Employment and Training Administration
Washington, D. C. 20210






February 29, 1980




February 28, 1981











Office of Management Assistance




Secretary's Decision on Attribution of Benefit Liability to Reimbursing Employers in Proceedings as to Delaware, New Jersey, and New York

  1. Purpose. To inform SESAs of the Secretary of Labor's decision of October 31, 1979, in the conformity and compliance proceedings as to the States of Delaware, New Jersey, and New York on the issue of relieving reimbursing employers from liability for certain benefit costs.

  2. References. Sections 3304(a)(6)(B) and 3309(a)(2) of the Federal Unemployment Tax Act (FUTA), as enacted by Public Law 91-373 and amended by Public Laws 94-566 and 95-19; Unemployment Insurance Program Letter No. 1212, November 14, 1972.

  3. Background. Coverage was extended by Section 104 of Public Law 91-373 to services performed in the employ of nonprofit organizations, among other extensions of coverage, by making coverage of services performed in the employ of nonprofit organizations a condition of certification of State laws, effective January 1, 1972. At the same time, Sections 3304(a)(6)(B) and 3309(a)(2) were added to FUTA providing for the first time that a particular category of employers, i.e., the newly covered nonprofit organizations, must be given, under the State law, the option of electing to pay contributions similarly to other covered employers or "to pay (in lieu of such contributions) into the State unemployment fund amounts equal to the amounts of compensation attributable under the State law to such service," i.e., service in the employ of a nonprofit organization that had elected the reimbursement method of financing its benefit costs. When Public Law 94-566 extended coverage to services performed in the employ of the State, its political subdivisions, and their instrumentalities, and also to additional categories of nonprofit organizations, Sections 3304(a)(6)(B) and 3309(a)(2) were amended by Section 506 of that statute and further amended by Section 302 (b) of Public Law 95-19. The purpose was to assure that governmental entities were also afforded the option to elect the reimbursement method of financing their benefit costs.

    From the beginning of the reimbursement option the Department of Labor's position has been that noncharging applicable to contributing employers (that is, employers that paid contributions periodically into a State unemployment fund) is inappropriate for and inapplicable to reimbursing employers. The reasons were that reimbursing employers had elected to be self-insurers with liability of dollar for dollar of benefits paid and they did not participate in the insurance plan. Certain States argued that reimbursing employers may, consistently with the Federal law, be relieved of benefit liability under specified circumstances--New Jersey and New York when benefits were later found to have been paid erroneously, and Delaware when benefits were paid to an individual who had left the employ of the reimbursing employer, who was not the most recent employer, under disqualifying conditions. The differences between the positions of the Department and the States turned on the meaning of the phrase "compensation attributable under the State law to such service." The issue was the subject of conformity and compliance proceedings as to the named States for the 12-month certification period ending October 31, 1979.

  4. Secretary's Decision. The Secretary held that the determination of whether benefits paid are "attributable to service" in the employ of a reimbursing employer, and therefore whether such an employer shall be held liable for the amounts of such benefits paid, is to be determined by the States under the provisions of their unemployment compensation laws. The Secretary found in his decision (copy attached) as a matter of law that:

    1. a reimbursing employer must always fully reimburse the State unemployment fund for amounts of benefits paid which are attributable to service in the employ of such an employer;

    2. whether benefits paid are attributable to service in the employ of a reimbursing employer is a matter to be determined under the provisions of a State law "which reasonably interpret and implement Section 3309(a)(2) of FUTA;

    3. the provisions of State law in issue, whereby benefits are not considered attributable to service in the employ of a reimbursing employer when paid out "due to service with a subsequent employer, or ...an overpayment due to fraud, or due to computer error or other mistake, are reasonable interpretations and implementations of Section 3309(a)(2); and

    4. a reimbursing employer may be relieved of liability for benefits to former employees when it is reasonably determined under the provisions of the State law that the benefits are not attributable to service in the employ of a reimbursing employer.

