Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 55-19

1955-1 C.B. 496

IRS Headnote

Circumstances under which a person may be regarded as an employer within the meaning of section 1607(a) of the Federal Unemployment Tax Act, and accordingly liable for the tax imposed under that Act.

Full Text

Rev. Rul. 55-19

Inquiries have been received regarding the method to be used in arriving at a weekly count of employees for purposes of determining liability of an employer under section 1607(a) of the Federal Unemployment Tax Act (subchapter C, chapter 9, Internal Revenue Code of 1939) under certain conditions, particularly where part-time employees are involved.

Section 1607(a) of the Act provides that the term `employer' does not include any person unless on each of some 20 days during the taxable year, each day being in a different calendar week, the total number of individuals who were employed by him in employment for some portion of the day (whether or not at the same moment of time) was eight or more.

The following questions and answers illustrate the application of the foregoing provisions of the Act.

Question 1. Are employees considered to be in the employ of an employer during the entire week where, because of the long daily hours of employment, the employees are granted 1 or 2 days of absence each week and substitutes replace the absent regular employees?

Answer. The regular employees should be considered to be in the employ of the employer during the entire week. The basis of this conclusion is that the employer-employee relationship which exists between the parties does not terminate by reason of their absence from duty for 1 or 2 days during the week. If the employer-employee relationship exists, it is immaterial that the employee performs no physical service for the employer on certain days of the week. S.S.T. 330, C.B. 1938-2, 331.

Question 2(a). Is the number of positions in an enterprise a factor to be considered in determining the number of workers within a week? For example, suppose that an employer had regularly employed seven individuals over a period of weeks, then had to replace an employee who resigned.

Answer. The number of positions in an employer's organization is not a factor to be considered in determining the number of individuals in his employ for purposes of the Federal Unemployment Tax Act.

Question 2(b). Assuming that the employee had 3 weeks of accrued vacation time, and the replacement employee began his services on the morning following the resigned employee's last day of actual work, would both of those individuals be counted as being `in employment' during the 3-week vacation period?

Answer. An employee who resigns and has vacation time for which he receives his regular compensation is considered as being in the employ of the employer during the vacation period. The employee who replaced him is also `in employment' and both employees should be counted in determining the employer's liability under the Act. As previously indicated, it is immaterial whether the employee actually performs physical services for his employer, provided an employment relationship exists between the parties.

Question 2(c). If there were no vacation period involved, and the former employee left at the end of a working day in the middle of a week, would both workers be counted as being `in employment' to make a count of eight employees for the week, even though there were never more than seven on any 1 day?

Answer. This question is answered in the negative. Since the employment relationship was terminated as of the end of the employee's last working day, there was no day in the calendar week on which the employer had more than seven individuals in his employ.

Question 3(a). Is the method or frequency of payment considered to be a factor in determining whether or not an employee is `regular' or `permanent?'

Answer. The basis on which compensation is paid, in and of itself, is not a factor to be considered in determining whether a person had the requisite number of employees for the prescribed period to qualify as an employer under the Act.

Question 3(b). Would a worker who is paid on a daily basis always be construed to be `in employment' on only a day-to-day basis?

Answer. The existence of an employment relationship is the controlling factor. Wehther or not an employment relationship, once established, continues depends upon the intention of the parties with respect to its continuation. For example, if the agreement between the parties contemplates the performance of services on 1 day each week, the employment relation continues and the employee should be counted in determining liability under the Act even through he is paid at the end of each day. On the other hand, where an employee works 1 day and the understanding between the parties is to the effect that the employer will communicate with the employee if and when his services are needed and that employee will work if not otherwise engaged, the employment relationship is terminated at the end of the day he worked. In the latter instance, the employee should be counted in the employ of this employer only on the days he actually performs services for him.

Question 4. Would a worker who is hired for a 5-day week and paid every Friday be construed to be `in employment' on Saturday and Sunday even though the employer has no legal right to require services of the worker on those days?

Answer. This worker should be treated as being in the employ of the employer on each of the 7 days of a week until the employer-employee relationship has been definitely terminated. If other employees are employed for the 6th and 7th days of the week, they should be counted as additional employees to those employed on a 5-day week basis.

Question 5. In determining whether an employee is `regular' or `permanent,' is any significance attached to the number of days per week that he customarily performs services? For example, would a man who has for years worked only 3 days in each week be construed to be `in employment' on the remaining 4 days of each week?

Answer. It is not necessary to determine whether an employee is `regular' or `permanent' since the term `employer,' as defined in the Act, includes every person who employs eight or more employees in employment for the prescribed period. An employee who has worked for an employer only 3 days in each week for a number of years is considered to be `in employment' on the remaining days of each week.

Question 6. Where an employer could not get full-time employees in his area he had to permit housewives to work half days 3 days per week. Because of this situation, he pays part-time salaries to 12 people each week, event hough there are never more than 3 employees in his shop at any one time, nor more than 6 on any one day. What number of employees should be recorded for each week in this situation?

Answer. If the employees are engaged with the understanding that they will perform services for the employer each week, the employer would have 12 individuals in his employ on each day of the week until the employer-employee relationship is termined