Subsidized work-based training for unemployed workers

Accessible letter PDF: https://www.dol.gov/sites/dolgov/files/ETA/advisories/TEGL/2010/TEGL12-09acc.pdf

CLASSIFICATION
   EMPLOYMENT AND TRAINING ADMINISTRATION
               ADVISORY SYSTEM                          CORRESPONDENCE SYMBOL
                                                        OUI/DL
          U.S. DEPARTMENT OF LABOR
             Washington, D.C. 20210                     DATE
                                                        January 29, 2010




ADVISORY: TRAINING AND EMPLOYMENT GUIDANCE LETTER NO. 12-09

TO:            GOVERNORS
               STATE WORKFORCE AGENCIES
               STATE WORKFORCE ADMINISTRATORS
               STATE LABOR COMMISSIONERS
               STATE WORKFORCE LIAISONS
               STATE WORKFORCE BOARD CHAIRS
               STATE WORKFORCE BOARD DIRECTORS
               LOCAL WORKFORCE BOARD CHAIRS
               LOCAL WORKFORCE BOARD DIRECTORS
               STATE UNEMPLOYMENT INSURANCE DIRECTORS

FROM:          JANE OATES /s/
               Assistant Secretary
               Employment and Training Administration

               NANCY LEPPINK /s/
               Deputy Administrator
               Wage and Hour Division

SUBJECT:       Joint Guidance for States Seeking to Implement Subsidized Work-Based
               Training Programs for Unemployed Workers


1. Purpose. The purpose of this joint issuance from the Assistant Secretary of the
Employment and Training Administration and the Deputy Administrator of the Wage and
Hour Division is to provide guidance to states that may be considering implementation of
subsidized work-based training initiatives for unemployed workers, which could include
claimants who are receiving unemployment compensation (UC), exhaustees of UC,
and/or other unemployed workers who may not be eligible for UC. This advisory is
intended to help states understand applicable Federal laws, regulations, and policies
related to the Social Security Act and the Federal Unemployment Tax Act (which govern
the Unemployment Compensation program), the Fair Labor Standards Act, and the
Workforce Investment Act of 1998, as amended, as they develop and implement these
types of initiatives.




RESCISSIONS:                                          EXPIRATION DATE:
None                                                  Continuing

2. References. The Workforce Investment Act of 1998 (WIA); Section 303(a)(5) of the
Social Security Act (SSA) and Sections 3304(a)(4) and 3306(h) of the Federal
Unemployment Tax Act (FUTA); Unemployment Insurance Program Letter (UIPL) No.
8-98; UIPL No. 45-89; Training and Employment Guidance Letter (TEGL) No. 2-07;
TEGL No. 14-08; TEGL No. 21-08; TEGL No. 21-08, Change 1; TEGL No. 2-09; 20
CFR 604; 20 CFR 663; Section 203(e) of the Fair Labor Standards Act (FLSA); Section
10b11 of the Wage & Hour Division Field Operations Handbook.

3. Background. In the context of the current recession, states and their local service
delivery partners have worked to develop innovative strategies to help Americans get
back to work as quickly as possible in good jobs with career opportunities. As states
have considered new initiatives, they have looked to a variety of models that have been
demonstrated in the past or previously implemented as Federal programs. Among the
models being examined are those that connect a worker with an employer and provide
work-based training for the unemployed worker while the worker continues to receive
unemployment benefits. These models provide: new skills for the worker, exposure to
new occupations and careers, and work experience that can be highlighted on a resume;
and may help move the unemployed worker into permanent employment with the
employer providing the training.

There is a wide variety of work-based training models, using different training
alternatives, funding streams, and methods of financially supporting unemployed workers
while they are in training, including work-based training models that are defined in
statute, such as WIA on-the-job training (OJT). This guidance does not address every
possible model. Rather, it is intended to provide some basic parameters related to three
key program areas that states should consider. Of particular importance under the Fair
Labor Standards Act (FLSA) is determining whether participants in work-based training
programs are “employees” (in which case they may be covered by the FLSA’s minimum
wage and overtime provisions) or “trainees” (in which case the FLSA’s provisions do not
apply). The guidance also provides program parameters for use of WIA funds and UC
implications of targeting UC claimants specifically. It also is intended to promote
consultation and collaboration across programs and agencies, including Department of
Labor, Wage and Hour Division, as part of the development process prior to
implementation in cases that are not clearly within a specific established program or
model, like WIA OJT for example.

