1696 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

(4) Minimize the burden of the

collection of information on those who

are to respond, including through the

use of appropriate automated,

electronic, mechanical, or other

technological collection techniques or

other forms of information technology,

e.g., permitting electronic submission of

responses.

Overview of this information:

(1) Type of information collection:

New Collection.

(2) The title of the form/collection:

State Police Traffic Stop Data Collection

Procedures, 2000.

(3) The agency form number, if any,

and the applicable component of the

Department sponsoring the collection:

The form number is SP–1. Bureau of

Justice Statistics, Office of Justice

Programs, United States Department of

Justice.

(4) Affected public who will be asked

or required to respond, as well as a brief

abstract:

Primary: State government.

Other: None.

42 U.S.C. 3711, et seq. authorizes the

Department of Justice to collect and

analyze statistical information

concerning crime, juvenile delinquency,

and the operation of the criminal justice

system and related aspects of the civil

justice system and to support the

development of information and

statistical systems at the Federal, State,

and local levels.

(5) An estimate of the total number of

respondents and the amount of time

estimated for an average respondent to

respond/reply: It is estimated that 50

respondents will complete a 30-minute

data collection form.

(6) An estimate of the total public

burden (in hours) associated with the

collection: The total hour burden to

complete the forms is 25 annual burden

hours.

If additional information is required

contact: Ms. Brenda E. Dyer, Deputy

Clearance Officer, United States

Department of Justice, Information

Management and Security Staff, Justice

Management Division, Suite 1220,

National Place Building, 1331

Pennsylvania Avenue, NW.,

Washington, DC 20530.

Dated: January 3, 2001.

Brenda E. Dyer,

Department Deputy Clearance Officer, United

States Department of Justice.

[FR Doc. 01–476 Filed 1–8–01; 8:45 am]

BILLING CODE 4410–18–M

DEPARTMENT OF LABOR

Employment and Training

Administration

Federal-State Unemployment

Compensation Program:

Unemployment Insurance Program

Letter Interpreting Federal

Unemployment Insurance Law

The Employment and Training

Administration interprets Federal law

requirements pertaining to

unemployment compensation (UC) as

part of its rule in the administration of

the Federal-State UC program. These

interpretations are issued in

Unemployment Insurance Program

Letters (UIPLs) to the State Employment

Security Agencies. The UIPL described

below is published in the Federal

Register in order to inform the public.

UIPL 12–01

UIPL 12–01 provides the Department

of Labor’s interpretation of Federal law

concerning the outsourcing (or

contracting out) of UC administrative

functions. It is being issued in response

to numerous inquiries from States and

agencies involved in the administration

of the UC program. It also provides

answers to questions raised by State

Employment Security Agencies and

other interested parties.

Dated: January 3, 2001.

Raymond Bramucci,

Assistant Secretary of Labor.

Classification: OWS

Correspondence Symbol: TEUL

December 28, 2000.

Directive: Unemployment Insurance

Program Letter No. 12–01.

To: All State Employment Security

Agencies.

From: Grace A. Kilbane,

Administrator, Office of Workforce

Security.

Subject: Outsourcing of

Unemployment Compensation

Administrative Functions

1. Purpose. To inform States of the

Department of Labor’s (Department)

interpretation of Federal law concerning

the ‘‘outsourcing’’ of unemployment

compensation (UC) administrative

functions.

2. References. Sections 303(a)(1), (3),

and (8) of the Social Security Act (SSA);

the Intergovernmental Personnel Act of

1970 (IPA); 5 U.S.C. Section 2301(b); 42

U.S.C. Sections 4701 and 4728; 5 CFR

Sections 900.603, 900.604; 20 CFR Part

602; 20 CFR Section 652.3; 26 CFR

Section 31–3306(i)–1; Office of

Management and Budget (OMB)

Circular No. A–76 (Revised) (48 Fed.

Reg. 37110 (August 16, 1983); 64 Fed.

Reg. 33927 (June 24, 1999)); OMB Office

of Federal Procurement Policy (OFPP)

Policy Letter No. 92–1 (57 Fed. Reg.

45096 (September 30, 1992)).

3. Background. The Department has

received numerous inquiries concerning

the outsourcing (or contracting out) of

functions related to the administration

of the UC program. This UIPL is issued

in response to these inquiries. As this

issuance applies only to the outsourcing

of UC administrative functions, it is not

to be construed as applying to,

permitting, or prohibiting the

outsourcing of non-UC functions.

