The Office of the President has announced a new cell phone policy, which will be published shortly in Business and Finance Bulletin G-46, Guidelines for the Purchase and Use of Cellular Phones and Other Portable Electronic Resources.

Under the new policy, the value of a University-provided cell phone, a cell phone-enabled personal digital assistant (PDA), or similar device provided to an employee will be treated as a taxable fringe benefit subject to withholding for payroll taxes. Employees with such equipment, however, will receive a monthly cash allowance reimbursing them for the tax on this fringe benefit.

The new policy will be effective with June earnings paid on June 24, 2009 for biweekly-paid employees and July 1, 2009 for monthly-paid employees.

New Imputed Income/Cash Allowance Policy

The new policy involves an imputed income/cash allowance approach that will work as follows:

•  The cost of an employee's cell phone plan, including the cost of the device itself, will be added to  the  employee's taxable earnings each month as "imputed" income subject to withholding.
  
•  The employee will receive a taxable cash allowance each month to reimburse him or her for the tax on the imputed income. Because the allowance itself is taxable, it will be increased using the IRS gross-up formula to reimburse the employee for the taxes associated with the payment.

Departments will be responsible for funding the increased costs resulting from the cash allowance so they should confirm that employees who currently have a phone or cell phone-enabled PDA still need this equipment for the performance of their job duties. Past access to a University-owned cell phone or an employee's job title should not be the determining factor by itself in making this assessment.

Impact on Employees

Because the University will retain ownership of the phones and PDAs, employees will generally be unaffected by the new policy:

Employees may return their UC-provided phone or PDA if they no longer need this equipment for business purposes or if they simply do not want to retain the equipment.

Imputed Income/Cash Allowance Form

Departments must complete the Imputed Income/Cash Allowance Form ("Form") for each employee furnished with a University cell phone or PDA with a cell phone capability. The Form is a web-based, fill-in form that will automatically calculate the amount of the cash allowance based on the information entered for the employee, taking into account any tax exemptions applicable to the individual. The Form will be used to create separate Distribution of Service (DOS) code transactions in the Payroll system for the imputed income and the cash allowance.

The Form and Instructions are available at the following website address: http://www.ucop.edu/ucophome/cao/paycoord/ <http://www.ucop.edu/ucophome/cao/paycoord/> .

Exceptions to Imputed Income/Cash Allowance Policy

Certain employees or groups of employees may be excluded from the imputed income/cash allowance policy due to operational considerations.

Requests for exceptions should be sent to the Payroll Office by the Dean or Vice Chancellor for their respective organizations.

Where exceptions have been approved, employees provided with a cell phone or PDA must document the business and personal use of the device in accordance with the IRS substantiation rules. The employee must annotate the cell phone bill indicating the person called and the business purpose of each call. Charges related to any personal calls must be timely reimbursed by the employee.

UC Merced Cell Phone Exception Procedure

Excess Minutes Charges

Departments must continue to review the monthly cell phone bills for excess minute charges and to confirm that employees have the appropriate number of minutes for business. Any minutes for personal calls in excess of the plan must be reimbursed at the excess minute rate. If there will be an ongoing increase in the employee's business usage, the department should increase the number of minutes available under the plan and adjust the employee's imputed income/cash allowance, as appropriate.

Frequently Asked Questions (FAQs)

A list of Frequently Asked Questions (FAQs) related to the implementation of this new policy is available at the following website: http://www.ucop.edu/ucophome/cao/paycoord/.