U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210
UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 14-01
ALL STATE EMPLOYMENT SECURITY AGENCIES
GRACE A. KILBANE
Treatment of Indian Tribes under Federal Unemployment Compensation Law - Amendments made by the Consolidated Appropriations Act, 2001
Purpose. To inform States of the amendments made by the Consolidated Appropriations Act, 2001 affecting the Federal-State Unemployment Compensation (UC) program.
References. Section 166 of the Community Renewal Tax Relief Act of 2000 as enacted by the Consolidated Appropriations Act, 2001 (CAA), P.L. 106-554; Sections 3304(a)(6), 3306(c)(7), 3306(u), and 3309 of the Federal Unemployment Tax Act (FUTA); Section 204(a) of the Federal-State Extended Unemployment Compensation Act; Section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)); 20 C.F.R. Part 615; Draft Legislation to Implement the Employment Security Amendments of 1970 . . . H.R. 14705 (1970 Draft Language); Draft Language and Commentary to Implement the Unemployment Compensation Amendments of 1976-P.L. 94-566 (1976 Draft Language); Unemployment Insurance Program Letter (UIPL) No. 21-80 (February 29, 1980); UIPL No. 29-83 (September 13, 1983); UIPL No. 11-86 (January 31, 1986); UIPL No. 43-93 (September 13, 1993); UIPL No. 14-96 (April 12, 1996); and UIPL No. 30-96 (August 8, 1996).
Background. On December 21, 2000, the President signed the CAA into law. The CAA amended Federal law to change the way American Indian tribes are treated under the FUTA. Specifically, the Indian tribes are now treated similarly to State and local governments. This means-
Services performed in the employ of tribes generally are no longer subject to the FUTA tax.
As a condition of participation in the Federal-State UC program:
Services performed in the employ of tribes are, with specified exceptions, required to be covered under State UC laws. Prior to the CAA amendments, coverage was at the option of the State.
Tribes must be offered the reimbursement option. Prior to the CAA amendments, States were prohibited from offering the reimbursement option to Indian tribes. (See UIPL No. 4-96.)
Extended Benefit payments based on services performed in the employ of tribes no longer qualify for Federal sharing.
Unlike State and local governments, if an Indian tribe fails to make required payments to the State's unemployment fund or payments of penalty or interest, then the tribe will become liable for the FUTA tax and the State may remove tribal services from State UC coverage.
States with "Indian tribes," as defined by the CAA amendments, within their State boundaries will need to amend their laws to implement the requirements created by the CAA.
What is the definition of Indian Tribe? The CAA added a new provision to the FUTA defining Indian tribe. For FUTA purposes -
the term "Indian tribe" has the meaning given to such term by section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)), and includes any subdivision, subsidiary, or business enterprise wholly owned by such an Indian tribe. [Section 3306(u), FUTA.]
Section 4(e) of the Indian Self-Determination and Education Assistance Act provides-
"Indian tribe" means any Indian tribe, band, nation, or other organized group or community, including any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) (43 U.S.C. 1601 et seq.), which is recognized as eligible for the special programs and service provided by the United States to Indians because of their status as Indians.
A listing of these Indian tribes as of March 13, 2000, is contained in the attached Federal Register Notice. The amendments made by the CAA apply only to these Indian tribes. States are not required to cover services for Indian tribal entities not meeting this definition. States are prohibited from offering the reimbursement option to Indian tribal entities not meeting this definition.
How does the CAA exempt tribal services from the FUTA tax? Section 3306(c)(7), FUTA, excludes services performed by State and local governments from the FUTA definition of "employment" with the result that these services are not subject to the FUTA tax. The CAA amended this section to now provide that "employment" does not include-
service performed in the employ of a State, or any political subdivision thereof, or in the employ of an Indian tribe, or any instrumentality of any one or more of the foregoing which is wholly owned by one or more States or political subdivisions or Indian tribes; and any service performed in the employ of any instrumentality of one or more States or political subdivisions to the extent that the instrumentality is, with respect to such service, immune under the Constitution of the United States from the tax imposed by section 3301. [Amendments in bold.]
The exception from employment applies only to services performed "in the employ of an Indian tribe." It does not except from employment services performed for a private entity on reservation lands.
The Internal Revenue Service (IRS) is charged with administering this section and is therefore responsible for addressing any questions concerning services performed "in the employ of an Indian tribe."