Further, where outsourcing is permitted,

this UIPL neither encourages nor

discourages the outsourcing of UC

administrative functions.

A longstanding tenet in the

administration of public programs is the

desirability of using merit systems. In

the IPA, Congress declared that the

quality of public service is maintained

and improved by the development and

maintenance of systems of personnel

administration consistent with merit

principles. (42 U.S.C. 4701.) A basic

merit principle is that governmental

employees are responsible to the public

as represented by the elected officials

who head the executive branch of

government (for example, the President

or Governor). A second merit principle

is that public employees covered by a

merit system are able to administer the

law in an unbiased, professional manner

without undue outside influence.

Because many decisions made by public

employees affect the rights and property

of individuals, these decisions must be

made in a fair and unbiased manner that

is consistent with the rule and intent of

the law.

Impartiality in administering the UC

program is especially important because

UC is a major economic stabilizer. It is

often the only source of income during

a worker’s period of involuntary

unemployment. Further, employers are

charged for UC paid to their former

employees. The lack of impartiality

could lead to individuals being

improperly paid or denied UC due to

outside pressures. In addition, because

employers’ experience rates are

calculated based on the payment of UC

to their former workers, impartiality is

needed to assure not only that eligibility

is determined properly, but that charges

to the employer are proper. For reasons

such as these, Congress included a

specific merit staffing requirement in

Federal UC law. This requirement, and

other Federal law requirements affecting

outsourcing, are discussed below.

4. Federal Requirements.

Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1697

1Much of the guidance on inherently

governmental functions contained in OFPP Policy

letter 92–1 was codified in the Federal Activities

Inventory Reform (FAIR) Act at FAIR Act § 5(2).

However, OPM has advised the Department that

because the FAIR Act only codified-and did not

modify-the guidance in OMB Circular A–76

(Revised) and OFPP Policy Letter 92–1, OPM’s

analysis has not changed.

a. Merit Staffing. Section 303(a)(1),

SSA, contains the merit staffing

requirement for the UC program. This

section requires, as a condition of States

receiving UC administrative grants, that

State law include provision for:

(1) Such methods of administration

(including after January 1, 1940,

methods relating to the establishment

and maintenance of personnel

standards on a merit basis, except that

the Secretary of Labor shall exercise no

authority with respect to the selection,

tenure of office, and compensation of

any individual employed in accordance

with such methods) as are found by the

Secretary of Labor to be reasonably

calculated to insure full payment of

unemployment compensation when

due; [Emphasis added.]

Interpretive authority for this merit

system requirement was transferred to

the U.S. Office of Personnel

Management (OPM) in 1970 by the IPA.

(42 U.S.C. Section 4728.) However, the

enforcement authority for this merit

system requirement remains with the

Department, and this requirement is a

condition for receipt of UC

administrative grants.

No specific merit system standards

are contained in the SSA. Instead,

Section 208(b) of the IPA assigns OPM

responsibility for prescribing personnel

standards that are to be followed by

States which must operate merit-based

personnel systems as a condition of

eligibility for Federal assistance or

participation in an intergovernmental

program. OPM has implemented these

standards at 5 CFR Section 900.603, and

OPM, as explained more fully below,

prohibits outsourcing of administrative

functions in programs to which the

standards apply if outsourcing would

compromise these standards. Since

Section 303(a)(1), SSA, conditions

receipt of administrative grants on the

provision of a merit system, 5 CFR

Section 900.603 applies to the

administration of the Federal-State UC

program.

The merit system standards at 5 CFR

Section 900.603 include: (1) the

recruitment, selection, and

advancement of employees on the basis

of their relative ability, knowledge, and

skills, including the open consideration

of qualified applicants for initial

appointment; (2) providing equitable

and adequate compensation; (3) training

employees, as needed, to assure high

quality performance; (4) retaining

employees on the basis of the adequacy

of their performance; (5) assuring fair

treatment of applicants and employees

in all aspects of personnel

administration without regard to

political affiliation, race, color, national

origin, sex, religious creed, age or

handicap and with proper regard for

their privacy and constitutional rights as

citizens; and (6) assuring that employees

are protected against coercion for

partisan political purposes and are

prohibited from using their official

authority for the purpose of interfering

with or affecting the result of an election

or nomination for office.

b. Guidance Pertaining to

Outsourcing. In determining what

functions may be outsourced in State

offices where Federal merit-staffing

requirements apply, States are to rely on

guidance in OMB Circular No. A–76

(Revised) and OFPP Policy Letter 92–1.

