Federal Unemployment Tax Act: Combining employment and wages; interstate agreement,
[Federal Register: November 2, 2007 (Volume 72, Number 212)]
[Proposed Rules]
[Page 62145-62149]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no07-15]
DEPARTMENT OF LABOR
Employment and Training Administration
20 CFR Part 616
RIN 1205-AB51
Federal-State Unemployment Compensation Program (UC); Interstate Arrangement for Combining Employment and Wages
AGENCY: Employment and Training Administration, Labor.
ACTION: Notice of Proposed Rulemaking (NPRM); request for comments.
SUMMARY: The U.S. Department of Labor (Department) is proposing to amend its regulations governing combined-wage claims (CWC) filed under the Federal-State UC program. Most significantly, the Department proposes to amend the definition of ``paying State.'' The Department also invites comments on all issues relating to the CWC arrangement and its governing regulations.
DATES: To be ensured consideration, comments must be submitted in writing on or before January 2, 2008.
ADDRESSES: You may submit comments, identified by Regulatory Information Number (RIN) 1205-AB51, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Submit comments to Thomas Dowd, Administrator, Office of Policy Development and Research, U.S. Department of Labor, Employment and Training Administration, 200 Constitution Avenue, NW., Room N-5641, Washington, DC 20210.
Because of security-related concerns, there may be a significant delay in the receipt of submissions by United States Mail. You must take this into consideration when preparing to meet the deadline for submitting comments.
Hand Delivery/Courier: 200 Constitution Avenue, NW., Room N-5641.
The Department will post all comments received on http://www.regulations.gov without making any change to the comments,
including any personal information provided. The http://www.regulations.gov
Web site is the Federal e-rulemaking portal and all comments posted there are available and accessible to the public. The Department recommends that commenters not include their personal information such as Social Security Numbers, personal addresses, telephone numbers, and e-mail addresses in their comments as such submitted information will become easily available to the public via the http://www.regulations.gov Web
site. Comments submitted through http://www.regulations.gov will not include
the e-mail address of the commenter unless the commenter chooses to include that information as part of their comment. It is the responsibility of the commenter to safeguard his or her information.
Instructions: All submissions received must include the agency name and the RIN for this rulemaking: RIN 1205-AB51. If commenters transmit comments through the Internet and also submit a hard copy by mail, please indicate that it is a duplicate copy of the Internet transmission.
Docket: All comments will be available for public inspection and copying during normal business hours by contacting the Office of Policy Development and Research at (202) 693-3700. As noted above, the Department also will post all comments it receives on http://www.regulations.gov. This Federal eRulemaking portal is easily
accessible to the public. The Department cautions the public to avoid providing personal information in your comments that you do not want to become public via the Internet, such as social security number, personal address, phone number, and e-mail address.
Copies of the proposed rule are available in alternative formats of large print and electronic file on computer disk, which may be obtained at the above-stated address. The proposed rule is available on the Internet at the Web address http://www.doleta.gov.
FOR FURTHER INFORMATION CONTACT: Jacqui Shoholm, Director of the Division of Policy, Legislation and Regulations, Office of Policy Development and Research, Employment and Training Administration, (202) 693-3700 (this is not a toll-free number) or 1-877-889-5627 (TTY), or Shoholm.jacqui@dol.gov.
SUPPLEMENTARY INFORMATION:
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Background
General
Section 3304(a)(9)(B) of the Federal Unemployment Tax Act (FUTA) (26 U.S.C. 3304(a)(9)(b)) requires each State, as a condition of participation in the Federal-State UC program, to participate in any arrangement specified by the Secretary of Labor for payment of UC on the basis of combining an individual's employment and wages in two or more States. A claim filed under this arrangement is a Combined Wage Claim or ``CWC.'' Section 3304(a)(9)(B), FUTA, is implemented at 20 CFR part 616. As explained in Sec. 616.1, the purpose of the arrangement is to permit an unemployed worker with covered employment or wages in more than one State to combine all such employment and wages in one State, in order to qualify for benefits or to receive more benefits. Section 616.2 explains that, in accordance with section 3304(a)(9)(B), the arrangement was developed in consultation with the representative of the State UC agencies, currently known as the National Association of State Workforce Agencies (``NASWA'').
