[Federal Register Volume 66, Number 6 (Tuesday, January 9, 2001)]
[Notices]
[Pages 1696-1700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-513]


=======================================================================
-----------------------------------------------------------------------

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 rule 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 12-01

    UIPL 12-01 provides the Department of Labor's interpretation of 
Federal law concerning the outsourcing (or contracting out) of UC 
administrative functions. It is being issued in response to numerous 
inquiries from States and agencies involved in the administration of 
the UC program. It also provides answers to questions raised by State 
Employment Security Agencies and other interested parties.

    Dated: January 3, 2001.
Raymond Bramucci,
Assistant Secretary of Labor.

Classification: OWS

Correspondence Symbol: TEUL

    December 28, 2000.
    Directive: Unemployment Insurance Program Letter No. 12-01.
    To: All State Employment Security Agencies.
    From: Grace A. Kilbane, Administrator, Office of Workforce 
Security.
    Subject: Outsourcing of Unemployment Compensation Administrative 
Functions
    1. Purpose. To inform States of the Department of Labor's 
(Department) interpretation of Federal law concerning the 
``outsourcing'' of unemployment compensation (UC) administrative 
functions.
    2. References. Sections 303(a)(1), (3), and (8) of the Social 
Security Act (SSA); the Intergovernmental Personnel Act of 1970 (IPA); 
5 U.S.C. Section 2301(b); 42 U.S.C. Sections 4701 and 4728; 5 CFR 
Sections 900.603, 900.604; 20 CFR Part 602; 20 CFR Section 652.3; 26 
CFR Section 31-3306(i)-1; Office of Management and Budget (OMB) 
Circular No. A-76 (Revised) (48 Fed. Reg. 37110 (August 16, 1983); 64 
Fed. Reg. 33927 (June 24, 1999)); OMB Office of Federal Procurement 
Policy (OFPP) Policy Letter No. 92-1 (57 Fed. Reg. 45096 (September 30, 
1992)).
    3. Background. The Department has received numerous inquiries 
concerning the outsourcing (or contracting out) of functions related to 
the administration of the UC program. This UIPL is issued in response 
to these inquiries. As this issuance applies only to the outsourcing of 
UC administrative functions, it is not to be construed as applying to, 
permitting, or prohibiting the outsourcing of non-UC functions. 
Further, where outsourcing is permitted, this UIPL neither encourages 
nor discourages the outsourcing of UC administrative functions.
    A longstanding tenet in the administration of public programs is 
the desirability of using merit systems. In the IPA, Congress declared 
that the quality of public service is maintained and improved by the 
development and maintenance of systems of personnel administration 
consistent with merit principles. (42 U.S.C. 4701.) A basic merit 
principle is that governmental employees are responsible to the public 
as represented by the elected officials who head the executive branch 
of government (for example, the President or Governor). A second merit 
principle is that public employees covered by a merit system are able 
to administer the law in an unbiased, professional manner without undue 
outside influence. Because many decisions made by public employees 
affect the rights and property of individuals, these decisions must be 
made in a fair and unbiased manner that is consistent with the rule and 
intent of the law.
    Impartiality in administering the UC program is especially 
important because UC is a major economic stabilizer. It is often the 
only source of income during a worker's period of involuntary 
unemployment. Further, employers are charged for UC paid to their 
former employees. The lack of impartiality could lead to individuals 
being improperly paid or denied UC due to outside pressures. In 
addition, because employers' experience rates are calculated based on 
the payment of UC to their former workers, impartiality is needed to 
assure not only that eligibility is determined properly, but that 
charges to the employer are proper. For reasons such as these, Congress 
included a specific merit staffing requirement in Federal UC law. This 
requirement, and other Federal law requirements affecting outsourcing, 
are discussed below.
    4. Federal Requirements.

