ne hourly rate determined at the exotion of the prior succeeded contract immediately prior to the establishat of the pay practice for which the reption is claimed is $3 or less. The rage straight time hourly rate shall determined pursuant to § 201.55. If a cssor contract succeeds a contract Diring on or before June 30, 1972, and entered into on or after July 1, 1972, > exception provided under subdivin (1) of this subparagraph may be imed without regard to the $3 limita

n.

(b) Certain pay practices. The limitaon set forth in subdivision (a) of subragraph (3) (iii) of this paragraph all not apply to a pay practice estabhed by an employer which is a State local governmental unit or an instruentality thereof, if

(1) Such pay practice next succeeds a ay practice which expired prior to uly 1, 1972, and

(2) Such employer was prevented by he law of the jurisdiction from estabshing such successor pay practice prior o July 1, 1972.

(c) Waiver of cutoff date. A catch-up xception may be claimed by an employer which is a State or local governmental init or an instrumentality thereof with espect to a pay practice which next succeeds a pay practice expiring prior to July 1, 1972, even if such successor pay practice is not established prior to November 14, 1972.

(iv) Catchup calculation—(a) Formula. In any case in which a computation is required to determine the annual increase in the catchup base compensation rate with respect to an appropriate employee unit pursuant to subdivision (i) or (ii) of this subparagraph, such annual increase shall be stated as a percentage which is determined by dividing the sum of—

(1) The total adjustment in the average straight-time hourly rate, plus

(2) The total adjustment in the average hourly benefit rate excluding employer contributions to qualified benefit plans referred to in § 201.58(b),

By the catchup base compensation rate in effect at the end of preceding catchup year. For purposes of this subdivision, the catchup base compensation rate shall include the average straight-time hourly rate (determined for catchup years, as appropriate, in the manner referred to in § 201.55(a)), and the average hourly benefit rate (determined for

catchup years, as appropriate, in the manner referred to in § 201.56(a)) excluding employer contributions to qualified benefit plans. Moreover, for purposes of this subdivision, the total adjustment in the average straight-time hourly rate for each catchup year under a prior succeeded contract or pay practice shall include any increase in such rate otherwise excludable in a control year pursuant to § 201.57. Compensating adjustments for changes in the composition of an appropriate employee unit with respect to average length of service or average skill levels shall not be permitted.

(b) Calculation illustrated. The application of this subparagraph may be illustrated by the following examples.

Example (1). A 2-year collective bargaining agreement between Employer A and Union X expired on May 31, 1972. The catchup base compensation rate (excluding qualified fringe benefits) on that date was $3.80 for the employees represented by Union X. Following extensive negotiations, Employer A and Union X reached a successor agreement on July 10, 1972 which was ratified by the employees on July 15, 1972. The successor agreement is retroactive in effect to June 1, 1972 and runs through May 31, 1974. If the sum of the percentage increases for the two catchup years is less than 15 percent, Employer A may claim a catchup exception in the control year beginning June 1, 1972 although the successor agreement was neither agreed to nor ratified prior to July 1, 1972.

Example (2). Assume the same facts as in Example (1). The average straight-time hourly rate for the last payroll period ending prior to May 31, 1970 was $3.20, for the last payroll period ending prior to May 31, 1971 was $3.35, and for the last payroll period ending prior to May 31, 1972 was $3.62. The average hourly benefit rate, disregarding employer contributions subject to the qualified benefits standard referred to in § 201.58 (d), at the rate in effect on May 31, 1970 was $0.16 at the rate in effect on May 31, 1971 was $0.17, and at the rate in effect on May 31, 1972 was $0.18. The total adjustment in the first catchup year of the prior succeeded contract was $0.16 [adjustment in the average straight-time hourly rate (83.35-$3.20) plus adjustment in the average hourly benefit rate excluding qualified fringe benefits ($0.17-$0.16)]. Such total adjustment of $0.16 divided by $3.36 ($3.20+$0.16), the catchup base compensation rate (excluding qualified benefits) in effect on May 31, 1970, provides a 4.8 percent increase in the first catchup year of the prior succeeded contract. The total adjustment in the second catchup year of the prior succeeded contract was $0.28 [($3.62-$3.35) plus ($0.18-$0.17) ]. Such total adjustment of $0.28 divided by $3.52 ($3.35+$0.17), the catchup base compensation rate (excluding qualified fringe

benefits) in effect on May 31, 1971, provides an 8 percent increase in the second catchup year of the prior succeeded contract. Thus, the maximum permissible annual aggregate wage and salary increase available to Employer A for the first 12-month period (the period beginning June 1, 1972) under the successor collective bargaining agreement is 6.7 percent [(14 percent-12.8 percent) plus 5.5 percent].