The arrangement provides at Sec. 616.7(a) that any unemployed individual who had employment covered under the UC law of two or more States, whether or not he or she has earned sufficient wages to qualify for UC under one or more of them, may elect to file a CWC. Under Sec. 616.6(e)(1), the ``paying State'' is the State in which the claimant files the CWC, if he or she qualifies for benefits under the UC law of that State on the basis of combined employment and wages. Section 616.6(e)(2) identifies the ``paying State'' when either the CWC claimant does not qualify for unemployment benefits under the UC law of the State in which he or she files the CWC or the claimant files a CWC in Canada.
Under Sec. 616.8, the ``paying State'' assumes the responsibility for arranging the transfer of wages from other State(s) where wages were earned (that is, the ``transferring State,'' as defined at Sec. 616.6(f)) during the ``paying State's'' base period (that is, the period during which wages earned are counted toward determining benefit eligibility and amount). In addition to making benefit payments to eligible individuals, the ``paying State'' also issues all determinations relating to eligibility for benefits based on its UC law. Section 616.9 explains the responsibilities of the transferring State to transfer the covered employment and wages of the CWC claimant to the ``paying State'' and reimburse the ``paying State'' for benefits based upon wages earned in the transferring State.
For the reasons explained below, the Department proposes to amend the definition of ``paying State'' in Sec. 616.6(e) of 20 CFR, add a new paragraph (f) to
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Sec. 616.7 requiring that where a State denies a CWC it must notify the claimant of the option of filing in another State, and make a conforming amendment to Sec. 616.8(a) addressing the responsibilities of the ``paying State.'' The Department also proposes to delete as unnecessary Sec. 616.5, which makes December 31, 1971, the effective date of the arrangement.
Reasons for Regulatory Change
The current regulation for determining the ``paying State'' for CWCs was issued in 1974 (39 FR 45215, December 31, 1974) to replace a more complicated test for determining the ``paying State.'' It was intended to speed payments to eligible claimants by streamlining a manual process which relied on mailing paper forms between States to determine which State would be the ``paying State.'' That system could take weeks or months to determine which State should be the ``paying State'' for a particular claim. The simple solution, adopted in 1974 (Sec. 616.6(e)(1)), makes the ``paying State'' the State in which the claimant filed the claim. This amendment made the ``paying State'' readily identifiable, and, because UC claims were filed in person in 1974, this amendment also was convenient for the claimant, who would be physically present in the State in which he or she filed the claim. Under Sec. 616.9, all of the claimant's wages are to be transferred to this ``paying State,'' whose law governs the CWC under Sec. 616.8. If the claimant does not qualify for benefits in the State in which he or she filed the claim, Sec. 616.6(e)(2) applies.
The Department now proposes to amend the definition of ``paying State.'' Information-sharing technology now exists among States which allows for more immediate determinations of where wages have been earned. Therefore, it is no longer necessary to make the ``paying State'' the State in which the claimant chooses to file the CWC, as the current regulations do.
Permitting the claimant to choose the ``paying State'' led to an unintended consequence, forum shopping. Under the current definition, the ``paying State'' need not be a State in which the individual has covered wages. Rather, that definition makes the ``paying State'' any State in which the claimant files a CWC if the claimant qualifies for benefits in that State on the basis of combining his or her wages under that State's law. As a result, an individual may claim in a State with a higher weekly benefit amount (WBA) than exists in any of the States in which the claimant had covered employment. Forum shopping occurs because WBAs vary greatly among States. (For example, the maximum WBA in Mississippi is $210 compared with $575 (plus allowances for dependents) in Massachusetts.)