These documents offer guidance on

what functions may be outsourced by

the Federal government. While these

issuances, by their terms, apply only to

the Federal government, their guidance,

combined with the merit system

standards listed above, are considered to

be persuasive concerning what

functions a State may outsource under

a program where a Federal merit-staffing

requirement applies. Also, the

Department values consistency between

what functions may be outsourced by a

State and what functions may be

outsourced by the Federal Government,

as it would be illogical to prohibit a

State from outsourcing a function that

the Federal Government is permitted to

outsource. Therefore, these OMB

issuances will also serve as the

interpretative guides for the meritstaffing requirement of Section

303(a)(1), SSA, and the Secretary of

Labor will use the guidance provided by

these documents in determining

whether outsourcing a UC

administrative function is consistent

with the merit system requirement

under Section 303(a)(1), SSA, for

purposes of certifying a State’s law

under the SSA.

These OMB issuances distinguish

between ‘‘inherently governmental

functions,’’ which must be carried out

by merit-staffed governmental

employees and may not be outsourced,

and ‘‘commercial activities,’’ which may

be outsourced. OPM directs Federal

grantor agencies to use these two

categories as a tool for determining

whether a grant-recipient State may

outsource a specific function. An

‘‘inherently governmental function’’

may not be outsourced as doing so

would evade the merit requirements as

non-governmental employees would be

performing governmental functions.

OFPP Policy Letter 92–1 defines an

inherently governmental function as a

function ‘‘that is so intimately related to

the public interest as to mandate

performance by Government

employees.’’ Such functions include

those activities that require ‘‘the

exercise of discretion in applying

Government authority or the making of

value judgements in making decisions

for the Government.’’ An inherently

governmental function involves, among

other things, the interpretation and

execution of law so as to: (1) bind the

Government to take or not to take some

action by contract, policy, regulation,

authorization, order, or otherwise; (2)

determine, protect, and advance its

economic, political, or property

interests by civil or criminal judicial

proceedings, contract management, or

otherwise; (3) significantly affect the life

or property of the individual; or (4)

exert ultimate control over the

acquisition, use, or disposition of the

property of the Government, including

the collection, control, or disbursement

of appropriated or other funds.

According to OFPP Policy Letter 92–

1, inherently governmental functions do

not normally include gathering

information for, or providing advice,

opinions, recommendations, or ideas to,

Government officials. They also do not

include functions that are primarily

ministerial and internal in nature, such

as (but not limited to) building security,

mail operations, housekeeping, or

facilities operations and maintenance.1

Section 6(a) of OMB Circular No. A–

76 (Revised) defines a commercial

activity as one which is operated by an

‘‘executive agency and which provides

a product or service which could be

obtained from a commercial source. A

commercial activity is not a

Governmental function* * * * A

commercial activity also may be part of

an organization or a type of work that

is separable from other functions or

activities and is suitable for

performance by contract.’’ The

application of this test is illustrated

below in Section 5 of this directive.

c. Additional Federal Law

Requirements. Sections 303(a)(3) and

(8), SSA, also contain requirements

applicable to the outsourcing of UC

activities. These sections require, as a

condition of States receiving UC

administrative grants, that State law

include provision for:

(3) Opportunity for a fair hearing,

before an impartial tribunal, for all

individuals whose claims for

1698 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

unemployment compensation are

denied;

* * * * *

(8) * * * the expenditure of all

moneys received pursuant to section

302 of this title solely for the purposes

and in the amounts found necessary by

the Secretary of Labor for the proper and

efficient administration of such State

law;

Impartiality is explicit in the

requirement of Section 303(a)(3), SSA,

that individuals whose claims have

been denied be given the opportunity

for a fair hearing before an ‘‘impartial

tribunal.’’ Impartiality may be achieved

only when the deciding official is free

from partisan political purposes as

required by the OPM regulations

discussed in section 4.a. of this UIPL.

The Department interprets this

provision to have been met as long as

the first level of appeal available to the

individual is merit staffed.