[[Page 1697]]

    a. Merit Staffing. Section 303(a)(1), SSA, contains the merit 
staffing requirement for the UC program. This section requires, as a 
condition of States receiving UC administrative grants, that State law 
include provision for:
    (1) Such methods of administration (including after January 1, 
1940, methods relating to the establishment and maintenance of 
personnel standards on a merit basis, except that the Secretary of 
Labor shall exercise no authority with respect to the selection, tenure 
of office, and compensation of any individual employed in accordance 
with such methods) as are found by the Secretary of Labor to be 
reasonably calculated to insure full payment of unemployment 
compensation when due; [Emphasis added.]
    Interpretive authority for this merit system requirement was 
transferred to the U.S. Office of Personnel Management (OPM) in 1970 by 
the IPA. (42 U.S.C. Section 4728.) However, the enforcement authority 
for this merit system requirement remains with the Department, and this 
requirement is a condition for receipt of UC administrative grants.
    No specific merit system standards are contained in the SSA. 
Instead, Section 208(b) of the IPA assigns OPM responsibility for 
prescribing personnel standards that are to be followed by States which 
must operate merit-based personnel systems as a condition of 
eligibility for Federal assistance or participation in an 
intergovernmental program. OPM has implemented these standards at 5 CFR 
Section 900.603, and OPM, as explained more fully below, prohibits 
outsourcing of administrative functions in programs to which the 
standards apply if outsourcing would compromise these standards. Since 
Section 303(a)(1), SSA, conditions receipt of administrative grants on 
the provision of a merit system, 5 CFR Section 900.603 applies to the 
administration of the Federal-State UC program.
    The merit system standards at 5 CFR Section 900.603 include: (1) 
the recruitment, selection, and advancement of employees on the basis 
of their relative ability, knowledge, and skills, including the open 
consideration of qualified applicants for initial appointment; (2) 
providing equitable and adequate compensation; (3) training employees, 
as needed, to assure high quality performance; (4) retaining employees 
on the basis of the adequacy of their performance; (5) assuring fair 
treatment of applicants and employees in all aspects of personnel 
administration without regard to political affiliation, race, color, 
national origin, sex, religious creed, age or handicap and with proper 
regard for their privacy and constitutional rights as citizens; and (6) 
assuring that employees are protected against coercion for partisan 
political purposes and are prohibited from using their official 
authority for the purpose of interfering with or affecting the result 
of an election or nomination for office.
    b. Guidance Pertaining to Outsourcing. In determining what 
functions may be outsourced in State offices where Federal merit-
staffing requirements apply, States are to rely on guidance in OMB 
Circular No. A-76 (Revised) and OFPP Policy Letter 92-1. These 
documents offer guidance on what functions may be outsourced by the 
Federal government. While these issuances, by their terms, apply only 
to the Federal government, their guidance, combined with the merit 
system standards listed above, are considered to be persuasive 
concerning what functions a State may outsource under a program where a 
Federal merit-staffing requirement applies. Also, the Department values 
consistency between what functions may be outsourced by a State and 
what functions may be outsourced by the Federal Government, as it would 
be illogical to prohibit a State from outsourcing a function that the 
Federal Government is permitted to outsource. Therefore, these OMB 
issuances will also serve as the interpretative guides for the merit-
staffing requirement of Section 303(a)(1), SSA, and the Secretary of 
Labor will use the guidance provided by these documents in determining 
whether outsourcing a UC administrative function is consistent with the 
merit system requirement under Section 303(a)(1), SSA, for purposes of 
certifying a State's law under the SSA.
    These OMB issuances distinguish between ``inherently governmental 
functions,'' which must be carried out by merit-staffed governmental 
employees and may not be outsourced, and ``commercial activities,'' 
which may be outsourced. OPM directs Federal grantor agencies to use 
these two categories as a tool for determining whether a grant-
recipient State may outsource a specific function. An ``inherently 
governmental function'' may not be outsourced as doing so would evade 
the merit requirements as non-governmental employees would be 
performing governmental functions.
    OFPP Policy Letter 92-1 defines an inherently governmental function 
as a function ``that is so intimately related to the public interest as 
to mandate performance by Government employees.'' Such functions 
include those activities that require ``the exercise of discretion in 
applying Government authority or the making of value judgements in 
making decisions for the Government.'' An inherently governmental 
function involves, among other things, the interpretation and execution 
of law so as to: (1) bind the Government to take or not to take some 
action by contract, policy, regulation, authorization, order, or 
otherwise; (2) determine, protect, and advance its economic, political, 
or property interests by civil or criminal judicial proceedings, 
contract management, or otherwise; (3) significantly affect the life or 
property of the individual; or (4) exert ultimate control over the 
acquisition, use, or disposition of the property of the Government, 
including the collection, control, or disbursement of appropriated or 
other funds.
    According to OFPP Policy Letter 92-1, inherently governmental 
functions do not normally include gathering information for, or 
providing advice, opinions, recommendations, or ideas to, Government 
officials. They also do not include functions that are primarily 
ministerial and internal in nature, such as (but not limited to) 
building security, mail operations, housekeeping, or facilities 
operations and maintenance.\1\
    Section 6(a) of OMB Circular No. A-76 (Revised) defines a 
commercial activity as one which is operated by an ``executive agency 
and which provides a product or service which could be obtained from a 
commercial source. A commercial activity is not a Governmental 
function* * * * A commercial activity also may be part of an 
organization or a type of work that is separable from other functions 
or activities and is suitable for performance by contract.'' The 
application of this test is illustrated below in Section 5 of this 
directive.
---------------------------------------------------------------------------

