Shift-Differential & Premium Pay Are “Earnable Compensation” under the South Carolina Retirement System

Introduction

In William M. Luce v. Lexington County Health Services District, Inc., the Supreme Court of South Carolina resolved a certified question from the United States District Court for the District of South Carolina. The dispute centered on whether various forms of extra pay—holiday premiums, weekend differentials, on-call stipends, call-back pay, and similar enhancements (collectively the “Wages in Controversy”)—qualify as “earnable compensation” under the South Carolina Retirement System Act (SCRS Act). The classification matters greatly because amounts deemed “earnable compensation” must be subjected to mandatory employee and employer retirement contributions under S.C. Code Ann. § 9-1-1020.

Plaintiff William M. Luce, a Certified Registered Nurse Anesthetist (CRNA) who had already retired and was receiving benefits, alleged that continued deductions from these premium wages violated both constitutional protections against takings and the South Carolina Payment of Wages Act. The federal court, recognizing that resolution hinged on the meaning of “earnable compensation,” certified the statutory question to the state high court.

Summary of the Judgment

Answering the certified question, the Supreme Court held unanimously that shift-differential, holiday, on-call, call-back, and related premium payments are “earnable compensation.” Accordingly, public employers must continue to withhold and remit retirement contributions on such amounts. The Court reasoned that these payments, while labeled differently, remain remuneration for hours actually worked and do not fall within the statutory exclusions for bonuses, incentives, or one-time irregular payments contained in § 9-1-1020.

Analysis

A. Precedents Cited and Their Influence

• Kennedy v. S.C. Retirement System, 549 S.E.2d 243 (2001) – Emphasized the cardinal rule that equal treatment of similarly situated beneficiaries is foundational to a qualified defined-benefit plan. The Court invoked Kennedy to highlight the need for uniform contribution bases across hundreds of SCRS-participating employers.
• King v. S.C. Retirement System, 461 S.E.2d 822 (1995) – Established that the SCRS Act should be “liberally construed in favor of those to be benefited.” The Court nevertheless balanced this pro-member canon with the actuarial soundness imperative.
• Duvall v. S.C. Budget & Control Board, 659 S.E.2d 125 (2008) & Wehle v. S.C. Retirement System, 611 S.E.2d 240 (2005) – Both stressed the constitutional and statutory framework protecting the independence and solvency of retirement funds; cited to justify consistent interpretation.
• Aiken v. S.C. Department of Revenue, 839 S.E.2d 96 (2020) and McBoyle v. United States, 283 U.S. 25 (1931) – Cited for the ejusdem generis canon, guiding the Court to confine § 9-1-1020’s residual phrase (“any other payments”) to items similar to bonuses and one-off incentives.

B. The Court’s Legal Reasoning

1. Textual Focus on “Full Rate” & “Full Normal Working Time.”
   Section 9-1-10(8)(a) defines “earnable compensation” as “the full rate of the compensation that would be payable … if the member worked the member’s full normal working time.” By repeating “full,” the legislature signaled intent to capture all compensation for work actually performed, regardless of differential labels.
2. Operation of § 9-1-1020 Exclusions.
   The exclusions—unused sick leave payouts, retirement lump-sums, bonuses, incentive payments, and “other payments not considered a part of the regular salary base”—describe irregular, one-time, achievement-based, or non-work-hour-related payments. Under ejusdem generis, shift differentials do not belong in that class because they correlate directly with hours worked.
3. Contextual and Systemic Considerations.
   Uniform inclusion of premium hours promotes actuarial stability and prevents manipulation of retirement bases among diverse public employers, echoing Kennedy.
4. Label Irrelevance.
   The Court rejected paycheck nomenclature—“call-back,” “premium,” etc.—as determinative. Substance controls over form: payment for labor equals compensation.

C. Impact on Future Cases and Public-Sector Employment

• Immediate Payroll Compliance. State and local agencies must deduct SCRS contributions on all premium pay tied to hours worked, averting potential refund claims or contribution shortfalls.
• Budgetary Adjustments. Employers may face increased payroll contribution obligations. Budget projections must account for retirement contributions on high-rate overtime and specialty shifts.
• Clarification for Retiree-Returning Employees. The ruling confirms that “return-to-work” retirees, like Luce, remain liable for contributions on post-retirement wages—even if such contributions do not enhance their benefit calculation.
• Guidance Beyond Healthcare. The logic applies across sectors—public safety, utilities, higher education—where shift and on-call differentials are common.
• Statutory Drafting Signal. If the legislature wishes to exempt certain premium pays, it must do so expressly; silence now equates to inclusion.

Complex Concepts Simplified

Certified Question

A formal request from a federal court to a state high court asking how state law should be interpreted on a specific point.

Earnable Compensation

The salary base upon which retirement contributions and eventual benefits are calculated.

Shift Differential / Premium Pay

Extra hourly amounts paid for working nights, weekends, holidays, overtime, or being on-call.

ejusdem generis

A rule of statutory interpretation: when general words follow specific examples, courts limit the general words to things similar to the named items.

SCRS

South Carolina Retirement System – the defined-benefit pension plan for state and many local public employees.

Takings Clause

The constitutional prohibition against government taking private property without just compensation; Luce alleged improper deductions constituted an unlawful taking.

Conclusion

The Supreme Court of South Carolina’s decision in Luce cements a clear rule: all remuneration for hours actually worked, irrespective of premium rates or labels, constitutes “earnable compensation” under the SCRS Act. By anchoring its holding in textual analysis, interpretive canons, and structural concerns for pension integrity, the Court provides a robust precedent that forecloses piecemeal attempts to exclude shift differentials or similar pay from retirement contributions. Public employers must adjust payroll practices accordingly, and employees—active or post-retirement—can expect uniform treatment of their varied wage components for retirement purposes. The ruling thus promotes actuarial soundness, equitable treatment, and statutory clarity across South Carolina’s public workforce.