South Dakota Attorney General

Additional Resources

OFFICIAL OPINION NO. 72-61, Employment security coverage of employment units consisting of less than four persons.

STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

November 21, 1972

Mr. Alan Williamson, Commissioner
Employment Security Dept. of South Dakota
Aberdeen, South Dakota 57401

OFFICIAL OPINION NO. 72-61

Employment security coverage of employment units consisting of less than four persons.

Dear Mr. Williamson:

You have requested an official opinion from me based on the following factual situation:

Congress in 1970 passed Public Law 91-373 extending the coverage for unemployment insurance purposes to certain non-profit organizations such as the Red Cross, the Salvation Army, the YMCAs and other organizations of that Character, which have formerly been exempt from the Employment Security Law. The law provided that aforementioned organizations having employment of 4 or more were immediately covered and they were given the opportunity to determine whether or not they would be taxed or whether they would reimburse the Employment Security Department for benefits paid by the Department to unemployed individuals who had been in the employ of such organization

The National Red Cross as a parent organization under enactment of Congress is a corporation. Among other powers given to it, it is authorized to charter local organizations of the Red Cross, each of which is a separate unit. A problem occurs here in South Dakota because the Rapid City and Sioux Falls chapters had in their employ at the passage of the Act, 4 or more persons, and they were thereby automatically made liable to the Employment Security Law and because of their size were permitted to elect whether they would pay taxes as other employers do or whether they would reimburse the Department for any benefits paid on behalf of their employees.

All the other chapters in South Dakota, of which there are approximately ten or a dozen, had employment of less than four when the law was passed. These smaller units desire to have coverage.

South Dakota law provides for the election of coverage by employing units with less than four employees under the provisions of SDCL 61-5-3, which reads as follows:

An employing unit, not otherwise subject to this title, which files with the Commissioner its written election to become an employer subject hereto for not less than two calendar years, shall, with the written approval of such election by the Commissioner, become an employer subject hereto to the same extent as all other employers, as of the date stated in such approval, and shall cease to be subject hereto as of January first of any calendar year subsequent to such two calendar years, only if the employing unit has filed with the commissioner a written notice to that effect prior to the first day of July of such calendar year. (Emphasis supplied)

SDCL 61-5A-21 provides for group accounts for employers making payments in lieu of contributions and reads as follows:

Two or more employers who have become liable for payments in lieu of contributions, in accordance with the provisions of §§61-5-5.1 and 61-5A-6 to 61-5A-9, inclusive, may file a joint application to the commissioner for the establishment of a group account for the purpose of sharing the cost of benefits paid that are attributable to service in the employ of such employers. Each such application shall identify and authorize a group representative to act as the group's agent for the purposes of this section. Upon his approval of the application, the commissioner shall establish a group account for such employers effective as of the beginning of the calendar quarter in which he receives the application and shall notify the group's representative of the effective date of the account. Such account shall remain in effect for not less than two years and thereafter until terminated at the discretion of the commissioner or upon application by the group. (Emphasis supplied)

The questions to be answered are:

1. Can we consider individual units with less than four persons in employment at the time of the effective date of law as liable employers under the statute?

2. Can individual units mploying less than four persons form together as a group to get a count of four or more persons in employment and then elect coverage as a group under the reimbursable provisions under SDCL 61-5A-21?

3. Could an employing unit not otherwise covered under the law voluntarily elect coverage and then elect coverage under SDCL 61-5-3 to reimburse under the provisions of SDCL 61-5A-21?

SDCL 61-1-10.3 provides as follows:

"Employment" includes service performed after December 31, 1971 by an individual in the employ of a religious, charitable, educational or other organiaztion but only if the following conditions are met:

(1) The service is excluded from "employment" as defined in the Federal Unemployment Tax Act solely by reason of section 3306(c) (8) (service performed in the employ of a religious, charitable, educational, or other organization described in section 501(c) (3) which is exempt from the income tax under 501(a) of the federal act); and

(2) The organization had four or more individuals in employment for some portion of a day in each of twenty different weeks, whether or not such weeks were consecutive, within either the current or preceding calendar year, regardless of whether they were employed at the same moment of time.

The above section is the definition of employment as amended by Public Law 91-373 and only the organizations meeting the two conditions stated in the law could be considered as liable employers. These small units of Red Cross meet the provisions of Sub-section (1) as being exempt from federal income tax. However, they do not meet the conditions set forth in Sub-section (2) because they would not have 4 or more individuals in employment for some portion of a day in each of twenty different weeks in the year preceding the effective date of the law. They cannot be considered as liable employers.

This provision is sufficiently c1ear that it needs no further interpretation. Thus, units with less than four were clearly not employers at the time of the effective date of law.

The answer to your Question No.1 is, NO.

The provisions for group accounts are set forth in SDCL 61-5A-21 which reads as follows:

From reading of the above provision of law it is apparent that only those units which employed four or more persons for the required time prior to the effective date of the law may form a group for the sharing of costs of benefit payments.

The answer to your Question No.2 is, NO.

SDCL 61-5-3, quoted above, provides for elective coverage of employing units which have fewer than the required number of employees to be liable.

In answer to your Question No.3, we point out that SDCL 61-5-3 provides that an employing unit electing coverage, if approved by the commissioner, shall "become an employer subject hereto to the same extent as all other employers, as of the date stated in such approval ... " (Emphasis supplied)

All other employers in the state are required to pay tax for contributions on their payrolls. There is no provision for reimbursement of benefits. Therefore, if a small unit of non-profit organizations elects coverage, they would have to pay the tax on their payrolls and come under the taxing provisions of the law.

The answer to your Question No.3 is, NO.

Respectfully submitted,

Gordon Mydland
Attorney General