TN 9 (05-11)
RS 02101.128 Industrial Home Workers
Citations: Social Security Act, Sections 210(j)(3)(C) , 209(j), and 209(a)(8) ; 20 CFR 404.1008 (d)
A. Definition of industrial home workers
Industrial home workers are usually skilled artisans who have their own tools and equipment. They may work in their own homes, the home of another, or in workshops to manufacture or assemble articles from materials supplied by the purchaser of their services. Examples of their services include manufacturing, altering or finishing gloves, slippers, bedspreads, slipcovers, pottery, boxes, toys, quilts, buttons, clothing, needlecraft products, and typing or transcribing services.
B. Employee status of industrial home workers
Sometimes the purchaser of an industrial home worker’s services controls, or retains the right to control, the industrial home worker to an extent that a common law employer-employee relationship exists.
In such a case, the industrial home worker:
closely integrates his or her services into the firm’s business;
is subject to almost the same set of controls as employees who work on the firm's premises;
uses his or her own small hand tools, but the firm furnishes large tools or heavy equipment;
is paid on an hourly basis and renders personal services of a recurring nature;
receives detailed instructions or work training and must change the work plans and the order of services when requested. Although the firm usually does not directly supervise the industrial home worker, if the completed article is not satisfactory, the firm checks the finished product and has the right to change or direct the operating method;
must report on progress periodically;
must do the work in accordance with the payer’s specifications. When the work is complete, the industrial home worker returns the processed material(s) to the payer or to a person the payer designates; and
may terminate the relationship at any time, with or without cause.
C. Independent contractor status of industrial home workers
Generally, home workers are not employees under common-law rules because they are free from control of their work methods. They work under agreements that only require them to complete their assignments, according to specifications, and within designated times.
Under the usual arrangement, the firm furnishes the industrial home worker with materials and general instructions to provide a finished product that meets the firm's standards. The firm pays for the completed products on a piecework basis. The industrial home worker does not have to give preference to the firm's work, although he or she has to complete assignments within a specified time. The industrial home worker may work for others; however, in many cases, the one firm usually furnishes enough work to keep the industrial home worker busy full-time. Home workers must redo unsatisfactory work without pay. The firm does not prescribe set hours of work, or supervise the industrial home worker.
Industrial home workers who work under this arrangement, or a similar type of arrangement, are independent contractors. There is no control over their hours of work, the conditions to do the work, or in many cases, over who does the work. Although the firm may withhold additional assignments from them, thus terminating the relationship, if an assignment is not completed, it has no right to discharge the industrial home worker. They cannot be compelled to lay aside a particular piece of work and turn to other work. If the finished product is unsatisfactory, although the work must comply with specifications and the firm may reject the finished product, you may find such conditions in any contract with an independent contractor. For example, the independent contractor must meet contract requirements to receive his or her pay.
D. Weight of factors for industrial home workers
Many industrial home workers are subject to restrictions imposed by the States in which they live. These restrictions primarily concern maximum work hours, sanitary conditions, and the number of employers for whom they may work. Generally, these restrictions do not determine whether an employer-employee relationship exists under common-law rules. Controls over the services vary, depending on the extent that the industrial home worker integrates his or her services into another business or on the extent that the businesses rely on industrial home workers. The main question is whether the industrial home worker has contracted to do a job, or series of jobs, according to his or her own methods and without being subject to the control of his or her employer, except as to the results of the work.
The principal factors that generally indicate an employment relationship include:
the employer furnishes the worker with tools and equipment;
the employer has the right to change the original plans or shift the worker from one assignment to another;
the employer has the right to discharge the worker before the worker completes the assignment;
the employer provides the worker with detailed instructions and training;
the worker cannot work for others;
the worker is paid hourly or in some other way tied to services rather than product produced;
the worker must work fixed hours or a minimum number of hours; and
the worker must furnish the employer a report on his or her progress or business activity.
E. Possible coverage for industrial home workers under statutory occupational test
After 1950, the occupational group test may cover industrial home workers who are not employees under the common-law rules. (For more information on the occupational test, see RS 01402.230 and RS 02101.300.) An industrial home worker who meets the requirements of test III is an employee. As an employee, test III covers individuals in four occupational groups who are not employees under the common-law rules, but who perform services under specific circumstances. The four occupational groups covered by test III are agent or commission-drivers, full-time life insurance sales people, industrial home workers, and full-time traveling or city salespeople. If a worker meets all of the following conditions, in addition to specific requirements for the particular occupation, he or she may be an employee:
the worker must be a member of one of the designated occupation groups;
the contract must stipulate that the worker perform substantially all of the services personally;
the worker must perform the services in a continuing relationship; and
the worker cannot invest substantially in the work facilities.
F. Wage requirements of industrial home workers
An industrial home worker’s pay is not wages unless he or she receives $100 or more in cash in any year from one employer. Prior to January 1, 1978, an industrial home worker’s pay was not wages unless the worker received $50 or more in cash in a calendar quarter from one employer. Several employers may employ an industrial home worker, but their pay is not wages unless it meets the applicable coverage test. If the industrial home worker meets the cash-pay test, include as wages all noncash pay (clothes, merchandise, transportation passes, etc.) from the same employer. For details of the wage requirements for industrial home worker services, see RS 01402.230.
Social Security Handbook, Chapter 830: Homeworkers