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 C-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. UNITED STATES DEPARTMENT OF LABOR, Hon. DANIEL A. REED, Chairman, Committee on Ways and Means, House of Representatives, Washington 25, D. C. DEAR CONGRESSMAN REED: This is in further response to your request for the views and recommendations of this Department on H. R. 6537, H. R. 6539, and H. R. 7054, bills to amend the Social Security Act to provide unemployment insurance for Federal civilian employees, and for other purposes. The Department of Labor urges favorable consideration of H. R. 6537 and H. R. 6539, identical bills which would extend unemployment insurance protection to Federal workers under conditions set by the States in which they last worked, with Federal reimbursement to the States of the cost of the program. The President strongly recommended this type of legislation in his economic report to the Congress of January 28, 1954. As he stated, a worker laid off by a Government agency gets no unemployment benefits despite the fact that in many types of Federal jobs he is as vulnerable to lay off or dismissal as the factory worker. The Federal Government should not be in the position of providing less favorable conditions of employment than are required of private employers. With respect to these 2 bills, the Bureau of the Budget has advised this Department of the need for 2 ́substantive amendments. The first of these would add to the 5 categories of workers now excluded from the coverage of the bills, 7 additional categories in order to conform as nearly as possible to the exclusions from the old age and survivors insurance law as set forth in section 210 (a) (7) (C) of the Social Security Act. These exclusions cover types of employment which are either very brief or of such a nature as not to be appropriate for inclusion in an unemployment compensation program. A number of other categories excluded from the old-age and survivors insurance law are not included in the proposal. They cover types of services which are appropriate for exclusion from a long-term old-age insurance law, but not from a short-term unemployment compensation program, or which were excluded from the old age insurance law only because they are covered by other retirement systems. A draft amendment setting forth a revised definition of Federal service to cover these additional exclusions is attached. The second amendment is similar to a provision in the old-age and survivors insurance law as set forth in section 205 (p) of the Social Security Act. This amendment would provide that the Federal employing agency, instead of the State agency, shall make the findings with respect to certain facts, these findings to be final and conclusive, but with provision for correction, by the employing agency, of errors or omissions. The items which would thus be subjected solely to Federal agency findings are (1) whether a particular worker has or has not performed Federal service as defined in the bill, (2) the employee's period of service, (3) the amount of remuneration for such service, and (4) the reasons for termination of employment. All of these findings involve questions of Federal employment and wages which require uniform application at the Federal level, rather than interpretation by 51 non-Federal jurisdictions. The States would, however, continue to apply their laws in all other respects and on all other issues. I am attaching draft language to carry out the amendment suggested above. As the committee will note, the procedures under which the Federal agencies would make their findings would be provided in regulations of the Secretary of Labor, who has the duty under the bills to issue implementing regulations. Protection of all parties against errors or omissions in the Federal agency findings can be provided for in these regulations. The Department of Labor also would like to suggest certain technical amendments. These would make clear that the Secretary of Labor has authority to delegate certain functions to Territorial officials and agencies; provide for the recovery from claimants of benefits paid as the result of willful nondisclosure or misrepresentation of material facts; and provide for the earliest possible payment of unemployment benefits to Federal workers. I am enclosing a draft amendment which would effectuate these technical suggestions. In addition, I believe that some provision should be made authorizing the State to destroy records after a designated period of years, or under the terms of the applicable State law. You have also requested our views with respect to H. R. 7054. This bill would carry out in most respects the President's recommendation for extending the unemployment compensation system to Federal employees. However, there is one important respect in which it fails to do so. H. R. 7054 would make compensation payable to all Federal workers solely under the unemployment compensation law of the District of Columbia. The President recommended, however, that Federal employees be paid benefits in accordance with the law applicable to other employees in the State in which they last worked. It is important to note that all States except four have higher maximum basic benefits than the District of Columbia. Since approximately 90 percent of all Federal civilian employees work in States other than the District, H. R. 7054 would not give the great bulk of Federal workers benefits commensurate with those received by nearly all other workers. The Federal Government should not provide less favorable unemployment compensation benefits for its employees than are now provided for the great majority of other employees. For the foregoing reasons the Department of Labor is opposed to H. R. 7054. The Bureau of the Budget advises that the enactment of H. R. 6537 and H. R. 6539 if modified in accordance with the recommendations I have set forth, would be in accord with the program of the President. Yours very truly, ARTHUR LARSON, Acting Secretary of Labor. H. R. 6539-UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES PROPOSED AMENDMENT ON FINALITY OF FEDERAL AGENCY FINDING Amend section 1507 (a) of H. R. 6539 by adding a new sentence at the end thereof to read as follows: "Such information shall include the findings of the employing agency with respect to whether the employee has performed Federal service as defined in this title, the periods of such service, the amount of remuneration for such service, and the reasons for termination of such service, which findings shall be final and conclusive with respect to these facts for the purpose of sections 1502 (c) and 1503 (c) of this title and shall be made in such form and manner as shall be prescribed by regulations of the Secretary, including provision for correction by the employing agency of errors or omissions." H. R. 6537 AND H. R. 6539-UNEMPLOYMENT COMPENSATION FOR FEDERAL EMPLOYEES PROPOSED AMENDMENT ON COVERAGE Amend section 1501 (a) to read as follows: "(a) The term 'Federal service' means any service performed after 1952 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 the effective date of this Act, for the Bonneville Power Administrator if such service constitutes employment under section 1607 (m) of the Federal Unemployment Tax Act, (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), (6) service performed by any individual as an employee who is excluded by Executive order from the operation of the Civil Service Retirement Act of 1930 because he is paid on a contract or fee basis, (7) service performed by any individual as an employee receiving nominal compensation of $12 or less per annum, (8) service performed in a hospital, home, or other institution of the United States by a patient or inmate thereof, (9) service performed by any individual as an employee included under section 2 of the Act of August 4, 1947 (relating to certain interns, student |