Faculty and Contract Employees

4.5 contracts are distributed over a single academic semester (Fall or Spring) and are paid through a total of 5 checks. Since the academic semester starts/ends in the middle of a month, one check will be adjusted to the total days worked in that month (August in Fall and May in Spring).

9/9 contracts are distributed over an academic year and are paid through a total of 10 checks. Since the academic year starts and ends in the middle of a month, two of the checks will be adjusted to the total days worked in each month (August and May).

There are two types of 912 contracts:

New 912 contracts are distributed over an entire year (8/16 – 8/15) and are paid through a total of 12 checks. Since the contract begins in the middle of August, a portion of the contract is deferred to August of the next year.

Old 912 contracts are distributed over an entire year (8/1 – 7/31) and are paid through a total of 12 checks. This payment method is being phased out and will only remain for employees grandfathered into the method or employees moving from a staff position to a faculty contract.

Faculty at the University of Oklahoma with contracts for 9-month (9/9) appointments may elect to have their contract salary evenly distributed over a 12-month period (9/12) provided they fall within Section 409A of the Internal Revenue Code.

Section 409A applies to compensation earned in one year but deferred until a future year. This amount is referred to as non-qualified deferred compensation and cannot exceed the federally established limit, which for the 2021/2022 academic year is $19,500. For faculty with less than annual contracts, the difference between the amount of pay earned but deferred from August through December cannot exceed $19,500 for 2021.

How do I know if I am eligible under Section 409A to elect the 12-month distribution of my pay?

As of the 2021/2022 academic year there are currently two contract periods for Faculty that choose to be paid over 12-months. For existing Faculty members paid 9/12 the contract period is from August 1^st of the current year through July 31^st of the following calendar year; for all new incoming Faculty who elect to be paid 9/12 the contract period begins August 16^th and ends August 15^th of the following year.

As a result of the differentiation in contract periods there are two 409A thresholds for Faculty who elect to be paid 9/12. For 2021 the threshold for 9/12 contract Faculty appointed from August 1^st – July 31^st may have a maximum annual income of $234,000; for 9/12 contract Faculty appointed from August 16^th – August 15^th the maximum annual income to participate as a 9/12 is $156,000.

Faculty contracts are reviewed annually for 9/12 eligibility in accordance with the IRS 409A Deferred Salary publication. Those found to be or become ineligible will be notified and moved into the 9-month payment structure; which renders payments from August – May.

Existing Employees Example 409A Calculation (9/12 contract payment period - August 1^st – July 31^st):

If your contract is 9-months (August 16^th – May 15^th) and you elect to receive your pay over 12 months, contract salary in excess of $234,000 will result in taxable deferred compensation to the employee under 409A.

234,000/9 = $26,000                       234,000/12 = $19,500

For the months of August through December, you will have earned $117,000 ($26,000 x 4.5) but have been paid $97,500 ($19,500 x 5). Therefore, you will have deferred the IRS maximum amount of salary of $19,500 ($117,000 less $97,500). Any 9-month contract employee with annual earnings that exceed the $234,000 threshold may not participate as a 9/12 paid employee.

New Employees Example 409A Calculation (9/12 contract payment period August 16^th – August 15^th):

If your contract is 9-months (August 16^th – May 15^th) and you elect to receive your pay over 12 months, contract salary in excess of $156,000 will result in taxable deferred compensation to the employee under 409A.

156,000/9 = $17,333.33                 156,000/12 = $13,000

For the months of August through December, you will have earned $78,000 ($17,333.33 x 4.5) but have been paid $58,500 ($13,000 x 4.5). Therefore, you will have deferred the IRS maximum amount of salary of $19,500 ($78,000 less $58,500). Any 9-month contract employee with annual earnings that exceed the $156,000 threshold may not participate as a 9/12 paid employee.

What does section 409A require if I am eligible and want to make this election?

The faculty member must make a written election to the Payroll and Employee Services department to annualize the contract salary by completing the Faculty Payment Option Form. For example, a faculty member with a 9-month contract would elect to spread the 9 months over 12 months, also known as 9/12.

• The election must be made before the start of the academic year, the designated date for last possible submission is August 15^th, 2022 for the 2022/2023 Academic Year.
• The election is irrevocable and cannot be changed after the academic year begins.
• The portion deferred must not exceed the federally established maximum. For 2022, the limit is $19,500.
•  The Faculty Payment Option Form is for university records only and is not filed with the IRS.

In the event the federally established limit is exceeded at the onset or in anticipation that the limit will be exceeded, the faculty member must elect to be paid as worked, such as 9/9.