>How does the CAA require coverage of tribal services? As a condition of employers in the State receiving credit against the FUTA tax, FUTA requires State law to provide that UC must be-
payable on the basis of service to which 3309(a)(1) applies, in the same amount, on the same terms, and subject to the same conditions as compensation payable on the basis of other service subject to such law. [Section 3304(a)(6)(A), FUTA.]
These requirements are generally referred to as the "required coverage" and "equal treatment" provisions. They apply to the services described in Section 3309(a)(1), FUTA. Section 3309(a)(1)(B) applies to "service excluded from the term 'employment' solely by reason" of Section 3306(c)(7), FUTA. Since services performed in the employ of an Indian tribe are now included in Section 3306(c)(7), FUTA, they fall within the scope of the required coverage and equal treatment provisions.
In brief, this means that services performed in the employ of a tribe must be covered for State UC law purposes when the services are excluded from the FUTA definition of "employment" solely by reason of being performed for the tribe. It also means that "equal treatment" must be provided in the payment of UC based on services performed in the employ of a tribe. States may not create special eligibility provisions related to tribal services within the scope of Section 3306(c)(7), FUTA, without conflicting with Federal law.
Are any services excepted from the required coverage of tribal services? Yes. The same services which may be excluded from coverage for State and local governments may be excluded when performed for a tribe. These services are found in paragraphs (1) through (6) and (8) through (20) of Section 3306(c) and Section 3309(b) of the FUTA. The CAA amended three of the FUTA exceptions to specifically address their application to services performed for tribes. These exceptions now provide that States are not required to cover services performed--
"as a member of legislative body, or a member of the judiciary, of a State or political subdivision thereof, or of an Indian tribe." (Section 3309(b)(3)(B), FUTA; amendment in bold.)
"in a position, which under or pursuant to the State or tribal law, is designated as (i) a major nontenured policymaking or advisory position, or (ii) a policymaking or advisory position the performance of the duties of which ordinarily does not require more than 8 hours per week." (Section 3309(b)(3)(E), FUTA; amendment in bold.)
"as part of an unemployment work-relief or work-training program assisted or financed in whole or in part by any Federal agency or an agency of a State or political subdivision thereof or of an Indian tribe, by an individual receiving such work relief or work training." (Section 3309(b)(5), FUTA; amendment in bold.)
Guidance on the exclusions relating to members of a legislative body or judiciary and to major nontenured policymaking or advisory position is found on pages 26-29 of the 1976 Draft Language. Guidance on work-relief or work-training programs is found in UIPL No. 30-96.
States are not required to except any services performed for a tribe from coverage. Thisdecision is entirely a State option.
How does the CAA give tribes the reimbursement option? How does the CAA allow States to terminate coverage and the reimbursement option? FUTA also requires, as a condition of employers in the State receiving credit against the FUTA tax, that State law provide that-
payments (in lieu of contributions) with respect to service to which section 3309(a)(1) applies may be made into the State unemployment fund on the basis set forth in section 3309(a)(2). [Section 3304(a)(6)(B), FUTA.]
Since, as discussed in the preceding item, services performed in the employ of Indian tribes now fall under Section 3309(a)(1), the reimbursement option must be offered to Indian tribes. Therefore, the States are required to offer the option of "payments in lieu of contributions" (or reimbursement) option to Indian tribes.
The reimbursement option is described in Section 3309(a)(2), FUTA-
the State law shall provide that a governmental entity, including an Indian tribe, or any other organization (or group of governmental entities or other organizations) which, but for the requirements of this paragraph, would be liable for contributions with respect to service to which paragraph (1) applies may elect, for such minimum period and at such time as may be provided by State law, 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. The State law may provide safeguards to ensure that governmental entities or other organizations so electing will make the payments required under such elections. [Amendment in bold.]
In addition to making the reimbursement requirements of Section 3309(a)(2) applicable to the tribes, the CAA added a new Section 3309(d) to FUTA concerning elections of reimbursement status by an Indian tribe. It provides that-
The State law shall provide that an Indian tribe may make contributions for employment as if the employment is within the meaning of section 3306 or make payments in lieu of contributions under this section, and shall provide that an Indian tribe may make separate elections for itself and each subdivision, subsidiary, or business enterprise wholly owned by such Indian tribe. State law may require a tribe to post a payment bond or take other reasonable measures to assure the making of payments in lieu of contributions under this section. Notwithstanding the requirements of section 3306(a)(6) [sic - should be 3304(a)(6)], if, within 90 days of having received a notice of delinquency, a tribe fails to make contributions, payments in lieu of contributions, or payment of penalties or interest (at amounts or rates comparable to those applied to all other employers covered under the State law) assessed with respect to such failure, or if the tribe fails to post a required payment bond, then service for the tribe shall not be excepted from employment under section 3306(c)(7) until any such failure is corrected. This subsection shall apply to an Indian tribe within the meaning of section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)).