4. Programmatic and Legal Considerations.

States need to be aware of three areas of law and program policy when developing and
implementing work-based training programs. They are:

Workforce Investment Act of 1998

Work-based training models that connect unemployed workers with employers can be
funded with several types of WIA funds. Statewide workforce investment activities
funds provide the most flexibility. WIA Adult and Dislocated Worker local area formula



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funds also can be used, but they come with additional restrictions. WIA Youth local area
formula funds can be used to serve unemployed workers who also qualify as eligible
youth.

Some work-based training programs may allow participants to continue collecting UC
while receiving training. The specific parameters that regulate participants’ ability to
continue to collect UC while participating in training are detailed in the UC sections of
this TEGL.

States can administer work-based training programs in several ways, subject to the
program’s design and the eligibility criteria mandated by the funding stream. More
specifically, programs may be implemented as one of the following:
    • A state research and/or demonstration project;
    • A “work experience;”
    • A training activity;
    • On-the-job training; or
    • A “work experience” or training activity coupled with supportive services.

WIA funding can also be used to support registered apprenticeship programs, another
method of connecting unemployed workers with employers. The eligibility criteria for
each funding stream are discussed in more detail below.

Additional information by funding stream

WIA 15% Statewide Workforce Investment Activities Funds

Projects supported with funds reserved by the Governor for statewide workforce
investment activities may offer work-based training opportunities. WIA provides states
with authority to use statewide activities funds to conduct “research and demonstrations.”
[20 CFR 665.210(c).]

WIA Adult and Dislocated Worker Local Area Formula Funds

WIA Adult and Dislocated Worker local area formula funds can be used to support work-
based training programs in several ways. The eligibility requirements and allowable
activities for each delivery mechanism are discussed below.

Intensive Service: WIA Adult and Dislocated Worker programs may offer work-based
training to eligible participants as an intensive service when the program meets the
criteria of a “work experience.”

As defined in WIA regulations, a “work experience is a planned, structured learning
experience that takes place in a workplace for a limited period of time. Work experience
may be paid or unpaid, as appropriate. A work experience workplace may be in the
private for-profit sector, the non-profit sector, or the public sector. [20 CFR 663.200(b).]
Labor standards, such as minimum wage and overtime provisions, may apply to any


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person participating in any work experience where an employee/employer relationship
exists, as defined by the Fair Labor Standards Act [Id.]. See the FLSA discussion below
for more information.

Training Service: Work-based training may be provided under the authority of several
types of training services authorized in WIA, such as “programs that combine workplace
training with related instruction” or “training programs operated by the private sector.”
[WIA Sec. 134(d)(4)(D)(iii),(iv).] If the provider of the training is on the Eligible
Training Provider List (ETPL), work-based training can be funded with local WIA Adult
and Dislocated Worker allocations.

On-the-Job Training (OJT): WIA Adult and Dislocated Worker local area formula funds
may also be used to fund OJT. Unlike other types of work-based training, all OJT
participants are hired by the employer conducting the training. As employees, OJT
participants may be ineligible to continue collecting UC.

Through an OJT contract, occupational training is provided to participants in exchange
for the reimbursement of up to 50 percent of the participants’ wage rate to compensate
for the employer’s extraordinary costs [20 CFR 663.700]. Additionally, with an
approved waiver, local areas can provide additional compensation for smaller employers.
OJT contracts also have additional eligibility criteria, such as length restrictions and wage
requirements. [20 CFR 663.700 – 663.730.]

Registered Apprenticeship: Though not a WIA program, apprenticeship or pre-
apprenticeship programs can be supported with WIA Adult and Dislocated Worker local
area formula funds in several ways.

Most significantly, individual training accounts (ITAs) can provide financial support for
the related instruction portion of apprenticeships, as well as access to pre-apprenticeship
training. Customized training and OJT can also integrate with apprenticeship programs,
as discussed in TEGL No. 2-07, “Leveraging Registered Apprenticeship as a Workforce
Development Strategy for the Workforce Investment System.”

