of an agreement the benefit payments would be made by the Secretary of Labor in accordance with the terms of the applicable State law. The bill excludes from its coverage service performed by: (a) elective officials in the legislative and executive branches, (b) members of the Armed Forces, (c) Foreign Service personnel when other separation allowances are paid, and (d) noncitizens employed outside the limits of continental United States, Alaska, Hawaii, Puerto Rico, and the Virgin Islands. The Commission believes that Government employees should generally have working conditions and benefits comparable to employees in private companies. Almost all employees in private business are now covered by unemployment insurance; Federal employees are among the few major groups of wage earners without this desirable protection. Some financial protection against unemployment is particularly important for Federal employees because of the typical fluctuations in Government employment levels. To meet this need, unemployment compensation coverage should be provided for Federal employees. Therefore, in principle we recommend and strongly support this type of legislation. The administration of the unemployment insurance plan will be under the Secretary of Labor as an integral part of his responsibilities under the Social Security Act. Accordingly, we make no comment on the specific provisions of H. R. 6539. However, we understand that the Secretary of Labor has some revisions to offer regarding the specific provisions of the bill. By direction of the Commission: Sincerely, PHILIP YOUNG, Chairman. Hon. DANIEL A. REED, DEPARTMENT OF LABOR, OFFICE OF THE SECRETARY, Chairman, Committee on Ways and Means, House of Representatives, Washington, D. C. DEAR CONGRESSMAN REED: I am enclosing a draft bill prepared by the Department of Labor to extend and improve the unemployment compensation system, which is designed to carry out three of the President's recommendations in this field. I will greatly appreciate it if you would have this bill introduced at the earliest possible opportunity. The bill takes the form of amendments of the Federal Unemployment Tax Act. The amendments set out in the first three sections carry out the recommendations made by the President in his economic report of January 28, 1954, with regard to: (1) extending coverage of the system to employers of one or more, (2) redefining the term "agricultural labor" to conform to that used for purposes of the old-age and survivor's insurance system, and (3) permitting the States to grant reduced tax rates to employers with less than 3 years of experience. Section 4 of the draft bill is a technical amendment which eliminates the right to pay the tax in quarterly installments. I am enclosing an explanation of these provisions which I will appreciate your having incorporated in the Congressional Record at the time the bill is introduced. The Bureau of the Budget has advised us that this draft bill is in accord with the program of the President. Sincerely yours, JAMES P. MITCHELL, EXPLANATION OF BILL TO EXTEND COVERAGE OF THE UNEMPLOYMENT COMPENSATION SYSTEM AND PROVIDE REDUCED RATES FOR NEW EMPLOYERS Section 1. Extension of coverage to employees of employers of one or more At present, the Federal Unemployment Tax Act taxes only those employers who employ 8 or more workers in each of 20 weeks during the year. Employees of firms with less than eight workers are thus left outside the protection of the unemployment insurance system unless coverage of the State law goes beyond that of the Federal law. Seventeen States do tax all employers no matter how few they employ but 12 of these States have a time or earnings limitation. Thirtyfour States contain a size limitation; in 12 of these, the limitation is from 3 to 6 workers; in the other 22, the limitation is similar to the Federal limitation of 8 workers. It is estimated that some 3.4 million employees are outside the unemployment insurance system because of these limitations. This bill would extend the unemployment insurance system to these employees by amending the definition of the term "employer" in the Federal Unemployment Tax Act to impose tax liability upon all persons who employ one or more individuals at any time. If the Federal act is extended to cover such firms, the laws of 38 States already provide that coverage of their laws will automatically be extended to all firms, regardless of size. The laws of all but one of the remaining States provide that small employers not now covered can voluntarily elect to do so prior to State legislative action. The old-age and survivors' insurance law already provides coverage in the manner proposed in this amendment. Experience under that law and under the unemployment insurance laws of the 17 States which also provide such coverage, and which include such major industrial States as Pennsylvania, California, and Massachusetts, has demonstrated the administrative feasibility of collecting contributions and wage records from these smaller employers. The President in his budget message of January 21, 1954, and his economic report of January 28, 1954, recommended prompt extension of coverage in the manner provided in this amendment. Such extension has also been recommended by the Federal Advisory Council on Employment Security, and the Interstate Conference of Employment Security Agencies. Section 2. Extension of coverage to persons