The Department believes that forum shopping is undesirable for several reasons. First, it may unfairly advantage claimants who worked in multiple States over those who worked in just one State by affording CWC claimants the choice of filing a UC claim in a State with a higher WBA. Second, ``forum shopping'' results in higher costs for the claimant's employers, because the claimant files a CWC in a State paying higher benefits, which are ultimately funded by those employers.
Moreover, forum shopping undermines the insurance principles of the Federal-State UC program. Under an insurance program, benefits are payable based on a specific plan. In the case of UC, benefits are payable under a State's plan for compensating unemployment. This plan balances premiums (in the form of employer contributions) with benefit outlays (in the form of payments to individuals), requiring that benefit rights and contribution rates be coordinated. CWCs are unique in that insured wages are necessarily combined under a single State's plan. However, the current Sec. 616.6(e)(1) permits a CWC claimant to elect benefits under the UC law of a State in which he or she had no employment. This approach allows the claimant to choose a plan with the most favorable coverage even though the claimant otherwise has no coverage under that plan. Although the CWC arrangement cannot be amended to provide for the payment of benefits in accordance with the laws of two or more States, the proposed amendment to Sec. 616.6(e) would require that the benefits be determined under the law of one State in which the claimant had insured base period wages. This result conforms more closely to the insurance principles of the program.
The proposed amendment to Sec. 616.6(e) would to some extent limit benefit eligibility, because it would limit the determination of entitlement to a State in which the claimant had base period wages. Thus, under the proposed section, an individual who had base period wages in two or more States, but who is unable to qualify for benefits in any of these States, would be denied benefits. To the contrary, the current Sec. 616.6(e) permits a claimant's entitlement to also be determined under a State law where he or she had no wages. Thus, under the current section, that claimant might be able to find another State under whose law he or she would qualify and file the CWC there. However, this scenario is likely to have been rare and the Department believes that this result is reasonable. It is consistent with the insurance principles that benefit rights be determined under the State law under which the claimant had employment and wages in the State's base period.
The Department considered a number of options for preventing forum shopping. The proposed rule provides the most practical and least complicated set of tests for determining the ``paying State'' and is also the least restrictive in allowing the claimant some choice in selecting that State. The Department considered using a ``majority of wages'' test; however, that test would require the State against which the claim was originally filed to obtain the wages from all States where the claimant earned wages and then determine where the majority of base period wages were located. Although information-sharing technology now exists among States allowing for more immediate determinations of where wages were earned, wages are not immediately or automatically entered into a State's wage data base; State practices vary widely in how wages are captured and entered into the State system. Therefore, many such preliminary determinations could be erroneous, requiring that the CWC be cancelled in one State and filed again in another State with a resulting overpayment in the first State. Also, alternative base periods are a complicating factor. It is possible the claimant would have the ``majority'' of wages under State A's regular base period, but also have the ``majority'' of wages under State B's alternative base period. Thus, the State against which the CWC was filed would need to complete a complex and cumbersome process to determine which State had the majority of wages. Should the ``majority'' State not be the State against which the claim was filed, the State against which the claim was filed would need to deny the claim and advise the claimant where to file. This process would create delays and confusion, and would be much more complex than allowing the claimant to file in any State where he or she earned wages. Those States would, contrary to the ``majority'' State, be readily identifiable.
The Department also considered redefining ``paying State'' as the State in which the individual was last employed. The Department values consistency in the treatment of claimants and believes that, to the extent possible, CWC claimants should be treated the same as non-CWC claimants. For a claimant with base period wages and employment in only
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one State, the determination of entitlement will be based solely on his/her wages and employment during the base period. Similarly, the Department believes that, when a claimant has base period wages and employment in more than one State, the determination of entitlement should be based solely on his/her base period wages and employment in those States, rather than whether the claimant has wages with a non- base period employer in another State.