Funds provided by the American Recovery and Reinvestment Act and the 2010 WIA
appropriations provide additional flexibility. Both sources allow Local Workforce
Investment Boards to contract directly with institutions of higher education under certain
conditions, even if they are not on the ETPL. With this flexibility, local areas can use
WIA Adult and Dislocated Worker local area formula funds to provide financial support
for the related instruction portion of apprenticeships or pre-apprenticeship training at
additional training providers. This flexibility is not limited to apprenticeship, and is
discussed in more detail in TEGL No. 14-08; it is mentioned because of its potential use
in an apprenticeship-based work-based training model.

Supportive Services: Supportive services such as transportation, child care, dependent
care, and housing may be provided when necessary to enable an individual to participate
in WIA activities including core, intensive, or training services. [20 CFR 663.800.] To



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obtain supportive services, the participant must be unable to obtain supportive services
through other programs providing such services and meet all other locally-established
criteria. [20 CFR 663.805.] When work-based training is delivered as an intensive or
training service, participants may be eligible to receive supportive services.

WIA Youth Local Area Formula Funds

WIA Youth local area formula funds may be used to support paid or unpaid work
experiences, but only for youth who meet the program eligibility requirements. [20 CFR
664.200 – 664.250.] “Paid and unpaid work experiences” are one of the ten program
elements required of all WIA Youth programs [20 CFR 664.410(a)(4)], and must meet
several criteria. [20 CFR 664.460] Additionally, work-based training programs designed
for eligible youth may “pay wages and related benefits for work experiences.” [20 CFR
664.470.]

Rapid Response Funds

Work-based training is not a required rapid response activity [20 CFR 665.310], nor does
it clearly meet the criteria for additional allowable activities [20 CFR 665.320].
However, in developing reemployment strategies for dislocated workers, in the course of
a rapid response intervention, work-based training strategies may be entertained using
other state or local funding sources.

Unemployment Compensation (UC)

When a work-based training model targets UC claimants specifically and/or there is
consideration of using unemployment funds generally in the context of the overall model,
it is important to understand both Federal and state UC laws that may apply.

Overview of Basic UC principles. Since the inception of the Federal-State UC program,
Federal law has permitted participating states to make payment of UC only with respect
to an individual's unemployment. Put another way, Federal law prohibits the payment of
UC to an individual who is not unemployed for some portion of the week in which UC is
claimed, unless specifically authorized by Federal law. As a result, states’ attempts to
develop innovative models to assist UC recipients’ return to work must adhere to this
requirement. Following is a discussion of this requirement, its implications, and some
options available to states.

Unemployment fund dollars may only be used to pay UC. Section 3304(a)(4), FUTA,
requires, as a condition for employers in a state to receive credit against the Federal tax,
that state law provide that:

        . . .all money withdrawn from the unemployment fund of the State shall be used
       solely in the payment of unemployment compensation, exclusive of expenses of
       administration, and for refunds of sums erroneously paid into such fund. . . .




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Section 303(a)(5), SSA, contains the same requirement as a condition for states receiving
administrative grants. Section 3306(h), FUTA, defines compensation as "cash benefits
payable to individuals with respect to their unemployment." Taken together, these
provisions are referred to as “the withdrawal standard.” Under the withdrawal standard,
money may only, with statutorily-authorized exceptions, be withdrawn from a state's
unemployment fund for the payment of UC to an individual “with respect to [an
individual's] unemployment.”

UC may only be paid to an individual. As explained in UIPL No. 45-89, amounts may be
withdrawn from a state’s unemployment fund only to pay UC directly to individuals.
Amounts may not be withdrawn to pay an employer as a subsidy for wages or as an
incentive to provide employment. (Statutorily-authorized exceptions are also discussed
in UIPL No. 45-89.)

UC may only be paid if the individual is unemployed. As noted above, amounts may be
withdrawn from the unemployment fund for payment to individuals with respect to an
individual’s “unemployment.” The 1935 Senate Report on the original Social Security
Act creating the program also emphasized that UC may be paid only with respect to an
individual's unemployment:

       Unemployment compensation differs from relief in that payments are
       made as a matter of right not on a needs basis, but only while the worker is
       involuntarily unemployed. . . . Payment of compensation is conditioned
       upon continued involuntary unemployment. [S. Rep. No. 628, 74th Cong.,
       1st Sess. 11 (1935).]

During the debate on the passage of the Social Security Act, the original sponsor, Senator
Wagner, stated that, “the only important requirement [of the Social Security Act's
unemployment compensations provisions] is that the State law shall be genuinely
protective, and that its revenues shall be devoted exclusively to the payment of insurance
benefits”, 79 CONG. REC. 9284 (June 14, 1934).