who do certain work on agriculture The Federal Unemployment Tax Act expressly excludes agricultural workers from coverage and defines the types of work which constitute agricultural labor for purposes of such exclusion. The bill does not propose to extend coverage to agricultural labor, as such, at this time. It does, however, propose an amendment of the definition of "agricultural labor" to bring it into conformity with the definition used for purposes of the old-age and survivors' insurance tax and the withholding tax. The result of the amendment will be to extend coverage to certain types of services performed in connection with the processing of agricultural products or related to agriculture which are essentially industrial in nature. It is estimated that the proposed amendment would extend unemployment insurance protection to some 200,000 workers who are now excluded. The laws of 26 States provide for automatic coverage of these employees if the Federal law is amended in this manner. The bill's amendment of the definition of agricultural labor would apply the tax to certain packing and processing services when the farm operator for whom they are performed has produced less than half the commodities processed or handled. The present law, in addition to excluding normal farm operations, excludes certain operations such as packing, processing, freezing, storing or delivering such products if performed as an incident to ordinary farming operations, or in the case of fruits and vegetables, as an incident to the preparation of such fruits or vegetables for market. These operations, even if performed by a farm operator, are essentially industrial in nature. The fact that such an operation involves work on agricultural products and is conducted by a farm operator does not make it any less industrial in nature. There may be some justification for exempting such services when they are performed on the products raised on the farm. However, when the products processed are primarily produced by other farmers, there is little justification for treating such service differently than when it is performed for industrial firms carrying on the same operations. The President's economic report points out that these services "cannot reasonably be classed as agricultural pursuits.' An additional change would treat as a cooperative organization (now covered by the law) an unincorporated group of operators if the number of operators in the group is more than 20. This would remove an existing inequity since formally organized cooperatives, regardless of size, are now covered, but larger unincorporated groups of operators are not. This proposed change, like the others mentioned above, would make the definition correspond to that used for purposes of the old-age and survivors' insurance system. Similarly, coverage would be extended to services performed off the farm in connection with the raising or harvesting of mushrooms, the processing of maple sap into maple syrup and maple sugar as distinguished from the gathering of maple sap, and the hatching of poultry. In addition, the bill will extend coverage to services performed in connection with the operation of ditches, canals, reservoirs and waterways which are owned or operated for profit and are therefore in reality an industrial venture and not merely an incident to the farming operation. Such waterways, if operated by farmers on a nonprofit basis, would continue to be exempt. As already stated, all of these operations are now excluded from the definition of agricultural labor for purposes of the old-age and survivors' insurance tax and the withholding tax. The proposed amendment therefore merely incorporates the old-age and survivors' insurance tax definition by reference. Section 3. Reduced rates for new employers In all States employers are granted reductions in the unemployment taxes they must pay the State if their unemployment experience meets certain requirements. The Federal Unemployment Tax Act allows employers to credit this reduction against their Federal unemployment tax. In other words, an employer who has received such a reduction is credited with the difference between the amount actually paid and the amount he would have been required to pay if he had not received the reduction. The Federal law grants this additional credit, however, only if the State law requires an employer to have at least 3 years of experience before he can be given a tax reduction. This means that a new employer is required to pay the full tax for at least these initial years even though his experience in those years is as favorable as that of an established employer. In many States, this means that new employers carry a very large proportion of current unemployment taxes. They are thus put at a competitive disadvantage with established employers and are required to carry an extra financial load at a time they can perhaps least afford it. This bill minimizes this situation by permitting rate reductions to be extended to new employers after they have had at least a year's experience. In effect, during the first 3 years of an employer's coverage, the amendment ties the period of experience required before rate reduction to the period of time the new employer has had experience under the law. In other words, the rate for an employer who has had a year's experience must be based on a year's experience, the rate for one who has had experience