[Federal Register Volume 64, Number 27 (Wednesday, February 10, 1999)]
[Notices]
[Pages 6691-6692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3266]


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DEPARTMENT OF LABOR

Employment and Training Administration


Federal-State Unemployment Compensation Program: Unemployment 
Insurance Program Letter Interpreting Federal Unemployment Insurance 
Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation (UC) as part of 
its role in the administration of the Federal-State UC program. These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Employment Security Agencies. The UIPL described 
below is published in the Federal Register in order to inform the 
public.

UIPL No. 13-99

    To promote the employment of public assistance recipients, some 
States have considered or enacted legislation to ensure that employer 
experience rates are not adversely affected if these individuals 
subsequently become unemployed. For example, States have excluded from 
the employer's experience rating computations unemployment benefits 
paid to former employees who previously received public assistance. 
UIPL No. 13-99 advises State agencies of the Department of Labor's 
position that consideration of the receipt of public assistance or 
other pre-employment circumstances of employees (current or former) in 
employer experience rating determinations does not conform with Federal 
law requirements at Section 3303(a)(1) of the Federal Unemployment Tax 
Act (FUTA). The Department takes this position for two reasons: (1) 
using these circumstances to a priori exclude wages earned by a worker 
ignores a portion of the employer's experience with respect to 
unemployment, inconsistent with Section 3303(a)(1), FUTA, and (2) the 
receipt of public assistance and other pre-employment circumstances are 
not directly related to the employer's experience with the impact of 
unemployment on his or her workers, as required by Section 3303(a)(1), 
FUTA. All situations where the consideration of pre-employment income 
or circumstances could be introduced into a State's experience rating 
system, including the noncharging of benefits, is inconsistent with 
Federal law.

    Dated: February 3, 1999.
Raymond L. Bramucci,
Assistant Secretary of Labor.
U.S. Department of Labor, Employment and Training Administration, 
Washington, D.C. 20210
Classification: UI
Correspondence Symbol: TEUL
Date: January 22, 1999
Directive: Unemployment Insurance Program Letter No. 13-99
To : All State Employment Security Agencies
From: Grace A. Kilbane, Director, Unemployment Insurance Service
Subject: Consideration of Former Employees' Pre-employment Income or 
Circumstances In Experience Rating Computations

    1. Purpose. To inform States of the Department of Labor's 
position regarding the use of former employees' pre-employment 
income or circumstances in determining employer experience rates.
    2. References. Section 3303(a)(1), Federal Unemployment Tax Act 
(FUTA) and Unemployment Insurance Program Letter (UIPL) 29-83.
    3. Background. In order to promote the employment of public 
assistance recipients, some States have considered or enacted 
legislation intended to ensure that employer experience rates are 
not adversely affected if these indi-viduals subsequently become 
unemployed. A method chosen by some States to prevent an adverse 
effect on experience rates has been to exclude from the employer's 
experience rating computations unemployment benefits paid to former 
employees who have previously received public assistance.
Rescissions: None
Expiration Date: Continuing

    The Department of Labor considers efforts to encourage the 
employment of public assistance recipients laudable; however, it is 
the Department of Labor's position that consideration of the receipt 
of public assistance or other pre-employment circumstances of 
employees (current or former) in employer experience rating 
determinations does not conform with Federal law.
    4. Federal Law Requirements. Section 3303(a)(1), FUTA, contains 
the Federal experience rating requirement for employers in a State 
to receive the additional credit against the FUTA tax. Additional 
credit is allowed to employers paying reduced rates of 
contributions, where the State law conforms with 3303(a)(1), FUTA. 
For FUTA tax credit purposes, these employers are treated as though 
they had paid contributions at the highest rate assigned based on 
experience, or 5.4 percent, whichever is lower. Section 3303(a)(1), 
FUTA, requires that State law provide that:

no reduced rate of contributions to a pooled fund or to a partially 
pooled account is permitted to a person (or group of persons) having 
individuals in his (or their) employ except on the basis of his (or 
their) experience with respect to unemployment or other factors 
bearing a direct relation to unemployment risk during not less than 
the 3 consecutive years immediately preceding the computation date; 
1

    \1\ Section 3303(a), FUTA, also makes provision for States to 
reduce the rate of contributions for new employers.
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    Although the term ``experience'' is often used as convenient 
shorthand, no State system directly measures experience with respect 
to unemployment. Instead, all States use a factor or combination of 
factors bearing a direct relation to unemployment risk. Since the 
unemployment risk of the worker is the basic phenomenon which is to 
be measured, the factors referred to in Section 3303(a)(1) are 
limited to those basic elements that measure an employer's 
experience with the impact of unemployment upon his or her workers. 
(See page 2 of the Attachment to UIPL 29-83.) In addition, the 
experience must be measured throughout a period of not less than 3 
years preceding the computation date.
    The use of public assistance status or other pre-employment 
circumstances of individual workers is not consistent with this 
interpretation of the requirements of Section 3303(a)(1), FUTA, for 
two reasons. First, using these circumstances to a priori exclude 
wages earned by a worker in determining experience is inconsistent 
with Federal law, since a portion of the employer's experience 
during the 3-year period will never be used.
    Second, the receipt of public assistance and other pre-
employment circumstances are not directly related to the employer's 
experience with the impact of unemployment on his or her workers. 
These circumstances are not directly related to the employer's need 
for services, the term of employment, or the reason for separation 
from employment. For example, during a lay-off, all workers are 
separated due to a lack of work. Whether the individual previously 
received public assistance has no bearing on the fact that a lack of 
work exists. As another example, if a worker is discharged for 
misconduct, the reason for the separation is the worker's 
misconduct, not pre-employment status.
    In conclusion, all situations where the consideration of pre-
employment income or circumstances could be introduced into a 
State's experience rating system, including the noncharging of 
benefits, is inconsistent

[[Page 6692]]

with Section 3303(a)(1), FUTA.2 However, because the 
Department of Labor strongly supports endeavors to employ public 
assistance recipients, the Department is exploring legally 
permissible avenues that might benefit employers who hire welfare 
recipients. We will notify States of the findings upon completing 
the effort.
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    \2\ Although the Department of Labor has not developed a 
comprehensive noncharging policy, noncharging based on pre-
employment income or circumstances is prohibited, because, as 
explained above, it is plainly inconsistent with Federal law.
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    5. Action. State administrators are requested to take necessary 
action to assure that State law conforms with and is applied 
consistently with Section 3303(a)(1), FUTA, as interpreted in this 
UIPL.
    6. Inquiries. Please direct inquiries to the appropriate 
Regional Office.

[FR Doc. 99-3266 Filed 2-9-99; 8:45 am]
BILLING CODE 4510-30-P