Implications. Because UC may only be paid to individuals with respect to their
unemployment, it may not be paid to individuals who have not experienced
unemployment during the week claimed. Similarly, UC may not be paid as a subsidy for
employment (e.g. to make up the difference in hourly wages between the individual’s
former job and the individual’s new, lower paying job ) or as a stipend since it is not a
payment “with respect to unemployment,” but is instead a payment with respect to being
employed. In addition, money may not be withdrawn from the unemployment fund to
make incentive payments to employers to hire UC claimants. Doing so would create two
problems. First, the amount would not be paid to the individual whose unemployment is
being compensated. Second, the withdrawal would be made with respect to a program
for incentivizing the hiring of workers by employers rather than “with respect to [the
individual’s] unemployment.”




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UC may be paid to individuals in training notwithstanding the requirement that they be
able and available for work. Federal UC law has always been interpreted as requiring
states, as a condition of participation in the Federal-State UC program, to limit the
payment of UC to individuals who are able and available (A&A) for work. (For
additional information, see 20 CFR 604.5.) However, a state may consider an individual
available for work “for all or a portion of the week claimed, provided that any limitation
placed by the individual on his or her availability does not constitute a withdrawal from
the labor market.” Thus it would be possible for a state to consider individuals in work-
based training (for example, 20 hours a week) A&A as long as they were available for
work during some portion of the week.

UC may be paid to individuals in training approved by the state UC agency. Federal law
prohibits denial of UC to individuals participating in training with the approval of the
state agency based on state law provisions relating to availability for work, active search
for work, or refusal of work. However, individuals who are participating in employer
sponsored “on-the-job training” are not “unemployed” and thus may not be paid UC
unless they are not working full time during the week the on-the-job training takes place.
In TEGLs Nos. 21-08 and 21-08, Change 1, the Department encouraged states to broaden
their definition of approved training and to implement procedures that would facilitate
individuals’ participation in training. In TEGL No. 2-09, the Department provided
information about recommended policies for approved training.

Individuals working part-time may be eligible for UC. Each state’s UC law includes
provisions for UC payments to individuals who are partially unemployed. Depending on
state law requirements concerning monetary and non-monetary eligibility, individuals
who are earning part-time wages may be eligible for UC as long as they are unemployed
for some part of the week being claimed.

Fair Labor Standards Act

Employers who participate in subsidized work-based training programs implemented by
states for unemployed workers may be subject to the requirements of the Fair Labor
Standards Act (FLSA) with respect to the workers who are placed with them. If an
employment relationship exists between the participating employer and the worker, and
the worker is engaged in work subject to the FLSA and does not satisfy one of the
FLSA’s exemptions, the employer must pay the worker at least the federal minimum
wage for all hours worked and overtime pay at one and one-half times the worker’s
regular rate for all hours worked over 40 in a workweek. State and local minimum wage
and overtime laws may apply as well. If the worker is a trainee as opposed to an
employee under the FLSA, then he or she is not covered by the FLSA’s minimum wage
and overtime provisions.

The definition of “employee” is very broad under the FLSA, but persons who, without
any express or implied compensation agreement, work for their own advantage on the
premises of another may not be employees. Workers who receive work-based training
may fall into this category and may not be employees for purposes of the FLSA. The



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specific facts and circumstances of the worker’s activities must be analyzed to determine
if the worker is a bona fide “trainee” who is not subject to the FLSA or an “employee”
who may be subject to the FLSA. The employer is responsible for complying with the
FLSA and participation in a subsidized work-based training initiative for unemployed
workers as described in this guidance does not relieve the employer of this responsibility.

The U.S. Department of Labor’s Wage and Hour Division (WHD) has developed the six
factors below to evaluate whether a worker is a trainee or an employee for purposes of
the FLSA:

    1. The training, even though it includes actual operation of the facilities of the
      employer, is similar to what would be given in a vocational school or academic
      educational instruction;

    2. The training is for the benefit of the trainees;

    3. The trainees do not displace regular employees, but work under their close
      observation;

    4. The employer that provides the training derives no immediate advantage from the
      activities of the trainees, and on occasion the employer’s operations may actually
      be impeded;

    5. The trainees are not necessarily entitled to a job at the conclusion of the training
      period; and

    6. The employer and the trainees understand that the trainees are not entitled to
      wages for the time spent in training.

