Who is Not Covered?

Unemployment insurance is a program that provides temporary wage replacement benefits to Tennessee workers who have lost their jobs through no fault of their own and who meet statutory wage and availability requirements. Under current Tennessee law, the maximum number of weeks of regular unemployment benefits varies by statewide unemployment conditions and is generally between 12 and 20 weeks, rather than a flat 26 weeks, and is subject to change by statute.

Most employers in Tennessee participate in this program by paying an unemployment insurance tax (premium) on the first portion of each employee’s calendar‑year wages to the Tennessee Department of Labor and Workforce Development (TDLWD). As of 2025, this taxable wage base is the first $7,000 of wages per employee per year, but the taxable wage limit is subject to change. The unemployment insurance tax rate varies from employer to employer based on experience and other factors and currently ranges up to about 10 percent of employees’ taxable wages under Tennessee’s rate schedules.

Municipalities have the option to be a “premium‑paying” employer, which mirrors the process followed by most private‑sector employers in Tennessee, or to choose to be a “reimbursing” employer. Under the reimbursement method, the municipality does not pay ongoing premiums but instead reimburses the state for unemployment benefits paid on behalf of former municipal employees that are chargeable to the city’s account.

The method the municipality uses determines both the amount and the timing of payments to the state. In both cases, the municipality must accurately report, on a quarterly basis, the employees covered and the amount of wages paid in that quarter. Premium‑paying municipalities must remit a quarterly payment based on taxable covered wages for that quarter. Reimbursing municipalities must file quarterly wage reports for each employee but are not required to submit premium amounts with those reports. It is therefore important for municipalities to determine which workers should be included on the quarterly wage report. That is the focus of the remainder of this brief.

Who is an employee?
For purposes of the Tennessee Employment Security Law, “employee” status is defined by statute and is not simply “everyone who receives a payroll check from the city.” T.C.A. § 50‑7‑207(c) lists several types of “excluded services” that are not considered covered employment. Wages paid for excluded services are not reported on the Wage Report (LB‑0851) or Premium Report (LB‑0456) filed quarterly with TDLWD.

The exclusion most relevant to municipalities appears in T.C.A. § 50‑7‑207(c)(5)(D). It excludes services performed by elected officials and by individuals employed in positions that are designated by law as major nontenured policymaking or advisory positions, or in policymaking or advisory positions the duties of which ordinarily do not require more than eight (8) hours per week. It also excludes services performed on a temporary basis due to a “fire, storm, snow, earthquake, flood or similar emergency.”

As a result, the following individuals, under normal circumstances, would not be considered covered employees of the municipality for unemployment insurance purposes:

• Any elected official (for example, mayor, council members, judge, recorder).
• Board and commission members (for example, beer board, planning and zoning board, utility board).
• Election workers.
• Temporary personnel employed solely in response to an emergency situation (for example, additional police officers, EMTs, paramedics, or firefighters engaged only to respond to a qualifying emergency).

Correcting an error
Errors in reported wages or premiums can be corrected by filing a Claim for Adjustment or Refund form (LB‑0459) with TDLWD. This form is available through the Department and, in some cases, from local Employer Accounts Offices. If the municipality is a premium‑paying employer, TDLWD may issue a credit or refund for premiums paid in excess of the correct amount. Since a reimbursing employer repays TDLWD for its share of benefits actually paid to claimants, a reimbursing employer will typically receive a credit for overpayments only after TDLWD has recovered the overpaid benefits from the claimant. Credits may generally be applied against future premiums or reimbursements, or a refund may be requested, subject to statutory time limits. Refund requests must be made within three years of the payment at issue.

For more information, municipalities may consult their MTAS management or finance consultant and the following resources:

• T.C.A. § 50‑7‑207, which defines “employment” and identifies excluded services under the Tennessee Employment Security Law.
• The Employment Security Division of the Tennessee Department of Labor and Workforce Development in Nashville at (844) 224‑5818, or the appropriate Employer Accounts Office listed on the Department’s website.