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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20210

CLASSIFICATION

UI/FUTA

CORRESPONDENCE SYMBOL

TEURL

ISSUE DATE

June 10, 1987

RESCISSIONS

 

EXPIRATION DATE

June 30, 1988

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 28-87

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

DONALD J. KULICK
Administrator
for Regional Management

 

SUBJECT

:

Coverage of Nonaffiliated Religiously-Oriented Entities under Section 3309(b)(1), FUTA

 

  1. Purpose. To advise the States of the Employment and Training Administration's (ETA) interpretation of Section 3309(b)(1) of the Federal Unemployment Tax Act (FUTA), as it relates to coverage of nonaffiliated religiously-oriented schools and other entities.

  2. References. Sections 3304(a)(6)(A), 3309(a)(1) and 3309(b)(1), FUTA.

  3. Background. Section 3304(a)(6)(A), FUTA, requires, as a condition for certification of State laws, that States pay compensation based on services performed for certain governmental entities and nonprofit organizations designated in Section 3309(a)(1), FUTA. Section 3309(b)(1), FUTA, provides two exceptions to this required coverage relating to services performed for religiously-orientedentities. The exceptions are for services performed:

    [I]n the employ of (A) a church or convention or association of churches, or (B) an orqanization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches.

    Questions have arisen as to how these exemptions apply to religiously-oriented schools and other entities. Following is a discussion of three categories of these religiously oriented schools and other entities and their applicability to each of the exceptions provided in Section 3309(b)(1), FUTA.

    With respect to the first category, litigation in Federal courts has established that coverage of employees of religious schools who are in the direct employ of a church or a convention or association of churches may be exempted under Section 3309(b) (1)(A), FUTA. See St. Martin Evangelical Lutheran Church v. South Dakota, 101 S.Ct. 2142 (1981). This exemption applies to all individuals in the direct employ of a church.

    The second category of services exempt from the required coverage are those performed in the employ of religious schools and other entities which, although separately incorporated from a church, are operated, supervised, controlled or principally supported by a church or convention or association of churches as provided by Section 3309(b)(1)(B), FUTA.

    The exemption does not, however, apply to the third category of services. These are services performed by individuals in the employ of entities with a religious orientation but which are not affiliated with a particular church, or convention or association of churches. For example, a nondenominational college which trains students to be missionaries or to perform other religious functions falls in this category as well as elementary schools created by members of a faith to teach in a manner consonant with their beliefs but independently of their church.

    ETA's position is and has been that services performed for these nonaffiliated religiously-oriented entities may not be exempted under Section 3309(b)(1)(B), FUTA, because these entities are not operated, supervised, controlled, or principally supported by a church or convention or association of churches. In anticipation of certain litigation ultimately resolving this matter, ETA held in abeyance the taking of action under Section 3304(c), FUTA. However, this litigation was resolved without reaching the relevant Federal issues and ETA is unaware of any litigation currently pending which will definitively resolve this matter. Accordingly, this UIPL is issued to announce ETA's intention to resume the enforcement of the ETA interpretation of Section 3309(b)(1), FUTA, as it pertains to nonaffiliated religiously oriented schools and other entities.

  4. Interpretation of Federal Law. Section 3309(b)(1), FUTA, creates only limited exceptions to the coverage requirements of Sections 3304(a)(6)(A) and 3309(a)(1), FUTA. These exceptions apply only to services in the employ of a church or convention or association of churches, or to services for an entity operated for religious purposes and affiliated with (i.e., operated, supervised, controlled, or principally supported by) a church or convention or association of churches. The exception contained in Section 3309(b)(1)(B), FUTA, clearly does not apply to entities which do not meet its required affiliation test. Therefore, coverage of such entities is required by Sections 3304(a)(6)(A) and 3309(a)(1) , FUTA, as a condition of receiving credit against the Federal unemployment tax.

  5. Action Required. States should review their laws and policy to ensure that services performed for nonaffiliated religiously-oriented entities are covered under State law.

  6. Inquiries. Direct any inquiries to the appropriate Regional Office.