If all of the factors listed above are met, then the worker is a “trainee”, an employment
relationship does not exist under the FLSA, and the FLSA’s minimum wage and overtime
provisions do not apply to the worker. Because the FLSA’s definition of “employee” is
broad, the excluded category of “trainee” is necessarily quite narrow. Moreover, the fact
that an employer labels a worker as a trainee and the worker’s activities as training and/or
a state unemployment compensation program develops what it calls a training program
and describes the unemployed workers who participate as trainees does not make the
worker a trainee for purposes of the FLSA unless the six factors are met. Some of the six
factors are discussed in more detail below.

Training Similar to Vocational School/The Primary Beneficiary of the Activity

In general, the more a training program is centered around a classroom or academy as
opposed to the employer’s actual operations, the more likely the activity is training.
Also, the more the training is providing the workers with skills that can be used in
multiple employment settings, as opposed to skills particular to one employer’s
operation, the more likely the worker is a trainee. On the other hand, if the workers are



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engaged in the primary operations of the employer and are performing productive work
(for example, filing, performing other clerical work, or assisting customers), then the fact
that they may be receiving some benefits in the form of a new skill or improved work
habits is unlikely to make them trainees given the benefits received by the employer.

Displacement and Supervision Issues

Employers with bona fide training programs typically do not utilize trainees as a
substitute for regular workers. If the employer uses the workers as substitutes for regular
workers, it is more likely that the workers are employees as opposed to trainees. As well,
if the employer would have needed to hire additional employees or require overtime had
the workers not performed the work, then the workers are likely employees. Conversely,
if the employer is providing job shadowing opportunities where the worker learns certain
functions under the close and constant supervision of regular employees, but performs no
or minimal work, this type of activity is more likely to be a bona fide training program;
however, if the worker receives the same level of supervision as employees, this would
suggest an employment, rather than a training, relationship.

No Job Entitlement/No Entitlement to Wages

Typically, before the work-based training begins, both the employer and the worker agree
that the worker is not entitled to a job at the conclusion of the training period or wages for
the time spent in training. The parties’ expectations regarding the compensation and job
opportunities are relevant but not determinative. Even when such an agreement exists,
hiring workers who finish the training program is considered in determining whether an
employment relationship exists, and frequently hiring such workers suggests that the
workers are not trainees. Finally, if the worker is placed with the employer for a trial
period with the hope that the worker will then be hired on a permanent basis (even if the
worker is not automatically entitled to a job at the end of the period), then the worker is
not likely to be a trainee during the trial period.

Examples:

    1. The worker is placed in a classroom setting maintained by an employer to learn to
      be an electronic technician with no guarantee of future employment with the
      employer. After the training period, the employer hires the worker (even though
      the worker was not entitled to a job and most training participants do not receive
      offers of employment). Because the employer did not benefit from the worker’s
      activities during the training period and the training is very similar to the training
      that is provided in a vocational school, the training program is likely bona fide,
      and the worker is not an employee under the FLSA.

    2. A worker who participates in a program at a retail store or restaurant and who
      assists customers or operates a cash register with little supervision may be an
      employee because the employer derives tangible benefit (i.e., productive work)
      from the worker’s activities. Also, a worker who performs such work may result



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       in the employer’s not hiring an employee whom it would otherwise hire, or result
       in a regular employee working fewer hours than he or she would otherwise work
       – both of which suggest an employment relationship.

5. Action Requested. Provide this directive to appropriate elected officials, government
leaders, staff, and workforce partners who are developing and implementing work-based
training models designed to serve unemployed workers. Those developing these models
are strongly encouraged to consult and engage the Department of Labor’s Wage and
Hour Division on issues associated with differentiating a work-based training program
from employment.

6. Inquiries. Inquiries should be directed to the appropriate Department of Labor
Regional Office for the Employment and Training Administration and/or the Wage and
Hour Division, depending on the nature of the inquiry.

The WHD’s website at http://www.dol.gov/whd provides relevant information regarding
the application of the FLSA to training programs. The WHD’s District Offices located
nationwide are available to answer questions regarding specific training programs. For
further assistance, please call WHD’s toll-free helpline at 1 (866) 4US-WAGE, (1-866-
487-9243).




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