Additionally, there is difficulty in ensuring the accurate and timely identification of the most recent employer for UI purposes. Claimants do not always know the correct name of their last employer. Also, in some cases, wages are not required to be reported by employers until months after a claimant has been separated from employment. These more recent wages will not be available at the time of filing and would need to be requested by the State, which would be administratively cumbersome and possibly delay the initial payment of UC.
Accordingly, the proposed definition of ``paying State'' as any State in which the claimant earned base period wages would make that State readily identifiable without the need for complex procedures and determinations. It would not totally eliminate claimant choice, but still serve the purpose of preventing forum shopping.
For these reasons, the Department proposes to update the CWC regulations as follows to prevent forum shopping and conform them to the UC program's insurance principles.
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Summary of the Proposed Rule
The proposed rule would amend the definition of ``paying State'' at Sec. 616.6(e) to provide that the ``paying State'' is a ``single State against which the claimant files a Combined-Wage Claim,'' if--
(1) The claimant has wages and employment in the State's base period(s) (that is, the time period(s) during which the claimant's wages count toward eligibility for, and the amount of, UC); and
(2) the claimant qualifies for UC under the law of that State using combined wages and employment.
Under the proposed Sec. 616.6(e), if a claimant had wages and employment in the base period(s) of State A and the base period(s) of State B, the claimant may elect either State A or State B, because the ``paying State'' must be a ``single'' State. Further, no State other than State A or State B could serve as the ``paying State,'' because the claimant had wages in the base period(s) of no other State.
Under Sec. 616.6(i) of 20 CFR, ``base period'' is defined as the base period ``applicable under the unemployment compensation law of the paying State.'' Thus, the proposed rule would apply the elected ``paying State's'' definition of ``base period.'' If an individual had insufficient wages and employment to qualify under the elected ``paying State's'' regular base period, then that State's rules of monetary entitlement (including any provisions regarding alternative base periods) would govern. (Some States use an ``alternative base period'' in addition to the regular base period to afford a claimant with wages outside the regular base period an opportunity to qualify for benefits.) Thus, a claimant, who could not qualify under the regular base period, would be able to seek benefits under the elected ``paying State's'' alternative base period, if one existed.
The proposed definition at Sec. 616.6(e) would replace the current Sec. 616.6(e)(1) and Sec. 616.6(e)(2). The current Sec. 616.6(e)(2) addresses what happens if the claimant fails to qualify under the law of the State in which he or she filed a CWC, by providing that in that event the ``paying State'' is the ``State where the Combined-Wage Claimant was last employed in covered employment among the States in which the claimant qualifies for unemployment benefits on the basis of combined employment and wages * * *.'' The Department proposes removing this provision because it would no longer be necessary. The proposed definition of ``paying State'' would permit a claimant whose CWC was denied to file another CWC in a second State where he or she had base period wages. At the time of claim filing, or shortly thereafter, the claimant's base period wage and earnings history is reviewed for accuracy with the claimant. Because current technology now permits State agency staff to view claimant wages and eligibility criteria for other States, where they find such wages, they are able to provide prompt notice to the claimant of all claim filing options.
If that second State denied the CWC, the claimant could file in a third State where he or she had wages, and so on. Thus, where a claimant failed to qualify under the law of the State in which he or she filed the CWC, the claimant could file again in another State where he or she had wages. The proposed rule would add a new paragraph (f) to Sec. 616.7 requiring the denying State to inform the claimant of this option to file again elsewhere.