    \1\ Much of the guidance on inherently governmental functions 
contained in OFPP Policy letter 92-1 was codified in the Federal 
Activities Inventory Reform (FAIR) Act at FAIR Act Sec. 5(2). 
However, OPM has advised the Department that because the FAIR Act 
only codified-and did not modify-the guidance in OMB Circular A-76 
(Revised) and OFPP Policy Letter 92-1, OPM's analysis has not 
changed.
---------------------------------------------------------------------------

    c. Additional Federal Law Requirements. Sections 303(a)(3) and (8), 
SSA, also contain requirements applicable to the outsourcing of UC 
activities. These sections require, as a condition of States receiving 
UC administrative grants, that State law include provision for:
    (3) Opportunity for a fair hearing, before an impartial tribunal, 
for all individuals whose claims for

[[Page 1698]]

unemployment compensation are denied;
* * * * *
    (8) * * * the expenditure of all moneys received pursuant to 
section 302 of this title solely for the purposes and in the amounts 
found necessary by the Secretary of Labor for the proper and efficient 
administration of such State law;
    Impartiality is explicit in the requirement of Section 303(a)(3), 
SSA, that individuals whose claims have been denied be given the 
opportunity for a fair hearing before an ``impartial tribunal.'' 
Impartiality may be achieved only when the deciding official is free 
from partisan political purposes as required by the OPM regulations 
discussed in section 4.a. of this UIPL. The Department interprets this 
provision to have been met as long as the first level of appeal 
available to the individual is merit staffed.
    The requirement of Section 303(a)(8), SSA, that amounts received 
for the administration of the UC program be used solely ``in the 
amounts found necessary by the Secretary of Labor for the proper and 
efficient administration of State law'' also restricts outsourcing. Any 
moneys expended to outsource UC functions that are required to be merit 
staffed, or any moneys spent on outsourcing UC functions which could be 
performed more efficiently by governmental personnel, would not be 
necessary for the proper and efficient administration of the State's UC 
law.
    Also, the ``methods of administration'' requirement of Section 
303(a)(1), SSA, beyond the merit staffing requirement, is applicable 
here. The Department has interpreted Section 303(a)(1), SSA, as 
requiring that eligibility decisions be accurate. (See 20 CFR part 
602.) It follows that the individuals making these decisions must have 
the knowledge and training necessary to make the correct decisions. 
Advancement for UC administrative staff based on knowledge, and the 
provision of training for such staff as needed, are requirements found 
in the OPM regulations discussed in section 4.a. of this directive.
    Finally, outsourcing is not permitted when it otherwise creates a 
conflict with Section 303(a)(1), SSA, or any other Federal law 
requirement. For example, Section 303(a)(1), SSA, is interpreted to 
require that States keep UC information with personal identifiers 
confidential. An outsourcing arrangement that jeopardizes the 
confidentiality of the UC information would be impermissible.
    5. Application of Federal Requirements. This section indicates UC 
functions which may or may not be outsourced. The items identified in 
this discussion constitute some of the major functions involved in 
administering the UC program. It is not necessarily an exhaustive list 
of functions. For functions that are not identified or discussed in 
this program letter or its attachments, the Department, in consultation 
with OPM, will review and decide the permissibility of outsourcing on a 
case-by-case basis, applying the principles in this issuance.
    a. Functions Which May Not Be Outsourced. Many functions relating 
to the UC program are inherently governmental and, therefore, may not 
be outsourced.
    Determining whether to pay (or not pay) UC is an inherently 
governmental function. Because one of the major functions of the UC 
program is to act as an economic stabilizer, these decisions ultimately 
involve the interpretation and execution of law in a manner which 