What is the effect of these amendments on the reimbursement option? The amendments to FUTA establish the following rules for offering tribes the reimbursement option-
States must offer the reimbursement option to tribes.
A tribe must be given the option of making separate reimbursement elections for itself, each subdivision, subsidiary, or business enterprise wholly owned by the tribe.
Tribes must be allowed to combine into group reimbursement accounts if they so choose.
States may require a payment bond or take other reasonable measures to assure reimbursements are made. (See the discussion contained in the 1970 Draft Language, pages 99-103, concerning bonds or other security.)
States may establish minimum periods for which an election (or the declining of the election) is applicable and the times at which elections may be made.
What happens if a tribe fails to make payments required under State law? Concerning any failure of a tribe to make payments required under State law-
The failure applies to any contributions, reimbursements, penalties, interest, and bonds required by State law.
The amount of the penalty or rate of interest must be "comparable" to those applied to all other employers covered under State law. For ease of administration, States are encouraged to apply identical amounts or rates. States should not vary the amount or rate from that which would be charged other employers by more than 10 percent.
If, within 90 days of receiving a delinquency notice, the tribe fails to make a required payment, then the services performed will no longer "be excepted from unemployment under section 3306(c)(7) until any such failure is corrected." This means that--
Services performed for the Indian tribe become subject to the FUTA tax.
States are, at their option, no longer required to cover services performed for the tribe.
States are prohibited from allowing the tribe to reimburse the State's unemployment fund. If the State chooses to continue coverage of tribal services, the tribe must be converted to contributing status.
Whether a tribe fails to make the required payment within 90 days of receiving a delinquency notice is a determination made under State law. Since the effects of unpaid liabilities for Indian tribes differs from the effects on other employers, States should advise the tribes at the time of mailing of the delinquency notice that non-payment will result in the tribe becoming subject to the FUTA tax, the exclusion of tribal services from coverage (if the State decides to exercise this option), and loss of reimbursement status.
Under Section 3309(d), FUTA, if "a tribe fails to make" a payment or "fails to post a required payment bond," then "service for the tribe" shall not be excepted from the FUTA definition of employment. When any subdivision, subsidiary, or business enterprise wholly owned by the tribe ("tribal units") fails to make a payment or post a required bond, all services performed for the tribe become subject to the FUTA and States are no longer required to cover the services. If, however, the services continue to be covered, the tribe must be converted to contributing status. In cases where tribal units have separately elected the reimbursement option, States may wish to consider making the entire tribe and its tribal units jointly and severally liable so that the risk of the Indian tribe losing its privileges is minimized.
States are not required to terminate coverage due to nonpayment. If a State elects to do so, the State should terminate coverage due to non-payment only as a last resort because terminating coverage punishes workers who have no control over whether their employers satisfy their UC liabilities.
States have some flexibility to determine when the termination of reimbursement status becomes final. For example, the termination could become effective either immediately or the following tax year. Also, if the State has reason to believe the tribe will pay the amounts due, termination may be delayed. For example, States may enter into payment schedules, which, if adhered to by the tribe, would be a basis for delaying termination. Similarly, once the tribe satisfies its liabilities, the State has the option of immediately converting the tribe back to a reimbursing employer, waiting until the following tax year, or requiring a new election. States may also choose to treat certain delinquencies differently depending on the nature of the delinquency. For example, if a tribe is delinquent in posting the initial required payment bond for purposes of becoming a reimbursing employer, the State may grant reimbursing status immediately upon the bond being paid. Alternatively, if the delinquency is for unpaid reimbursements, the State may wait until the following tax year to again grant reimbursing status.
The IRS will determine any FUTA tax liability resulting from State determinations made under provisions of State law consistent with Section 3309(d), FUTA. To assure proper determination of FUTA liability, the State will need to advise the IRS and the Department of Labor of any determination it has made concerning an Indian tribe's failure to make required payments or post a required bond and whether the tribe has subsequently satisfied these liabilities.