The requirement of Section 303(a)(8),

SSA, that amounts received for the

administration of the UC program be

used solely ‘‘in the amounts found

necessary by the Secretary of Labor for

the proper and efficient administration

of State law’’ also restricts outsourcing.

Any moneys expended to outsource UC

functions that are required to be merit

staffed, or any moneys spent on

outsourcing UC functions which could

be performed more efficiently by

governmental personnel, would not be

necessary for the proper and efficient

administration of the State’s UC law.

Also, the ‘‘methods of administration’’

requirement of Section 303(a)(1), SSA,

beyond the merit staffing requirement,

is applicable here. The Department has

interpreted Section 303(a)(1), SSA, as

requiring that eligibility decisions be

accurate. (See 20 CFR part 602.) It

follows that the individuals making

these decisions must have the

knowledge and training necessary to

make the correct decisions.

Advancement for UC administrative

staff based on knowledge, and the

provision of training for such staff as

needed, are requirements found in the

OPM regulations discussed in section

4.a. of this directive.

Finally, outsourcing is not permitted

when it otherwise creates a conflict with

Section 303(a)(1), SSA, or any other

Federal law requirement. For example,

Section 303(a)(1), SSA, is interpreted to

require that States keep UC information

with personal identifiers confidential.

An outsourcing arrangement that

jeopardizes the confidentiality of the UC

information would be impermissible.

5. Application of Federal

Requirements. This section indicates UC

functions which may or may not be

outsourced. The items identified in this

discussion constitute some of the major

functions involved in administering the

UC program. It is not necessarily an

exhaustive list of functions. For

functions that are not identified or

discussed in this program letter or its

attachments, the Department, in

consultation with OPM, will review and

decide the permissibility of outsourcing

on a case-by-case basis, applying the

principles in this issuance.

a. Functions Which May Not Be

Outsourced. Many functions relating to

the UC program are inherently

governmental and, therefore, may not be

outsourced.

Determining whether to pay (or not

pay) UC is an inherently governmental

function. Because one of the major

functions of the UC program is to act as

an economic stabilizer, these decisions

ultimately involve the interpretation

and execution of law in a manner which

affects general economic interests. In

addition, decisions made by employees

who administer the UC system bind the

State government to make payments to

individuals based on applicable law and

regulation, significantly affect the life of

the individual, and affect disbursement

of unemployment funds with respect to

the individual. These types of decisions

are identified specifically in OMB

Circular A–76 (Revised) and OFPP

Policy Letter 92–1 as inherently

governmental.

Whether an individual will receive

UC is determined through a process

which involves taking claims,

determining the facts of the individual’s

situation, and if necessary, adjudicating

issues and hearing and deciding firstlevel appeals. These three basic

functions involved in determining

eligibility for UC also are inherently

governmental in nature, as they require

the exercise of discretion in applying

governmental authority.

Claims taking involves providing

claimants with an understanding of

their rights to UC and with advice

concerning when to file as well as what

type of claim to file (e.g., intrastate,

interstate, or combined-wage).

Discretion must be exercised as to what

advice is given. Fact-finding is

extremely dependent upon the exercise

of discretion as it involves asking the

necessary questions and establishing the

proper facts in order to ensure that a

correct eligibility determination be

made.

The adjudication of issues cannot be

conducted without the adjudicator

exercising discretion in the

interpretation of the State law. In

response to our inquiry, which arose

from a request for guidance concerning

the merit system requirement as it

related to appeals referees, OPM advised

the Department that appeals referees

must be covered by a merit system,

meaning the position must be filled by

a merit staffed government employee.

This determination was based on the

need to insulate hearing officers and

adjudicators from political or other

extraneous pressures. The need for this

requirement is illustrated at the Federal

level by the fact that Administrative

Law Judges (ALJs) were specifically

excluded from the Senior Executive

Service (SES) at its creation, because the

greatly relaxed merit staffing principles

applied to members of the SES are not

sufficient to assure the impartiality that

is required of ALJs. Requiring

adjudicators to be merit-staffed

governmental employees is necessary to

meet the impartial hearing requirement

of Section 303(a)(3), SSA.