(4) Cost of living allowance calculation. (1) If a wage and salary increase in a new contract or pay practice is composed of two parts, wages and salaries other than cost of living adjustments and cost of living adjustments pursuant to and justified by a generally accepted escalator formula, the wage and salary part shall be calculated by the sum of the percentage increases method, and the cost of living part shall be calculated by multiplying each cost of living adjustment by a fraction, the numerator of which shall be the number of months within the appropriate control year such cost of living adjustment is in effect, and the denominator of which shall be the number of months in such control year. These two parts shall be added together to determine the aggregate wage and salary increase pursuant to this subparagraph.

(ii) The annual aggregate increase, calculated pursuant to the method in subdivision (i) of this subparagraph shall not exceed the general wage and salary standard.

(5) Merit increases-(i) Exception for qualified merit plans contained in successor employment contracts or successor pay practices. Wages and salary increases granted pursuant to a qualified merit plan (as defined in subdivision (ii) of this subparagraph), provided for in an employment contract or pay practice previously set forth which existed prior to November 14, 1971, and which is continued in a successor employment contract or successor pay practice effective after November 13, 1971, without any changes of terms or administrative practice shall (subject to the provisions of paragraphs (b) and (c) of this section) constitute an exception to the general wage and salary standard. For purposes of the preceding sentence, a change in the maximum or minimum terminal points of a pay rate range in a qualified merit plan shall not be deemed a change of terms if the ratio of such maximum to such minimum terminal point is not increased. For purposes of this subparagraph, a qualified merit plan provided for

F

a

in a pay practice which meets all of the criteria set forth in the first sentence this subdivision, except that such practice is not "previously set fort within the meaning of § 201.14(b) b Bo cause the aggregate amount to be a pended cannot be documented as be finally and formally decided prior to No vember 14, 1971, shall be treated as successor pay practice otherwise eligi for the exception provided in this su paragraph.

(ii) Qualified merit plan defined. F purposes of subdivision (i) of this su paragraph, the term "qualified me plan" means a merit plan which, prior November 14, 1971, was reduced to writ ing and communicated either to the man agement personnel responsible for imple menting the plan or to the employe covered by the plan, and which writte plan

(a) Applies to particular jobs, ja classifications, or positions with respect to which the duties and responsibilities of employees are specified,

(b) Specifies merit pay rate ranges with respect to such jobs, job classifica tions, or positions,

(c) Clearly defines policies and estab lishes practices (with respect to review of an employee's performance) for determining merit pay and the size and frequency of merit pay increases with respect to such jobs, job classifications, or positions, and

(d) Establishes a system of adminis trative control.

(iii) Special rules. With respect to an appropriate employee unit, wage and salary increases granted pursuant to 8 merit plan provided for in an employ ment contract existing prior to November 14, 1971, and continued in a successor employment contract effective prior to April 19, 1972 shall (notwithstanding the provisions of paragraphs (b) and ( of this section) be excluded from the computation of aggregate wage and salary increases. Such merit plan may continue to operate according to the fol lowing rules: Any increases applied to a rate range under such merit pay plan shall be considered a general increase in wages and salaries under the regulations in this chapter. However, individual increases within the rate range under such plans shall not be considered a wage and salary increase under such regulations.

(6) Governmental wage determinations. In any case to which the provisions of § 201.57(f) (relating to exclusions from

8

vid

Istment computations with respect to eral agency wage determinations and te and local prevailing wage laws) apthe Pay Board (or its delegate) may at an exception to the general wage salary standard in order to permit increase for those employees in the le appropriate employee unit who k at the same site, plant, or location > have not received an increase purnt to such section sufficient to main1 average historical wage and salary erentials among jobs, job classificaas, or positions. The average historical ge and salary differential shall be demined over the preceding 3 years and ist be consistent with prior practice ring such period. Such differential ist have been in effect within the unit

at least 3 years. In the event that ch unit has been in existence for less an 3 years or if the average historical ge and salary differential is not repsentative because of corrections made

such differentials to end inequities iring the preceding 3 years, the Pay oard (or its delegate) may determine joe average historical wage and salary

fferential by reference to the period of esne unit's existence or by reference to Dee differential existing after any such ancerrections.

the (7) Tandem qualified benefit plans. ncan any case to which the provisions of class 201.57 (g) (relating to exclusions from djustment computations in the case of ofertain employer contributions to quali- . ed benefit plans) apply, the Pay Board or its delegate) may (subject to the proisions of paragraph (c) of this section) Erant an exception to the general wage nd salary standard to a tandemlaiming appropriate employee unit, if he following conditions are met:

(i) The contract or pay practice overing the qualified benefit plan (see 201.58) to which a tandem relationship is claimed became effective not more than 12 months prior to the effecive date of the contract or pay practice providing for the increase in qualified benefits in the tandem-claiming unit,

(ii) The nature and levels of qualified benefits in the tandem-claiming unit have been generally equal or closely comparable to, and the timing of changes in benefits has been directly related to, those of another employee unit of the same employer, or of the employers within the same commonly recognized industry, local labor market area, or established unit or reference group of em

egul

eter

prom

ployees for determination of qualified benefits, and

(iii) The tandem relationship has been established as a past practice for 5 consecutive years or in the immediately preceding two collective bargaining agreements.

(8) Intraunit inequities—(1) General. An exception to the standard will be permitted if the employer demonstrates to the Pay Board (or its delegate) that wage and salary increases in excess of the standard are necessary to correct intraunit inequities (as defined in subdivision (ii) of this subparagraph). In order to qualify for this exception the employer must prepare and submit a comprehensive program which describes the cause or nature of such inequity and the manner in which such inequity is proposed to be corrected. Such program must show each of the following criteria:

(a) Job classifications that are described with sufficient detail to identify differences in job content based on relative value of the factors by which the classifications are measured (including e.g., skill, physical strain, responsibility, etc.).

(b) A realinement of wage rates that follows a systematic and orderly method for classifying, ranking or rating all of the job classifications in the unit, giving effect to skill, effort, responsibility, working conditions and other factors reflected in the classification content.

(c) Rate relationships (expressed in dollars and cents) that are established in accordance with accepted methods for job classification, historical practice in an industry, or through some other demonstrable guide in general use for classification purposes, including an explanation of the derivation of factor weightings on which the system is based.

(d) Rate relationships (expressed in dollars and cents) that reflect the different levels of skills as measured by grading selected jobs from the lowest to the highest level, on each of which a significant number of employees are grouped.

(e) A computation of the percentage increase in the wage rates or rate ranges for each job classification in the unit requesting exception, pursuant to the methods described in subdivision (iv) of this subparagraph.

(ii) Intraunit inequity defined. For purposes of this subparagraph, the term "intraunit inequity" means an inequitable pay situation within an appropriate

employee unit resulting from the introduction of new or changed technology whereby

(a) Technological changes are made or introduced in equipment, methods, materials, or processes, and

(b) A comprehensive change is required in production methods and techniques which affect not less than 10 percent of the job classifications and not less than 25 percent of the employees in such appropriate employee unit.

(iii) Limitations on exceptions. The maximum permissible annual aggregate wage and salary increase with respect to an appropriate employee unit for the control year such exception is claimed shall not exceed 7 percent: Provided, however, Such maximum shall be reduced to the extent that the amount necessary for the correction of intraunit inequities is less than 1.5 percent of the unit's base compensation rate. Once this exception has been claimed and allowed with respect to an appropriate employee unit for a control year, it may not be claimed in any succeeding control year with respect to the same unit.

(iv) Computation of increase in job classification rate or rate ranges. The computation referred to in subdivision (i) (e) of this subparagraph shall exclude "red circle" rates which become personal rates for incumbents and shall reflect, as appropriate, the following percentages

(a) Single job classification rates. For single job classification wage rates, the percentage difference between the weighted average of current job rates and the weighted average of the proposed job rates.

(b) Job reclassifications within existing rate ranges. For the reclassification of jobs without change in the existing rate ranges, the percentage difference between the weighted average of the rates actually paid within the range for each job classification prior to reclassification and the weighted average of the rates to be paid after such reclassification.

(c) Revised rate range structure. For revised rate range structures, the percentage difference between the weighted average of the midpoint of each job classification in the existing structure and the weighted average of the midpoint of each proposed job classification in the revised structure.

(9) Low wage employees—(i) General rule. An exception to the standard

may be claimed with respect to an appropriate employee unit which includes one or more low wage employees. The maximum permissible annual aggregate wage and salary increase with respect to such a unit shall be the sum of

(a) The product of the base compensation rate of such unit and the otherwise permissible increase;

(b) Excepted wage and salary increases actually paid to low wage employees;

(c) Increases in the average hourly benefit rate of such unit required as the secondary effect of increases in the individual straight-time hourly rates of low wage employees in such unit, provided that such individual straight-time hourly rates do not exceed $2.75; and

(d) Increases in the individual hourly benefit rates of low wage employees permitted pursuant to subdivision (iii) of this subparagraph.

(i) Definitions. For purposes of this subparagraph

(a) Low wage employee. A “low wage employee" means an employee whose straight-time hourly rate in the base payroll period is less than $2.75.