affects general economic interests. In addition, decisions made by 
employees who administer the UC system bind the State government to 
make payments to individuals based on applicable law and regulation, 
significantly affect the life of the individual, and affect 
disbursement of unemployment funds with respect to the individual. 
These types of decisions are identified specifically in OMB Circular A-
76 (Revised) and OFPP Policy Letter 92-1 as inherently governmental.
    Whether an individual will receive UC is determined through a 
process which involves taking claims, determining the facts of the 
individual's situation, and if necessary, adjudicating issues and 
hearing and deciding first-level appeals. These three basic functions 
involved in determining eligibility for UC also are inherently 
governmental in nature, as they require the exercise of discretion in 
applying governmental authority.
    Claims taking involves providing claimants with an understanding of 
their rights to UC and with advice concerning when to file as well as 
what type of claim to file (e.g., intrastate, interstate, or combined-
wage). Discretion must be exercised as to what advice is given. Fact-
finding is extremely dependent upon the exercise of discretion as it 
involves asking the necessary questions and establishing the proper 
facts in order to ensure that a correct eligibility determination be 
made.
    The adjudication of issues cannot be conducted without the 
adjudicator exercising discretion in the interpretation of the State 
law. In response to our inquiry, which arose from a request for 
guidance concerning the merit system requirement as it related to 
appeals referees, OPM advised the Department that appeals referees must 
be covered by a merit system, meaning the position must be filled by a 
merit staffed government employee. This determination was based on the 
need to insulate hearing officers and adjudicators from political or 
other extraneous pressures. The need for this requirement is 
illustrated at the Federal level by the fact that Administrative Law 
Judges (ALJs) were specifically excluded from the Senior Executive 
Service (SES) at its creation, because the greatly relaxed merit 
staffing principles applied to members of the SES are not sufficient to 
assure the impartiality that is required of ALJs. Requiring 
adjudicators to be merit-staffed governmental employees is necessary to 
meet the impartial hearing requirement of Section 303(a)(3), SSA.
    While the management of the Unemployment Trust Fund (UTF) is 
primarily a function of the United States Treasury, each State manages 
the clearing and benefit payment accounts in the State's unemployment 
fund. As stated in section 4.b of this directive and in OFPP Policy 
Letter 92-1, inherently governmental functions include all those where 
the individual interprets or executes the law so as to ``exert ultimate 
control over the acquisition, use, or disposition of the property of 
the Government, including the collection, control, or disbursement of 
appropriated or other funds.'' Section 6(e)(2) of OMB Circular No. A-76 
(Revised) specifically defines monetary transactions and entitlement, 
such as tax collection and revenue disbursements, control of the 
treasury accounts and money supply, and the administration of public 
trusts, as inherently governmental functions. As such, they must be 
performed by merit-staffed governmental employees.
    Determination of employer liability and experience rates are also 
inherently governmental functions. To determine an employer's 
experience rate, determinations have to be made concerning noncharging 
of benefits paid (if allowed under the State law), determinations of 
successions, rate transfers, and whether penalty rates will be used. 
Employer monetary liability also includes determinations about whether 
to assess penalties and interest. Because these decisions have an 
affect on the amount owed by an employer, they have the potential to 
significantly affect the property of an individual. Decisions 
concerning coverage determine the employers who are liable for 
contributions and workers who accrue benefit rights under State law,

