APPEAL FROM THE ARKANSAS BOARD OF REVIEW. NO. 2014-EC-08.
Friday, Eldredge & Clark, LLP, by: Michael Moore and Amanda Moore, for appellant.
Phyllis A. Edwards, for appellee.
BART F. VIRDEN, Judge. HARRISON and HIXSON, JJ., agree.
BART F. VIRDEN, Judge
The Arkansas Department of Workforce Services (Department) found that the Sunshine Academy daycare operated by the First Pentecostal Church of Bryant (First Pentecostal) was an organization separate from the church within the meaning of Arkansas Code Annotated section 11-10-210(a)(4)(A) and therefore, Sunshine Academy must report wages and pay unemployment insurance on daycare employees. For its only point on appeal, Sunshine Academy argues the Department erroneously construed the statute. We agree, and we reverse.
In early 2013, a former employee of the daycare filed a claim for unemployment benefits. On May 30, 2013, the Department sent a letter to Sunshine Academy stating it was " liable to report wage information paid to workers subject to the unemployment tax." A hearing was held on May 15, 2014, to determine whether Sunshine Academy was exempt from paying unemployment-insurance taxes under Arkansas Code Annotated section 11-10-210. The pastor of First Pentecostal, Jerry Paul Whitley, testified that everyone employed at the daycare is paid by the church, including the director of the daycare, Diann Crouse. Pastor Whitley testified his secretary, Regina Fields, is in charge of the " day-to-day financial dealings" of Sunshine Academy and reports directly to him, and the General Board of First Pentecostal Church of Bryant is also the board for the daycare. He testified the State partially funds Sunshine Academy, and the money is deposited into First Pentecostal's Sunshine Academy account. He explained the daycare uses only church facilities, and during church hours the church uses the daycare facilities for Sunday school.
Diann Crouse also testified at the hearing. She testified Sunshine Academy has around twenty employees, and everyone is paid by the church. The daycare receives state funding through the " Better Beginnings Program" and vouchers, as a part of the Department of Human Services' state licensing program for the daycare; federal funding supports a nutritional program at the daycare. Crouse explained Better Beginnings, vouchers, and federal nutritional funding are all voluntary, and a daycare could be operated without those programs and funding. Crouse testified Pastor Whitley has the final say concerning the hiring and firing of all daycare employees, and those processes are handled through the church business office. The daycare license is held in the name of First Pentecostal.
Regina Fields, the church secretary, testified she processes the church-employee payroll and explained that First Pentecostal is the named holder of the account on all the checks, including the daycare employees' checks. Fields stated she thought possibly half the funding for the daycare comes from the church and tuition.
Jeremy Brown, Acting Unit Supervisor for the Alternative Base Period Unit, testified on behalf of the Department. He asserted Sunshine Academy is liable for unemployment insurance because it receives funding from the aforementioned state and federal programs. Brown asserted that receiving outside funding means that First Pentecostal does not have total control of the daycare and is therefore a separate employing unit. Additionally, Brown asserted Sunshine Academy is not primarily operated for religious purposes.
In the Department's opinion issued on July 11, 2014, it found that Sunshine Academy was not exempt from payment of unemployment taxes. In the section of the opinion entitled " findings of fact and conclusions of law" the Department found that
" it does not matter who or what entity hires or pays the workers; they are still deemed to be engaged by the employing unit, in this case, Sunshine ...