(b) Low wage base rate. The "low wage base rate," with respect to an ap-¡ propriate employee unit, means the average hourly rate of pay (stated in dollars and cents) of a group composed of all low wage employees in such unit. The low wage base rate shall be calculated. at the election of the parties, either

(1) By adding to the average straight-time hourly rate of such group of low wage employees the average hourly rate of employer contributions to fringe benefits (both included and qualified) attributable to such low wage employees, or

(2) By dividing the average straighttime hourly rate of such group of low wage employees by the average straighttime hourly rate of such appropriate employee unit, and multiplying the resulting figure by the base compensation rate of such unit.

(c) Otherwise permissible increase. The "otherwise permissible increase," with respect to an appropriate employee unit, means the maximum permissible annual aggregate wage and salary increase for such unit (expressed as a percentage) determined pursuant to

(1) The general wage and salary standard,

(2) The self-executing criteria for exception set forth in subparagraphs (3)

and (5) of this paragraph, if appropriate,

or

(3) A decision and order issued by the Pay Board (or a decision on an exception request issued by the Internal Revenue Service) applicable to pay adjustments in the unit during the control year.

(d) Excepted wage and salary increase. An "excepted wage and salary increase," with respect to an individual low wage employee in an appropriate employee unit, means that portion of a wage and salary increase (stated in dollars and cents per hour) paid to such employee which—

= (1) Is in excess of an amount equal to the product of the low wage base rate of the unit and the otherwise permissible increase; and

=(2) Does not exceed the difference between $2.75 and the sum of—

(i) Such employee's

hourly rate and

straight-time

(ii) An amount equal to the product of the low wage base rate of such unit and the otherwise permissible increase.

(iii) Special rule with respect to included benefits. For purposes of this subparagraph—

=(a) If the appropriate employee unit includes one or more employees who are not low wage employees, any increase in the individual hourly benefit rate of any low wage employee (other than an inCrease attributable to employer contributions to qualified benefits) may be claimed as an exception, without limitation.

(b) If the appropriate employee unit does not include any employee who is not

low wage employee, any increase in the average hourly benefit rate of such init (other than an increase attributable o employer contributions to qualified enefits) which does not exceed the prodict of $2.75 and the otherwise permissible increase may be claimed as an exception.

(iv) Effective date. The exception provided in this subparagraph shall be applicable only to wages and salaries paid for work performed after July 14, 1972, and does not permit the retroactive payment of wages and salaries for work performed prior to July 15, 1972.

(v) Prior approval. A Category I pay adjustment which is within the provisions of this subparagraph may not be put into effect without prior approval of the Pay Board. Notwithstanding the provisions of Part 202 of this chapter, a

Category II or Category III pay adjustment which is within the provisions of this subparagraph may be put into effect without prior approval.

(vi) Reporting-(a) Category II pay adjustments. A report of any Category II pay adjustment with respect to which an exception is claimed pursuant to this subparagraph shall be made to the Pay Board by the employer within 10 days after such pay adjustment is put into effect. Such report shall be made on forms prescribed by and pursuant to instructions issued by the Pay Board and shall include such information as is necessary to demonstrate the applicability of an exception claimed pursuant to this subparagraph.

(b) Category III pay adjustments. Notwithstanding the provisions of Part 202 of this chapter, a report of a Category III pay adjustment which is within the provisions of this subparagraph and which is not within the provisions of any other subparagraph of this paragraph shall not be required.

(b) Overall limitation on exceptions. Except as provided in paragraph (a) (4), (5) (iii), (6), (7), and (9) of this section, the maximum permissible annual aggregate wage and salary increase with respect to an appropriate employee unit, whether any or all of the above exceptions are applicable, shall not exceed 7 percent.

(c) Procedures for exceptions. Exceptions pursuant to subparagraphs (1), (2), (6), (7), and (8) of paragraph (a) of this section shall require prior approval of the Pay Board (or its delegate. Exceptions pursuant to subparagraphs (3), (4), (5), and (9) of paragraph (a) of this section shall be self-executing for Category II and Category III pay adjustments, but, except as provided in paragraph (a) (9) (vi) (b), of this section, reports of all such pay adjustments shall be made to the Pay Board (or its delegate). Category I pay adjustments, including those pursuant to subparagraphs (3), (4), (5), and (9) of paragraph (a) of this section, shall require prior approval of the Pay Board (or its delegate).

(d) Additional criteria. When the Board reviews new contracts and pay practices, and in its development of additional criteria for exceptions, it shall consider such factors as on-going collective bargaining and pay practices, the equitable position of the employees involved and such other factors as are necessary to foster economic growth, to