While the management of the

Unemployment Trust Fund (UTF) is

primarily a function of the United States

Treasury, each State manages the

clearing and benefit payment accounts

in the State’s unemployment fund. As

stated in section 4.b of this directive and

in OFPP Policy Letter 92–1, inherently

governmental functions include all

those where the individual interprets or

executes the law so as to ‘‘exert ultimate

control over the acquisition, use, or

disposition of the property of the

Government, including the collection,

control, or disbursement of appropriated

or other funds.’’ Section 6(e)(2) of OMB

Circular No. A–76 (Revised) specifically

defines monetary transactions and

entitlement, such as tax collection and

revenue disbursements, control of the

treasury accounts and money supply,

and the administration of public trusts,

as inherently governmental functions.

As such, they must be performed by

merit-staffed governmental employees.

Determination of employer liability

and experience rates are also inherently

governmental functions. To determine

an employer’s experience rate,

determinations have to be made

concerning noncharging of benefits paid

(if allowed under the State law),

determinations of successions, rate

transfers, and whether penalty rates will

be used. Employer monetary liability

also includes determinations about

whether to assess penalties and interest.

Because these decisions have an affect

on the amount owed by an employer,

they have the potential to significantly

affect the property of an individual.

Decisions concerning coverage

determine the employers who are liable

for contributions and workers who

accrue benefit rights under State law,

Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1699

and as such, significantly affect the

property of individuals. For these

reasons, all these functions must be

performed by merit-staffed

governmental employees.

Most aspects of the collection of

contributions also must be performed by

governmental employees. OMB Circular

No. A–76 (Revised) specifically

identifies monetary transactions and

entitlement, such as tax collection and

revenue distribution, as ‘‘functions so

intimately related to the public interest

as to mandate performance by

governmental employees.’’ Therefore,

with the exception of the functions

described in section 5.b of this directive,

which follows, the functions involved

in the collection of contributions must

be performed by merit-staffed

governmental employees.

b. Functions for Which Outsourcing is

Permitted. As noted in Section 4.b of

this directive, for purposes of the merit

system provisions of Section 303(a)(1),

SSA, based on OPM’s guidance, if a

function may be outsourced by the

Federal government, it may be

outsourced by State governments, if it

also does not conflict with State or other

Federal law. We note, however, that

further limitations on outsourcing, even

where it otherwise would be permitted,

are explained below in Sections 5.c and

5.d of this directive. The following

discussion of permissible outsourcing is

illustrative of the types of functions

which may be outsourced and is not an

exhaustive list of such functions.

One aspect of functions related to the

collection of contributions where merit

staffing is not required is the collection

of delinquent contributions which have

been determined to be uncollectible by

the State agency. In the case of such

delinquent contributions, the

determination as to the amount owed

and the propriety of the decision

already have been made by

governmental employees. Moreover, the

governmental agency will have taken all

the actions required by law to collect

the contributions due.

The requirement, discussed in section

5.a of this directive, that only meritstaffed governmental employees may

collect, control, or disburse funds does

not prohibit the use of commercial

banks as depositories for clearing and

benefit payment accounts, provided that

the decisions concerning those accounts

(that is, when checks are written, the

amount of money to be transferred or

drawn down from the UTF, etc.) are

made by merit-staffed governmental

employees. These banking functions are

ministerial in nature and, therefore, are

not required to be merit-staffed.

Similarly, States are not prohibited from

using a commercial bank as the

collection point for contributions (that

is, a clearing account) because lockbox

collection functions are ministerial

functions as they involve no judgement.

Audits do not have to be performed

by governmental employees. OMB

Circular A–76 (Revised) specifically

identifies financial auditing as an

example of a commercial activity.

Because this function involves the

gathering of information rather than the

determination of liability, the function

may be outsourced if doing so is not

inconsistent with State and Federal laws

relating to procurement of services. The

basic UC tax audit function, as well as

certain program audit functions (such as

workload validation) may be

outsourced, to the extent they do not

involve the exercise of discretion in

applying governmental authority, but

rather, involve only the investigation

and verification of past actions taken by

governmental or contract employees.

(See section 5.c of this directive for

additional discussion.)

Automated data processing (ADP)

functions also are identified in OMB

Circular A–76 (Revised) as commercial

activities that may be outsourced. ADP

functions do not require the use of

discretion in applying governmental

authority, nor do they impact the

decisions concerning whether or not an

individual is eligible to receive UC.

Therefore, ADP functions may be

outsourced.