    The Secretary's decision held, therefore, that the State laws of Delaware, New Jersey and New York which relieved reimbursing employers of certain benefit liabilities were consistent with Section 3309(a)(2).

  5. Application of Secretary's Decision. The Secretary's decision contains no criteria for determining the reasonableness under State law of non-attribution other than the examples of the State law provisions that were the subject of the proceedings. The Department of Labor has concluded that this characterization of provisions implementing Section 3309(a)(2) was intended to acknowledge the States' obligation of assuring that determinations of nonattribution to service are reasonably supported by the State law. Consequently, the States have broad latitude in enacting provisions for purposes of determining what benefits paid are attributable to service in the employ of reimbursing employers.

    According, the States should be aware of:

    1. The responsibility for assuring that reimbursing employers pay a fair share of their benefit costs. As a means of doing so, the States may wish to adopt a principle whereby benefits are attributed to service in the employ of reimbursing employers collectively when, under specified conditions, they are not attributable to service in the employ of a particular reimbursing employer. The collective liability may be discharged by requiring (or allowing, if optional) reimbursing employers to pay, at specified times and at specified rates, amounts attributed collectively. If the allocation of individual "amounts due" to discharge a collective liability should place upon a reimbursing employer a larger obligation than it would have had as a contributing employer, such an obligation is not inconsistent with the reimbursement option. That is a risk inherent in election of such an option.

    2. The principles of noncharging of benefits enunciated originally in Unemployment Compensation Program Letter No. 78 issued on December 29, 1944, and in later issuances on noncharging are derived from the experience-rating provisions of Section 3303(a)(1) of FUTA and have no relevance to relieving reimbursing employers from liability for benefits. Liability or non-liability of reimbursing employers is to be determined under principles, as applied in the State law, of attribution of benefits to service in the employ of particular reimbursing employers as provided in Section 3309(a)(2) of FUTA. Such principles may be analogous to noncharging, but they should be implementations under the State law of Section 3309(a)(2).

    3. When benefits are determined to be attributable under the State law to service in the employ of a reimbursing employer, the liability of such an employer to the State unemployment fund is the full amount of benefits paid. When the liability is discharged in whole or in part by the Federal Government, as in the case of sharable benefits under-the Federal-State Extended Unemployment Compensation Act of 1970 or as under Section 221 of the Emergency Jobs and Unemployment Assistance Act of 1974, as amended by Section 6 of P.L. 94-444, a reimbursing employer may be relieved of liability to the extent that the liability is discharged by the Federal Government.

    4. The Secretary's decision was not addressed to the provisions of Section 3309(a)(2) not involving the issue of attribution of benefit costs. We believe the rationale of the decision is, however, applicable to other provisions which are committed by the language of the statute to the States in the administration of their respective laws. The election to be liable for contributions or reimbursements may be "for such minimum period and at such times as may be provided by State law." The Department of Labor believes the duration of an election may be established by the States for such minimum period as the State law provides. The duration of an election should be reasonable to afford eligible employers a viable option between the contribution and reimbursement methods of financing benefit costs. What is reasonable in a State is a matter for the State legislature to decide.

    5. Section 3309(a)(2) also permits a State law to "provide safeguards to ensure that governmental entities or other organizations so electing [i.e., the reimbursement option,] will make the payments required under such elections." The safeguard may be a bond, deposit, or other device in an amount the maximum of which should not exceed a reasonable estimate of potential liability. The liability may reflect individual reimbursement liability alone or such liability plus potentially allocable collective reimbursement liability. Unemployment Insurance Program Letter No. 1212, November 14, 1972, establishing the maximum safeguard that may be required is superseded by the interpretation contained in this UIPL.

  6. Action Required. State administrators are requested to inform the appropriate staff that they may wish to review their laws to determine whether they should be amended in accordance with the Secretary's decision and the applications described in paragraph 5 above.

  7. Inquires. Questions concerning the Secretary's decision should be directed to the appropriate regional office.

  8. Attachment. Decision of the Secretary.