[[Page 1699]]

and as such, significantly affect the property of individuals. For 
these reasons, all these functions must be performed by merit-staffed 
governmental employees.
    Most aspects of the collection of contributions also must be 
performed by governmental employees. OMB Circular No. A-76 (Revised) 
specifically identifies monetary transactions and entitlement, such as 
tax collection and revenue distribution, as ``functions so intimately 
related to the public interest as to mandate performance by 
governmental employees.'' Therefore, with the exception of the 
functions described in section 5.b of this directive, which follows, 
the functions involved in the collection of contributions must be 
performed by merit-staffed governmental employees.
    b. Functions for Which Outsourcing is Permitted. As noted in 
Section 4.b of this directive, for purposes of the merit system 
provisions of Section 303(a)(1), SSA, based on OPM's guidance, if a 
function may be outsourced by the Federal government, it may be 
outsourced by State governments, if it also does not conflict with 
State or other Federal law. We note, however, that further limitations 
on outsourcing, even where it otherwise would be permitted, are 
explained below in Sections 5.c and 5.d of this directive. The 
following discussion of permissible outsourcing is illustrative of the 
types of functions which may be outsourced and is not an exhaustive 
list of such functions.
    One aspect of functions related to the collection of contributions 
where merit staffing is not required is the collection of delinquent 
contributions which have been determined to be uncollectible by the 
State agency. In the case of such delinquent contributions, the 
determination as to the amount owed and the propriety of the decision 
already have been made by governmental employees. Moreover, the 
governmental agency will have taken all the actions required by law to 
collect the contributions due.
    The requirement, discussed in section 5.a of this directive, that 
only merit-staffed governmental employees may collect, control, or 
disburse funds does not prohibit the use of commercial banks as 
depositories for clearing and benefit payment accounts, provided that 
the decisions concerning those accounts (that is, when checks are 
written, the amount of money to be transferred or drawn down from the 
UTF, etc.) are made by merit-staffed governmental employees. These 
banking functions are ministerial in nature and, therefore, are not 
required to be merit-staffed. Similarly, States are not prohibited from 
using a commercial bank as the collection point for contributions (that 
is, a clearing account) because lockbox collection functions are 
ministerial functions as they involve no judgement.
    Audits do not have to be performed by governmental employees. OMB 
Circular A-76 (Revised) specifically identifies financial auditing as 
an example of a commercial activity. Because this function involves the 
gathering of information rather than the determination of liability, 
the function may be outsourced if doing so is not inconsistent with 
State and Federal laws relating to procurement of services. The basic 
UC tax audit function, as well as certain program audit functions (such 
as workload validation) may be outsourced, to the extent they do not 
involve the exercise of discretion in applying governmental authority, 
but rather, involve only the investigation and verification of past 
actions taken by governmental or contract employees. (See section 5.c 
of this directive for additional discussion.)
    Automated data processing (ADP) functions also are identified in 
OMB Circular A-76 (Revised) as commercial activities that may be 
outsourced. ADP functions do not require the use of discretion in 