It should also be noted that the current Sec. 616.6(e)(2) provides that if a CWC is filed in Canada, then the ``paying State'' is the ``State where the Combined-Wage Claimant was last employed in covered employment among the States in which the claimant qualifies for unemployment benefits on the basis of combined employment and wages * * *.'' The preamble of the 1974 rule (39 FR 45215-16) explained that it referenced Canada to acknowledge that while Canada could not be a ``paying State,'' claims may be filed in Canada against a State of the United States under the Interstate Benefit Payment Plan (IBPP). That Plan provides for a State, or Canada, helping a claimant file a UC claim against another State. In eliminating the current Sec. 616.6(e)(2), the proposed rule would eliminate the reference to Canada. However, that reference is unnecessary since, as the 1974 rule noted, Canada cannot be a ``paying State.'' Further, the CWC regulations do not implement the IBPP and the current regulations do not, in any event, explicitly indicate that Canada is a party to it. In removing that reference, the Department does not intend to signal that Canada is not a party to the IBPP.
The proposal also includes a conforming amendment to Sec. 616.8(a), which sets forth the responsibilities of the ``paying State'' regarding the transfer of employment and wages and the payment of benefits. One requirement in this section is that the ``paying State'' must, with an exception not relevant to the Department's proposed amendment, apply its own law to CWC determinations, even if the claimant had no covered wages in the ``paying State.'' The Department's proposed amendment to the definition of ``paying State'' ensures that there always will be covered wages in a ``paying State.'' Therefore, since the reference to a claimant having no covered wages in the ``paying State'' would no longer be relevant and would contradict the Department's purpose in amending the regulations, the Department proposes to eliminate it.
Lastly, the Department proposes to delete the effective date provision of the CWC arrangement because it is no longer needed.
Request for Comments
The Department sets forth in this NPRM a proposal to modernize the CWC system by amending the definition of ``paying State'' and amending other regulatory provisions to take into account the amended definition. The Department is interested in receiving comments on its proposed amendments
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to Part 616, as well as alternative proposals for preventing forum shopping. Additionally, since the CWC arrangement has been in existence for over thirty-five years without change to its basic structure, the Department requests comments on the desirability of amending any of its provisions at Part 616.
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Administrative Provisions
Executive Order 12866
This proposed rule is not economically significant. Under Executive Order 12866, a rule is economically significant if it materially alters the budgetary impact of entitlements, grants, user fees, or loan programs; has an annual effect on the economy of $100 million or more; or adversely affects the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities in a material way. The Department has determined that this proposed rule is not economically significant under the Executive Order because it will not have an economic impact of $100 million or more on the State agencies or the economy.
Paperwork Reduction Act
Under the Paperwork Reduction Act (PRA), the Department of Labor is required to submit any information collection requirements to the Office of Management and Budget (OMB) for review and approval. 44 U.S.C. 3501 et seq. This proposed rule does not impose any new requirements or modification of the existing requirements on the States that have not already been approved by OMB for collection. Therefore, the Department has determined that this proposed rule does not contain a new information collection requiring it to submit a paperwork package to OMB.
Executive Order 13132: Federalism
Executive Order 13132 at section 6 requires federal agencies to consult with State entities when a regulation or policy may have a substantial direct effect on the States or the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government, within the meaning of the Executive Order. Section 3(b) of the Executive Order further provides that federal agencies must implement regulations that have a substantial direct effect only if statutory authority permits the regulation and it is of national significance.
Further, section 3304(a)(9)(B), FUTA, requires consultation with the State agencies in developing the CWC arrangement. Section 616.2 of the CWC regulations also provides that for purposes of ``such consultation in its formulation and any future amendment the Secretary recognizes, as agents of the State agencies, the duly designated representatives of the NASWA.''
Consultation has occurred on an informal basis with the States through NASWA. The Department intends to consult with the UI Committee or any other representative(s) of the States selected by the NASWA, during the 60-day comment period for this proposed rule.
Unfunded Mandates Reform Act of 1995
This regulatory action has been reviewed in accordance with the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Under the Act, a federal agency must determine whether a regulation proposes a federal mandate that would result in the increased expenditures by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. The Department has determined that this proposed rule does not create any unfunded mandates because it will not significantly increase aggregate costs of the CWC arrangement. The effect of this proposal is to preclude forum shopping and tie UC eligibility more closely to the insurance principle of the Federal-State UC program, and it does not create additional entitlements. This proposed modification does not add an additional burden on States with respect to claim processing because it does not alter the States' delivery of claim filing services.