In all cases where outsourcing is

contemplated, safeguards must be in

place to ensure that any confidential

data available to the contractor is not

disclosed. Otherwise, outsourcing

would not be appropriate, as it would be

inconsistent with the confidentiality

requirements of Section 303(a)(1), SSA.

c. Determinations Concerning

Outsourcing Must be Based on the

Function, Not the Title of the Position

to be Outsourced. The Department

recognizes that many UC staff positions

entail the performance of multiple

functions. A given UC staff position may

include some duties that must be

performed by merit-staffed

governmental personnel, and some

duties that may be outsourced. A

decision as to whether it is permissible

and/or appropriate to outsource an

activity must be made by determining

the function(s) performed, and must not

be based on the title of the position

charged with performing the function(s).

If the function involves the application

of governmental authority, it may not be

outsourced, even if the title of the

position suggests the absence of

governmental authority. For example, as

is usually the case for UC field audits,

determining when audits are to be

performed and decisions made as a

result of the audit (for example, whether

the employer owes back taxes,

determinations of coverage, etc.) are

inherently governmental functions that

are an integral part of the UC audit

function. Therefore, if auditors have the

responsibility for making

determinations of monetary liability or

coverage decisions based on their audit

findings, as is normally the case with

tax auditors and in the various quality

control programs, the auditors must be

merit-staffed governmental employees

and not contractors. If the ministerial

functions can be separated out from the

inherently governmental functions, the

ministerial functions may be

outsourced. However, a legal

prerequisite still applies, as explained

in section 5.d.2 of this directive, that

doing so must not be less cost effective

than having the entire function

performed by merit-staffed

governmental employees.

When deciding whether to outsource

a position, States first should determine

whether any inherently governmental

functions are included in the duties of

the position. If inherently governmental

functions are included in the duties of

the position, and they cannot be

separated from the other function(s) to

be performed, the position must be

filled by a merit-staffed, governmental

employee. If the inherently

governmental function(s) can be

separated from the position, and

performed by merit-staffed

governmental employees, then the rest

of the function which is not inherently

governmental may be outsourced,

provided all other requirements for

outsourcing are met. The Department

will advise States on a case-by-case

basis when requested to do so or when

issues are identified regarding the

outsourcing of specific functions and

positions.

d. Further Limitations on

Outsourcing. The above discussions of

outsourcing relate to whether a

particular function may be outsourced.

However, other factors must be taken

into account before outsourcing the

function is permissible. These factors

relate to whether a de facto employeremployee relationship exists between a

contractor and governmental employees,

and whether the government can

perform the function in a more cost

effective manner than a contractor.

(1) Functions, even if commercial

activities, may not be outsourced if

doing so would create an employeremployee relationship between

government and contract employees. As

noted above, commercial activities may

1700 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

be outsourced. However, even if a

function is deemed to be a commercial

activity, its outsourcing is

impermissible if it creates a de facto

employer-employee relationship

between government and contract

employees. A de facto employeremployee relationship, where contract

employees are under the direction,

supervision, and evaluation of

government employees, but without

merit system protections, would

circumvent the Federal merit system

requirements. In this case, the de facto

employer-employee relationship would

serve to achieve in a backhanded

manner that which could not be

achieved otherwise: performance of the

work by de facto government employees

without merit system protections. This

would undermine the very basis for

requiring merit system protections in

the first place, and is, therefore,

impermissible.

Conversely, under no circumstances

may governmental employees be under

the direction and control of contract

employees. If governmental employees

are subject to direction, supervision,

and evaluation by contract personnel,

the chain of governmental responsibility

to the public would be broken. In this

case, the contractor, who is not

accountable to the public, would exert

major influence over the employees,

rather than government officials who are

directly accountable to the public.

OPM has advised the Department that

the existence of a de facto employeremployee relationship, in the context of

government contractors, is determined

under the Federal common law test (as

opposed to the State law tests) for

determining the existence of an

employer-employee relationship. The

determination whether an employeremployee relationship exists must be

made on a case-by-case basis. Federal

regulations defining the employeremployee relationship are found at 26

CFR Section 31.3306(i)–1.