applying governmental authority, nor do they impact the decisions 
concerning whether or not an individual is eligible to receive UC. 
Therefore, ADP functions may be outsourced.
    In all cases where outsourcing is contemplated, safeguards must be 
in place to ensure that any confidential data available to the 
contractor is not disclosed. Otherwise, outsourcing would not be 
appropriate, as it would be inconsistent with the confidentiality 
requirements of Section 303(a)(1), SSA.
    c. Determinations Concerning Outsourcing Must be Based on the 
Function, Not the Title of the Position to be Outsourced. The 
Department recognizes that many UC staff positions entail the 
performance of multiple functions. A given UC staff position may 
include some duties that must be performed by merit-staffed 
governmental personnel, and some duties that may be outsourced. A 
decision as to whether it is permissible and/or appropriate to 
outsource an activity must be made by determining the function(s) 
performed, and must not be based on the title of the position charged 
with performing the function(s). If the function involves the 
application of governmental authority, it may not be outsourced, even 
if the title of the position suggests the absence of governmental 
authority. For example, as is usually the case for UC field audits, 
determining when audits are to be performed and decisions made as a 
result of the audit (for example, whether the employer owes back taxes, 
determinations of coverage, etc.) are inherently governmental functions 
that are an integral part of the UC audit function. Therefore, if 
auditors have the responsibility for making determinations of monetary 
liability or coverage decisions based on their audit findings, as is 
normally the case with tax auditors and in the various quality control 
programs, the auditors must be merit-staffed governmental employees and 
not contractors. If the ministerial functions can be separated out from 
the inherently governmental functions, the ministerial functions may be 
outsourced. However, a legal prerequisite still applies, as explained 
in section 5.d.2 of this directive, that doing so must not be less cost 
effective than having the entire function performed by merit-staffed 
governmental employees.
    When deciding whether to outsource a position, States first should 
determine whether any inherently governmental functions are included in 
the duties of the position. If inherently governmental functions are 
included in the duties of the position, and they cannot be separated 
from the other function(s) to be performed, the position must be filled 
by a merit-staffed, governmental employee. If the inherently 
governmental function(s) can be separated from the position, and 
performed by merit-staffed governmental employees, then the rest of the 
function which is not inherently governmental may be outsourced, 
provided all other requirements for outsourcing are met. The Department 
will advise States on a case-by-case basis when requested to do so or 
when issues are identified regarding the outsourcing of specific 
functions and positions.
    d. Further Limitations on Outsourcing. The above discussions of 
outsourcing relate to whether a particular function may be outsourced. 
However, other factors must be taken into account before outsourcing 
the function is permissible. These factors relate to whether a de facto 
employer-employee relationship exists between a contractor and 
governmental employees, and whether the government can perform the 
function in a more cost effective manner than a contractor.
    (1) Functions, even if commercial activities, may not be outsourced 
if doing so would create an employer-employee relationship between 
government and contract employees. As noted above, commercial 
activities may