for 2 years, on the basis of 2 years' experience. This amendment was recently recommended by the Federal Advisory Council which considered the problem in detail. The amendment is not intended to give new employers any competitive advantage over established employers, but merely to equalize as much as possible the opportunity for rate reductions between new and established employers. The factors used to measure the experience of employers vary from State to State. Under the amendment it is intended that the State measure the experience of new employers by the same factor (or factors) that it uses to measure the experience of established employers. For example, one of the most common factors is a reserve balance (the excess of contributions collected over benefits paid and charged to the employer's account). Thus, a State which uses a reserve balance for established employers must do so for new employers. However, in some States an employer who does not have 3 years of experience, as the Federal law now requires, could not attain the reserve now required of established employers. In these States, therefore, a proportionate reduction would have to be made in this reserve requirement to enable new employers with less than 3 years' experience to take advantage of the permission granted by the bill's new rate-reduction provision. The bill does not intend to give new employers any greater advantage than established employers. Any difference in reserve requirements granted to new employers would therefore have to bear the same proportion to the requirement placed on established employers as the period of coverage required of the two groups. In other words, if a 6-percent reserve requirement is required of established employers with 3 years' experience, at least 4 percent must be required of employers with 2 years' experience. Section 4. Elimination of quarterly installments Section 4 of the bill eliminates the right to pay the tax in quarterly installments. This amendment is designed to relieve the Government of the costly administrative burden which would otherwise be imposed upon it if the 1,800,000 new taxpayers added by section 1 of the bill were permitted to pay their tax in quarterly installments. Elimination of this provision should not impose an undue burden on the taxpayers; this is indicated by the fact that some 85 percent of the total taxes due are now paid at the time of filing the return without using the installment payment option. Furthermore, unlike the old-age and survivors insurance tax, the unemployment tax is not due until the year after that in which the taxable wages are paid. The old-age and survivors insurance tax, on the other hand, is payable in quarterly installments during the year in which the wages are paid. "(b) In making payments pursuant to subsection (a) of this section, there shall be paid to the State, either in advance or by way of reimbursement, as may be determined by the Secretary, such sum as the Secretary estimates the State will be entitled to receive under this title for each calendar month, reduced or increased, as the case may be, by any sum by which the Secretary finds that his estimates for any prior calendar month were greater or less than the amounts which should have been paid to the State. Such estimates may be made upon the basis of such statistical, sampling, or other method as may be agreed upon by the Secretary and the State agency. "(c) The Secretary shall from time to time certify to the Secretary of the Treasury for payment to each State sums payable to such State under this section. The Secretary of the Treasury, prior to audit or settlement by the General Accounting Office, shall make payment to the State in accordance with such certification, from the funds for carrying out the purposes of this title. "(d) All money paid a State under this title shall be used solely for the purposes for which it is paid; and any money so paid which is not used for such purposes shall be returned, at the time specified in the agreement under this title, to the Treasury and credited to current applicable appropriations, funds, or accounts from which payments to States under this title may be made. "(e) An agreement under this title may require any officer or employee of the State certifying payments or disbursing funds pursuant to the agreement, or otherwise participating in its performance, to give a surety bond to the United States in such amount as the Secretary may deem necessary, and may provide for the payment of the cost of such bond from funds for carrying out the purposes of this title. “(f) No person designated by the Secretary, or designated pursuant to an agreement under this title, as a certifying officer, shall, in the absence of gross negligence or intent to defraud the United States, be liable with respect to the payment of any compensation certified by him under this title. "(g) No disbursing officer shall, in the absence of gross negligence or intent to defraud the United States, be liable with respect to any payment by him under this title if it was based upon a voucher signed by a certifying officer designated as provided in subsection (f) of this section. (h) For the purpose of payments made to a State under title III, administration by the State agency of such State pursuant to an agreement under this title shall be deemed to be a part of the administration of the State unemployment compensation