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Many CPA firms bring in temporary tax preparers to assist during the press of tax season. These employees typically work from Jan. 1 through April 15 preparing tax returns and extensions. Afterward, by mutual agreement, they are let go, and each side understands that the hire is not eligible for unemployment compensation or generally any other benefits. The Pennsylvania Unemployment Compensation Law, however, does not recognize or define “seasonal” employees.

A CPA firm recently found itself in front of an unemployment compensation referee to determine if a seasonal employee was entitled to unemployment benefits. There are likely numerous firms that could find their “seasonal” employees are unknowingly entitled to unemployment benefits. With tax season just ending, this is an important time for firms to examine their employment practices and to make certain they do not fall into this trap.

There is a test, based upon when wages are earned during the year that determines if someone is eligible for benefits. To be eligible for benefits, Section 401 of the Pennsylvania Unemployment Compensation Law requires that “not less than 49 and one-half per centum (49.5 percent) of the employee’s total base year wages have been paid in one or more quarters, other than the highest quarter in such employee’s base year.” For purposes of this calculation the Department of Labor & Industry uses calendar year quarters (the first quarter is January, February and March; the second quarter is April, May, and June; etc.). This calculation will determine whether an employee, who you believe is seasonal, is eligible for benefits. The simplest way to look at this is did the employee’s highest earning quarter exceed 50.5 percent?

Examining an exclusively seasonal tax employee who works January through April is easy. This employee would earn the vast majority of his or her income in the first quarter of the year, with only a little in the second quarter, and would therefore not be eligible for benefits. The earnings in the first quarter would almost certainly be greater than 50.5 percent of total earnings. The work performed in April would be significantly less than the 49.5 percent required to receive unemployment benefits. This employee would not be eligible for unemployment compensation benefits.

However, if an employee stays on and works throughout the rest of the second quarter completing the tax filings that received extensions, they may become eligible for benefits. This calculation also is fairly simple if this employee only worked two quarters. If those quarters were equal, then throwing out the highest quarter leaves one quarter where 50 percent of the income was earned: they would therefore be eligible for benefits. If the work is not equal, then the highest quarter gets thrown out and the question is whether the lower quarter has more than 49.5 percent of the total earnings. As you can see, the problem arises when the two quarters are equal or almost equal. If the large majority of the work is performed in the first quarter rather than split fairly equally, there will be no problem and your seasonal employee will not be eligible for benefits. Simply put, if an employee had one of the two quarters where they received more than 50.5 percent of their compensation they will not be eligible for unemployment compensation benefits.

It really becomes more difficult when the employee starts working in the fall and then works beyond April. In this instance we have at least three quarters of earnings to review. In some cases the employee may actually work some in each quarter. For instance, an employee who takes off during June, July, and August to be with his or her children will have worked some period of time in each of the four quarters. It is entirely possible to have the situation where the employee’s largest earnings quarter, presumably the first quarter of the year, is less than 50 percent of their earnings, and if that is the case they will certainly have earned more than 49.5 percent of their earnings the rest of the quarters. Again, the simple question is whether the employee earned more than 50.5 percent of their income in any one quarter. If so, they are ineligible for benefits. Otherwise that employee would be eligible for unemployment compensation benefits.

Practice Tips

• Start your seasonal employee after Jan. 1.
• End seasonal employment before May 1.
• Do not bring seasonal employees in outside the “season.”
• Make certain the hours in the first quarter of the year exceed all other combined hours.

Whether or not your seasonal tax employees are legally seasonal employees can have serious consequences concerning whether your firm is responsible for unemployment compensation benefits. You must remain aware of this issue and monitor it each year because their work hours can certainly change from year to year. Also, be aware of the special projects for which you might bring someone on early or extend their time. Those are the situations where I see CPA firms having employees who are eligible for unemployment compensation benefits when it was unexpected.

Jeffrey T. McGuire, JD, is a partner with Cipriani & Werner PC. He teaches ethics, represents CPAs across Pennsylvania, and serves as legal counsel to the PICPA. He can be reached at jmcguire@c-wlaw.com.