[[Page 1700]]

be outsourced. However, even if a function is deemed to be a commercial 
activity, its outsourcing is impermissible if it creates a de facto 
employer-employee relationship between government and contract 
employees. A de facto employer-employee relationship, where contract 
employees are under the direction, supervision, and evaluation of 
government employees, but without merit system protections, would 
circumvent the Federal merit system requirements. In this case, the de 
facto employer-employee relationship would serve to achieve in a 
backhanded manner that which could not be achieved otherwise: 
performance of the work by de facto government employees without merit 
system protections. This would undermine the very basis for requiring 
merit system protections in the first place, and is, therefore, 
impermissible.
    Conversely, under no circumstances may governmental employees be 
under the direction and control of contract employees. If governmental 
employees are subject to direction, supervision, and evaluation by 
contract personnel, the chain of governmental responsibility to the 
public would be broken. In this case, the contractor, who is not 
accountable to the public, would exert major influence over the 
employees, rather than government officials who are directly 
accountable to the public.
    OPM has advised the Department that the existence of a de facto 
employer-employee relationship, in the context of government 
contractors, is determined under the Federal common law test (as 
opposed to the State law tests) for determining the existence of an 
employer-employee relationship. The determination whether an employer-
employee relationship exists must be made on a case-by-case basis. 
Federal regulations defining the employer-employee relationship are 
found at 26 CFR Section 31.3306(i)-1.
    (2) Functions, even if commercial activities, may not be outsourced 
if they can be performed in a more cost effective manner by the 
government. As noted above, Section 303(a)(8), SSA, requires that a 
State's law provide for the expenditure of all moneys received by the 
State under Section 302, SSA, ``solely for the purposes and in the 
amounts found necessary by the Secretary of Labor for the proper and 
efficient administration'' of the State's UC law. If a UC function can 
be performed more efficiently and cost effectively by the Government 
than by a contractor, outsourcing of the function, even if it is a 
commercial activity, would be inconsistent with Section 303(a)(8), SSA, 
as it would not constitute ``efficient administration'' of the State's 
UC law.
    (3) Outsourcing may not be used to circumvent personnel or salary 
ceilings. OMB Circular A-76 (Revised) states that the circular shall 
not be used to justify the outsourcing of functions solely to avoid 
personnel ceilings or salary limitations. In applying this principle to 
the States, if such ceilings or limitations exist, granted funds must 
be used in a manner consistent with the ceilings or limitations in 
order to insure the ``proper administration'' of the State's law under 
Section 303(a)(8), SSA.
    6. Frequently Asked Questions. While developing this directive, the 
Department received several questions concerning its contents. The 
following Questions and Answers respond to questions which have not 
already been addressed.
    Q. States frequently hire additional staff to handle temporary 
workload increases. These staff are let go when the workload decreases. 
In some cases, these staff may be retirees who return to work. Are 
these actions inconsistent with merit-staffing?
    A. The Department recognizes that it is necessary on occasion to 
bring on temporary employees to handle temporary workload increases. To 
ensure that these temporary employees are competent to perform the 
tasks for which they are hired, they must have been hired through a 
merit system. If a retiree was hired and trained under a merit system 
in the first place, the merit system requirement is maintained. No 
issue is created when these temporary employees are laid-off due to a 
workload reduction.
    Q. Members of Boards of Review which administer the second level of 
appeals are not required to be merit-staffed. Why is this so? May the 
higher appeals authority be outsourced?
    A. The higher appeals authority may not be outsourced as it 
performs an inherently governmental function that requires discretion 
in applying Government authority or the making of value judgements in 
making decisions for the Government. However, the Department has long 
held that Boards of Review need not be merit-staffed. Boards exist to 
provide an independent analysis of, and ensure consistency of, first-
level appeals decisions. Board members typically represent both 
employer and employee interests and as such are chosen for their 
representation of those groups. This position was stated as early as 
1963 in Section 0595(B), Part I, of the Employment Security Manual. 
(This section is now obsolete.)
    7. Action Required. Administrators are requested to provide this 
information to the appropriate staff. States should take appropriate 
action to assure that they meet the requirements of Federal law as 
explained by this UIPL.
    8. Inquiries. Questions concerning the outsourcing of UC functions 
should be directed to the appropriate Regional Office.
    9. Attachments. OMB Circular No. A-76 (Revised) and OFPP Policy 
Letter 92-1.

    Note: The attachments, both of which have been published in the 
Federal Register previously, are not being published again. They can 
be obtained in electronic format at the following URL addresses.

OMB Circular No. A-76--http://www.whitehouse.gov/OMB/circulars/a076/a076.html
OFFP Policy Letter 92-1--http://www.arnet.gov/References/
Policy__Letters/PL92-1.html

[FR Doc. 01-513 Filed 1-8-01; 8:45 am]
BILLING CODE 4510-30-P