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Revenue Ruling

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 Rev. Rul. 71-87

1971-1 C.B. 290

IRS Headnote

Individuals on vacation and sick leave are counted as employees in determining the status of a company as an "employer" for purposes of the FUTA; S.S.T. 330 superseded.

Full Text

Rev. Rul. 71-87 /1/

The M company discontinued business in May 1970, after it operated for a period of 20 calendar weeks in that year on a full-time basis. During this period it had five individuals in its employ. However, during two of the 20 weeks only three employees actually performed services. During those two weeks one employee was on vacation and one was on sick leave. Both employees received their regular compensation for the period they were off. The previous year the company had only three individuals in its employ.

Section 3306(a) of the Federal Unemployment Tax Act (chapter 23, subtitle C, of the Internal Revenue Code of 1954), as it applies to the calendar year 1970 provides that the term "employer" does not include any person unless on each of some 20 days during the taxable year or during the preceding 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 was 4 or more. (For calendar years beginning after December 31, 1971, section 3306 has been amended by Public Law 91-373, C.B. 1970-2, 348, to provide that the term "employer" means any person who during any calendar quarter in the calendar year or the preceding calendar year paid wages of $1,500 or more, or on each of some 20 days during the calendar year or during the preceding calendar year, each day being in a different calendar week, employed at least one individual in employment for some portion of the day.)

Held, the individuals on vacation and sick leave are counted as employees in determining the status of the company for unemployment tax purposes since there was no termination in the employment relationship. As long as the employment relationship exists between the parties it is immaterial whether the employees actually perform physical services for the company. Accordingly, for the year 1970 the M Company is an employer within the meaning of section 3306 of the Federal Unemployment Tax Act.

S.S.T. 330, C.B. 1938-2, 331, is hereby superseded, since the position stated therein is set forth under the current statute and regulations in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.