What options exist for allocating UC costs when the tribe elects reimbursement status? Under the FUTA, State law must provide for payment by reimbursing employers "of amounts equal to the amounts of compensation attributable under the State law to such service." As explained in UIPL No. 21-80, whether UC paid is attributable to service in the employ of a reimbursing employer (and, therefore, whether the UC costs must be reimbursed by that employer) is to be determined under provisions of State UC law which reasonably interpret and implement FUTA. As a general rule, if an amount may be noncharged to a contributory employer, the State may similarly find that the payment is not "attributable to" a reimbursing employer. When this occurs, there is the possibility of unrecovered UC costs. UIPL No. 44-93 explains acceptable methods for establishing liability for these unrecovered UC costs.
Is there any affect on Federal sharing under the Extended Benefit (EB) program? Yes. States may no longer claim the Federal share of EB based on services performed for Indian tribes. The Federal-State Extended Unemployment Compensation Act (EUCA) provides that, with exceptions related to certain waiting weeks and rounding of benefits, the Federal share of EB will be 50 percent of benefit costs. (Section 204(a), EUCA.) However, EUCA also provides that Federal sharing will not be provided when the payments are based on services described in Section 3306(c)(7). (Section 204(a)(3), EUCA.) Since, as discussed above, services performed for Indian tribes are now included in Section 3306(c)(7), the Department is prohibited from providing a Federal share based on these services. (The rationale for this prohibition is that the entities in question do not pay the FUTA tax which funds the Federal share of EB.)
How States allocate the costs of EB is controlled by 20 C.F.R. 615.10. Contributory employers may be noncharged the costs of EB. In the case of reimbursing employers, the employer must reimburse at least 50 percent of the EB costs. As is the case for State and local governments, when Federal sharing is not permitted, the State may either charge the tribe for the all its EB costs or socialize its EB costs to the extent allowed by 20 C.F.R. 615.10.
Does the "between and within terms denial" for employees of education institutions apply? Yes. The between and within terms denial provisions are an exception to the "equal treatment" requirements discussed in item 4.d. (Section 3304(a)(6)(A)(i)-(vi), FUTA.) Some of these provisions are required; others are optional. Denial between and within terms is required based on services performed in an instructional, research or principal administrative (that is, a "professional") capacity. (See UIPL No. 43-83 for a general discussion of these requirements.) When an Indian tribe operates an educational institution, UC based upon professional services for that institution are subject to the between and within terms denial. (Note that educational institutions on tribal lands may be operated by the Federal government. Treatment of these institutions is unchanged. See UIPL No. 11-86.)
What is the CAA's Transition Rule for Indian Tribes? The CAA's transition rule provides that, if a tribe has unpaid FUTA liabilities prior to its date of enactment, then the services for the tribe "shall not be treated as employment"--that is, the FUTA tax will not be due--provided the tribe reimburses the State's unemployment fund for any UC paid prior to the date of enactment. This transition rule only affects the tribe's liability for FUTA tax prior to the date of enactment of the CAA. It has no effect on the requirement that coverage be extended to tribal services or on the requirement that tribes be offered the reimbursement option.
Which States must amend their laws? Only States with "Indian tribes" within their State boundaries must amend their laws. These States are:
In addition, petitions for Federal recognition have been filed in the following States which do not currently have Federally recognized tribes:
We recommend that States where Federal recognition has not been granted, but wherepetitions have been filed, amend their laws to assure State UC law automatically conforms with Federal law in the event Federal recognition is granted.
By what date must amendments to State UC law be made? The amendments "apply to services performed on or after the date of enactment" of the CAA. (Section 166(e)(1) of the Community Renewal Tax Relief Act of 2000, as enacted by the CAA.) The coverage and reimbursement requirements were, therefore, effective on December 21, 2000, and all affected States must enact conforming legislation immediately and retroactive to December 21, 2000. Because the Department recognizes that States will need time to introduce and enact legislation, the Department will take no enforcement action prior to October 31, 2001.
Is the Department of Labor supplying model legislative language for States to use? Model legislative language to aid States in developing their amendments is attached. States are not required to use this model legislation. As an alternative to using the model legislation, States may, for example, integrate the coverage provisions into the coverage provisions relating to State and local governments and integrate the reimbursement/bonding provisions into the reimbursement/bonding provisions applicable to all other employers who may elect the reimbursement option.
Action Required. Administrators are requested to provide this information to the appropriate staff. Action should be taken by the States with Indian tribes within their State boundaries listed in item 4.l. to implement the new Federal requirements discussed in this program letter as soon as possible.
Inquiries. Questions should be directed to the appropriate Regional Office.
Attachments - Listing of Indian Tribes
Model Legislative Language