law. "INFORMATION "SEC. 1507. (a) All Federal departments, agencies, and wholly owned instrumentalities of the United States are directed to make available to State agencies which have agreements under this title or to the Secretary, as the case may be, such information with respect to the Federal service and Federal wages of any Federal employee as the Secretary may find practicable and necessary for the determination of such employee's entitlement to compensation under this title. "(b) The agency administering the unemployment compensation law of any State shall furnish to the Secretary such information as the Secretary may find necessary or appropriate in carrying out the provisions of this title, and such information shall be deemed reports required by the Secretary for the purposes of paragraph (6) of subsection (a) of section 303. "PENALTIES "SEC. 1508. Whoever makes a false statement or representation of a material fact knowing it to be false, or knowingly fails to disclose a material fact, to obtain or increase for himself or for any other individual any payment authorized to be paid under this title or under an agreement thereunder shall be fined not more than $1,000 or imprisoned for not more than one year, or both. "REGULATIONS "SEC. 1509. The Secretary is hereby authorized to make such rules and regulations as may be necessary to carry out the provisions of this title. The Secretary shall insofar as practicable consult with representatives of the State unemployment compensation agencies before prescribing any rules or regulations which may affect the performance by such agencies of functions pursuant to agreements under this title. "APPROPRIATIONS "SEC. 1510. There are hereby authorized to be appropriated out of any moneys not otherwise appropriated such sums as are necessary to carry out the provisions of this title." SEC. 2. Section 1606 (e) and section 1607 (m) of the Federal Unemployment Tax Act are each hereby amended by inserting after “December 31, 1945,” the following: "and prior to January 1, 1954,". [H. R. 6539, 83d Cong. 1st Sess] A BILL To amend the Social Security Act to provide unemployment insurance for Federal civilian employees, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Social Security Act, as amended, is further amended by adding after the title XIV thereof the following new title: "TITLE XV-UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES "DEFINITIONS "SEC. 1501. When used in this title "(a) The term 'Federal service' means any service performed after 1951 in the employ of the United States or any instrumentality thereof which is wholly owned by the United States, except that the term shall not include (1) service performed by an elective officer in the executive or legislative branch of the Government of the United States, (2) service performed as a member of the Armed Forces of the United States, (3) service performed by foreign service personnel for whom special separation allowances are provided by the Foreign Service Act of 1946 (60 Stat. 999), (4) service performed prior to January 1, 1953, for the Bonneville Power Administrator if such service constitutes employment under section 1607 (m) of the Federal Unemployment Tax Act, or (5) service performed outside the United States by an individual who is not a citizen of the United States. For the purpose of clause (5) of this subsection, the term 'United States' when used in a geographical sense means the States, Alaska, Hawaii, the District of Columbia, Puerto Rico, and the Virgin Islands. "(b) The term 'Federal wages' means all remuneration for Federal service, including cash allowances and remuneration in any medium other than cash. "(c) The term 'Federal employee' means an individual who has performed Federal service. "(d) The term 'compensation' means cash benefits payable to individuals with respect to their unemployment (including any portion thereof payable with respect to dependents). "(e) The term 'benefit year' means the benefit year as defined in the applicable State unemployment compensation law; except that, if such State law does not define a benefit year, then such term means the period prescribed in the agreement under this title with such State or, in the absence of an agreement, the period prescribed by the Secretary. "(f) The term 'Secretary' means the Secretary of Labor. "COMPENSATION FOR FEDERAL EMPLOYEES UNDER STATE AGREEMENTS "SEC. 1502. (a) The Secretary is authorized on behalf of the United States to enter into an agreement with any State, or with the agency administering the unemployment compensation law of such State, under which such State agency (1) will make, as agent of the United States, payments of compensation, on the basis provided in subsection (b) of this section, to Federal employees, and (2) will otherwise cooperate with the Secretary and with other State agencies in making payments of compensation under this title. "(b) Any such agreement shall provide that compensation will be paid by the State to any Federal employee, with respect to unemployment after December 31, 1953, in the same amount, on the same terms, and subject to the same conditions as the compensation which would be payable to such employee under the unemployment compensation law of the State if the Federal service and Federal wages of such employee assigned to such State under section 1504 had been included as employment and wages under such law. |