Who Is Exempt From NYS Unemployment Tax? Clergy, Spouses, Students

New York exempts a defined set of workers and small employers from state unemployment insurance tax. On the worker side, ministers and members of religious orders, a sole proprietor’s spouse and children under 21, students working for the school they attend, commission-only licensed real estate brokers, and certain golf caddies fall outside covered employment. On the employer side, household employers paying less than $500 in cash wages per quarter, small non-profits below their staffing and payroll thresholds, and small farms below the agricultural thresholds are not required to contribute. Everything else — including most private employers once they hit $1,500 in quarterly payroll or employ one person during 20 weeks of the year — is covered.¹

Ministers and Religious Workers

New York Labor Law Section 563 excludes several categories of people working in religious settings from covered employment. Ordained, commissioned, or licensed ministers performing their ministerial duties are not covered. Members of religious orders carrying out duties required by their order are excluded. Lay members holding an elected or appointed church office and performing religious functions are excluded. So are caretakers or other workers employed at a place of worship to perform duties of a religious nature.²

The exclusion turns on what the person does, not just where they work. A minister performing ministerial duties is excluded. A bookkeeper hired by a church for purely administrative work in a non-religious capacity would not automatically qualify. Non-profit employers can voluntarily elect to cover workers at places of religious worship who would otherwise be excluded.¹

A Sole Proprietor’s Spouse and Minor Children

Work performed by a spouse or by a child under 21 for a sole proprietor is excluded from covered employment under Labor Law Section 511(7).³ If you run a business as a sole proprietor and your spouse handles the front desk, or your teenage child stocks shelves on weekends, you owe no UI contributions on those wages.

Two limits matter. Once a child turns 21, the exclusion disappears and the wages become subject to standard UI tax rules. And the exemption applies only to sole proprietorships. If the business operates as a corporation, LLC, or partnership, the family relationship no longer matters, and wages paid to a spouse or child are treated the same as any other employee’s wages.⁴ Family businesses that incorporate for liability protection often miss this change in their UI obligations.

Students Working for Their School

Services performed for an educational institution by an enrolled, regularly attending student are excluded from covered employment under Section 511(15). The exclusion also covers the spouse of a student employed by the same institution, provided the spouse is told at the start that the job is part of a financial assistance program and will not be covered under UI law.³ A university that hires its own students for campus jobs, dining halls, or library desks does not owe UI tax on those wages.

A separate exclusion under Section 511(17) covers full-time college students enrolled in programs that combine academic instruction with required work experience, where the service is an integral part of the academic program and the institution certifies this to the employer. That provision does not apply if the program was established for or on behalf of a specific employer or group of employers.³

These exclusions are not a blanket exemption for all student workers. A high school student working at a retail store is not exempt just because they are a student. The exemption hinges on the student working for the school they attend, or participating in a certified academic work-experience program.

Real Estate Brokers, Caddies, and Other Occupations

Licensed real estate brokers are excluded if two conditions are both met: substantially all of their pay comes from sales or output rather than hours worked, and a written contract between the broker and the firm states the broker will not be treated as an employee for federal tax purposes.¹ A broker who receives meaningful hourly or salaried compensation, or who lacks the written independent contractor agreement, does not qualify.

Golf caddies are excluded if they are engaged in the trade or business of caddying and are compensated by the golfer or another person rather than by the club itself.¹ A caddy who receives a paycheck from the golf club does not meet this test and would be treated as a covered employee.

Section 511 contains additional exclusions for professional musicians performing for broadcast stations or film productions who have a written contract designating them as an employee of a different covered employer, and for traveling salespersons who meet certain conditions about personal service and lack of investment in facilities.³ Construction industry workers and commercial goods transportation workers face a presumption of employment that must be overcome under separate provisions of the Labor Law.

Household Employers Under $500 a Quarter

Household employers who hire nannies, housekeepers, or other domestic workers are evaluated separately from business employers. Under Section 560, a domestic employer becomes liable for UI contributions only if they pay cash wages of $500 or more in any calendar quarter.⁵ Pay a babysitter $400 in a quarter and you have no UI obligation. Cross $500 in any single quarter and liability begins on the first day of that quarter.

The threshold is measured per quarter and resets each quarter. An employer who later dips below $500 does not automatically shed liability. The statute requires a written application to the Department of Labor to terminate coverage, and the employer must show they stayed below the threshold for four consecutive quarters.

Small Non-Profit Organizations

A non-profit organization becomes liable for UI contributions only if it pays $1,000 or more in cash wages in any calendar quarter, or employs four or more people on at least one day in each of 20 different weeks during the current or preceding calendar year.² A non-profit that stays below both triggers is not required to pay into the UI fund. Small volunteer-heavy charities that pay only modest stipends often fall below both.

Non-profits that do become liable have an option most private employers don’t: instead of paying quarterly contributions based on a tax rate, they can elect the benefit reimbursement method, under which the organization pays only when a former employee actually collects UI benefits charged to its account. The election must be submitted in writing to the Department of Labor before the start of the calendar year it takes effect, or within 30 days of the quarter the organization first became liable.¹

Small Agricultural Employers

Under Section 564, a farm operation becomes liable for UI contributions if it pays $20,000 or more in total cash wages to agricultural workers in any calendar quarter, employs ten or more agricultural workers on at least one day in each of 20 different weeks during the current or prior year, or meets the federal FUTA threshold for agricultural labor.⁶

The New York Department of Labor’s own guidance for farm employers, however, indicates that agricultural employers become liable once they pay total remuneration of $300 or more in a calendar quarter.⁷ The lower figure may reflect amendments made since the statutory text was last published. Because the practical difference between $300 and $20,000 is enormous, farm employers should verify the current threshold directly with the Department of Labor before assuming they are exempt.

What “Exempt” Does Not Cover

State and local government employers and Indian tribes are not exempt from covering their workers. They participate differently: like qualifying non-profits, they can elect the benefit reimbursement method instead of paying quarterly contributions, and are billed after each quarter only for benefits actually charged to their accounts. Indian tribes electing this option must post a surety bond.¹

Independent contractors are not an “exempt category” in the way the groups above are. Calling a worker an independent contractor when the relationship is actually employment is the most common way employers get into trouble with UI tax. Actual practice matters more than what the contract says, so a written agreement labeling someone a contractor does not settle the question if the day-to-day reality looks like employment. If the IRS or New York Department of Labor reclassifies a worker as an employee, the employer owes back UI contributions plus interest and potential penalties. Employers or workers unsure about a classification can request a formal determination from the IRS using Form SS-8.⁸ Falling into one of the exempt categories above does not protect the employer if the underlying relationship does not match the exemption’s requirements.

1
New York State Department of Taxation and Finance. NYS-50 Employer’s Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax
2
New York State Senate. New York Labor Law 563 – Non-Profit Organizations
3
New York State Senate. New York Labor Law 511 – Employment
4
New York State Department of Labor. Covered or Excluded Employment
5
New York State Senate. New York Labor Law 560 – Terms of Coverage
6
New York State Senate. New York Labor Law 564 – Agricultural Labor
7
New York State Department of Labor. Agricultural Employment
8
Internal Revenue Service. About Form SS-8, Determination of Worker Status