/8(j) 2. However, the employer will not receive credit for benefits which would have been paid irrespective of the occurrence of a workers’ compensation accident. Tee-Pak Inc. v Industrial Com’n of Illinois, 141 III.App.3d 520,490 N.E.2d 170 (1986). Ultimately, the burden lies upon the employer to show the salary payments the employee received were limited to occupational related disabilities. Id.
Two cases well illustrate the proper application of 8(j) 2 of the Act. First, in Tee-Pak, Inc., the claimant was employed as a shop foreman. 141 III.App.3d 520, 490 N.E.2d 170 (1986). The claimant suffered an injury when he hit his head on a turnbuckle while inspecting a machine. Id. The claimant was paid full salary while he was injured. Id. The payments were made under a benefit program which ensured full salary to Tee-Pak employees who were off of work due to an accident or illness. Id. TeePak’s Manager of Account Services testified at the arbitration hearing that the sick-pay benefits were payable whether or not the claimant was injured at work. Id. Still, the Commission found the employer should receive a credit for the payments made to the claimant from this fund. Id. The Illinois Appellate Court overturned the Commission’s ruling stating, “Because Tee-Pak failed to show that these benefits are limited to occupational related disabilities, the credit section of the Act does not apply.” Id.
Later, the Tee-Pak decision was distinguished by the Illinois Appellate Court in Elgin Bd. of Educ. School Dist. U-46 v Illinois Workers Compensation Com’n, 409 III.Ap.3d 943, 949 N.E.2d 198 (2011). In Elgin Bd. of Educ., the claimant was a teacher who injured her knee on a desk. Id. At the arbitration hearing, the claimant testified she received full salary in lieu of TTD benefits but that she had to utilize earned sick pay to do so. Id. Claimant further testified that any earned sick pay carried value as it impacted her retirement benefit. Id. Relying on the Court’s decision in Tee-Pak, Inc. the Commission found respondent was not entitled to a section 8(j) 2 credit for salary paid to claimant in lieu of TTD benefits. Id. The Illinois Appellate Court overturned the Commission’s decision distinguishing the case from the TeePak, Inc. decision. Id. The Court stated, “In Tee-Pak, Inc. there was evidence from which the Commission could infer that the employer intended its employees to collect both TTD benefits and salary payments for the same period. In the present case there was no evidence that respondent had in place a similar policy. Thus, the limitation of section 8(j) imposed in Tee-Pak, Inc. does not apply here.”
So long as the payments made to the employee are limited to occupational related disabilities and are not a benefit the employee would be entitled to irrespective of the occupational related disability, the employer should be entitled to a credit under 8(j) 2 of the Act. Still, it is important to remember the burden lies with the employer to show they are entitled to credits. Failure to do so could waive any and all rights to credits under 8(j) 2 of the Act. See Board of Ed. Of City of Chicago v Chicago Teachers Union, 86 III.2d 469, 427 N.E.2d 1199 (1981) (the Court held, where the Board did not assert its right to credits before either the Commission or the arbitrator, the Board waived whatever rights it had to credits under 8(j) 2.)
It should be noted, the employer will only be entitled to a credit for the net amount of compensation paid to the employee, not the gross amount. Generally, payments made to an employee from a group salary continuation plan are taxable. In the event an employee is paid out of such plan, the employer’s credit will be limited to the net amount of compensation received by the employee. See Navistar Intern. Trans. Corp. v lndust. Comm’n, 315 III. App. 3d 1197, 734 N.E.2d 900 (2000). Further, while payments made under salary continuation group plan may be credited against a TTD award, the difference between the amount paid and the amount owed under the Act will not be credited against a PPD award. Section 8(j) 1 of the Act explicitly prohibits such credits. Bettis v. Oscar Mayer Foods Corp., 242 III.App.3d 689, 691, 183 III.Dec. 110, 610 N.E.2d 1354, 1355-56 (1993).
- Immediately tell your attorney whether the employee is being paid through a salary continuation plan. Failure to assert your right to a credit timely may result in a waiver of the credit.
- Keep track of any payments made to an employee while off of work. While payments made to employee from group plans may not be credited towards PPD, other payments may be eligible. Further, since the net compensation amount is all an employer is entitled to a credit for, it is important to know the exact net compensation amount to avoid underpayment and possible penalties.
- When discussing salary continuation benefits with employees, use unambiguous terms. Using terms like “sick pay” for salary continuation or disability payments can create ambiguity and could cause confusion regarding which benefits are specifically related to occupational disability and which benefits the employee would be entitled to irrespective of the occupational related disability.