Effect on Family Life
The Department certifies that this proposed rule has been assessed according to section 654 of Pub. L. 105-277 for its effect on family well-being. This provision protects the stability of family life, including marital relationships, financial status of families, and parental rights.
The Department concludes that this proposed rule will not adversely affect the well-being of the nation's families. This proposed rule's change in the definition of ``paying State'' will more closely tie CWC eligibility to the insurance principle underlying the Federal-State UC program without affecting an individual's ability to file a CWC. The Department also intends that the proposed rule will eliminate the practice of forum shopping that has occurred under the current CWC arrangement. The proposed change maintains consistency and equity in the treatment of claimants across all program areas. Therefore, the Department certifies that this proposed rule does not adversely impact family well-being.
Regulatory Flexibility Act / SBREFA
We have notified the Chief Counsel for Advocacy, Small Business Administration, and made the certification according to the Regulatory Flexibility Act (RFA) at 5 U.S.C. 605(b), that this proposed rule will not have a significant economic impact on a substantial number of small entities. Under the RFA, no regulatory flexibility analysis is required where the rule ``will not * * * have a significant economic impact on a substantial number of small entities.'' 5 U.S.C. 605(b). A small entity is defined as a small business, small not-for-profit organization, or small governmental jurisdiction. 5 U.S.C. 601(3)-(5). Therefore, the definition of the term ``small entity'' does not include States.
This proposed rule describes procedures governing State administration of the CWC arrangement under the federal-State UC program, which does not extend to small governmental jurisdictions. Therefore, the Department certifies that this proposed rule will not have a significant impact on a substantial number of small entities and, as a result, no regulatory flexibility analysis is required.
In addition, the Department certifies that this proposed rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Act of 1996 (SBREFA). Under section 804 of SBREFA, a major rule is one that is an ``economically significant regulatory action'' within the meaning of Executive Order 12866. Because this proposed rule is not an economically significant rule under Executive Order 12866, the Department certifies that it also is not a major rule under SBREFA.
List of Subjects in 20 CFR Part 616
Labor, and Unemployment compensation.
Words of Issuance
For the reasons stated in the preamble, the Department proposes to amend 20 CFR part 616 as set forth below:
PART 616--INTERSTATE ARRANGEMENT FOR COMBINING EMPLOYMENT AND WAGES
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The authority citation for 20 CFR part 616 is revised to read as follows:
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Authority: 26 U.S.C. 3304(a)(9)(B); Secretary's Order No. 3- 2007, April 3, 2007 (72 FR 15907).
Sec. 616.5 [Removed]
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Remove Sec. 616.5.
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Revise paragraph (e) of Sec. 616.6 to read as follows:
Sec. 616.6 Definitions.
* * * * *
(e) Paying State. A single State against which the claimant files a Combined-Wage Claim, if the claimant has wages and employment in that State's base period(s) and the claimant qualifies for unemployment benefits under the unemployment compensation law of that State using combined wages and employment. * * * * *
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Add paragraph (f) to Sec. 616.7 to read as follows:
Sec. 617.7 Election to file a Combined-Wage Claim.
* * * * *
(f) If a State denies a Combined-Wage Claim, it must inform the claimant of the option to file in another State in which the State finds that claimant has wages and employment during that State's base period(s).
Sec. 616.8 [Amended]
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In Sec. 616.8(a) remove the words ``, even if the Combined-Wage Claimant has no earnings in covered employment in that State''.
Signed at Washington, DC, this 29th day of October 2007. Emily Stover DeRocco, Assistant Secretary for Employment and Training. [FR Doc. E7-21513 Filed 11-1-07; 8:45 am]
BILLING CODE 4510-FW-P
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