(2) Functions, even if commercial

activities, may not be outsourced if they

can be performed in a more cost

effective manner by the government. As

noted above, Section 303(a)(8), SSA,

requires that a State’s law provide for

the expenditure of all moneys received

by the State under Section 302, SSA,

‘‘solely for the purposes and in the

amounts found necessary by the

Secretary of Labor for the proper and

efficient administration’’ of the State’s

UC law. If a UC function can be

performed more efficiently and cost

effectively by the Government than by a

contractor, outsourcing of the function,

even if it is a commercial activity,

would be inconsistent with Section

303(a)(8), SSA, as it would not

constitute ‘‘efficient administration’’ of

the State’s UC law.

(3) Outsourcing may not be used to

circumvent personnel or salary ceilings.

OMB Circular A–76 (Revised) states that

the circular shall not be used to justify

the outsourcing of functions solely to

avoid personnel ceilings or salary

limitations. In applying this principle to

the States, if such ceilings or limitations

exist, granted funds must be used in a

manner consistent with the ceilings or

limitations in order to insure the

‘‘proper administration’’ of the State’s

law under Section 303(a)(8), SSA.

6. Frequently Asked Questions. While

developing this directive, the

Department received several questions

concerning its contents. The following

Questions and Answers respond to

questions which have not already been

addressed.

Q. States frequently hire additional

staff to handle temporary workload

increases. These staff are let go when

the workload decreases. In some cases,

these staff may be retirees who return to

work. Are these actions inconsistent

with merit-staffing?

A. The Department recognizes that it

is necessary on occasion to bring on

temporary employees to handle

temporary workload increases. To

ensure that these temporary employees

are competent to perform the tasks for

which they are hired, they must have

been hired through a merit system. If a

retiree was hired and trained under a

merit system in the first place, the merit

system requirement is maintained. No

issue is created when these temporary

employees are laid-off due to a

workload reduction.

Q. Members of Boards of Review

which administer the second level of

appeals are not required to be meritstaffed. Why is this so? May the higher

appeals authority be outsourced?

A. The higher appeals authority may

not be outsourced as it performs an

inherently governmental function that

requires discretion in applying

Government authority or the making of

value judgements in making decisions

for the Government. However, the

Department has long held that Boards of

Review need not be merit-staffed.

Boards exist to provide an independent

analysis of, and ensure consistency of,

first-level appeals decisions. Board

members typically represent both

employer and employee interests and as

such are chosen for their representation

of those groups. This position was

stated as early as 1963 in Section

0595(B), Part I, of the Employment

Security Manual. (This section is now

obsolete.)

7. Action Required. Administrators

are requested to provide this

information to the appropriate staff.

States should take appropriate action to

assure that they meet the requirements

of Federal law as explained by this

UIPL.

8. Inquiries. Questions concerning the

outsourcing of UC functions should be

directed to the appropriate Regional

Office.

9. Attachments. OMB Circular No. A–

76 (Revised) and OFPP Policy Letter 92–

1.

Note: The attachments, both of which have

been published in the Federal Register

previously, are not being published again.

They can be obtained in electronic format at

the following URL addresses.

OMB Circular No. A–76—http://

www.whitehouse.gov/OMB/circulars/

a076/a076.html

OFFP Policy Letter 92–1—http://

www.arnet.gov/References/

PolicylLetters/PL92–1.html

[FR Doc. 01–513 Filed 1–8–01; 8:45 am]

BILLING CODE 4510–30–P

LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2001–1 CARP DSTRA2]

Adjustment of Rates and Terms for the

Digital Performance of Sound

Recordings

AGENCY: Copyright Office, Library of

Congress.

ACTION: Notice of negotiation period and

request for notification.

SUMMARY: The Copyright Office of the

Library of Congress is announcing the 6-

month negotiation period for the

adjustment of royalty rates and terms for

the public performance of copyrighted

sound recordings by preexisting

subscription services and preexisting

satellite digital audio radio services. The

Office is also requesting those parties

participating in the negotiations to so

notify the Office.

DATES: The 6-month negotiation period

commences on January 9, 2001.

Notification of participation in the

negotiation period is due by January 31,

2001.

ADDRESSES: An original and five copies

of notification of participation in the

settlement negotiations may be hand

delivered to: Office of the General

Counsel, Copyright Office, James

Madison Memorial Building, Room LM–

403, First and Independence Avenue,

SE., Washington, DC 20559–6000; or

mailed to: Copyright Arbitration Royalty