TN 12 (01-12)
RS 02101.270 Services for Sheltered Workshops
A. Definition of a sheltered workshop
A sheltered workshop is a private non-profit, state, or local government institution that provides employment opportunities for individuals who are developmentally, physically, or mentally impaired, to prepare for gainful work in the general economy. These services may include physical rehabilitation, training in basic work and life skills (e.g., how to apply for a job, attendance, personal grooming, and handling money), training on specific job skills, and providing work experience in the workshop.
B. Services performed for sheltered workshops
This section discusses whether an individual who performs services in a sheltered workshop program (i.e., sheltered work) is, or is not, an employee, as defined in Section 210(j)(2) of the Social Security Act , for purposes of title II Social Security coverage.
NOTE: We may consider sheltered work, and the earnings from that work, differently outside the context of the employer employee relationship and title II coverage as we discuss in RS 02101.270G in this section.
For instructions to determine whether such payments are countable income for SSI purposes, see Payments for Services Performed in a Sheltered Workshop, or Work Activities Center in SI 00820.300.
For instructions on counting earnings from a sheltered workshop to determine eligibility for the Medicare Prescription Drug Coverage Subsidy, see What is Earned Income in HI 03020.020 and Determining Countable Earnings in DI 10505.010.
For instructions to determine whether work in a sheltered workshop program constitutes substantial gainful activity for trial work period purposes, see Evaluation Guides in DI 10505.020.
C. Introduction to services performed for sheltered workshops
Beginning in the 1960’s, both SSA and the Internal Revenue Service (IRS) held that an individual participating in a sheltered workshop training or rehabilitation program was not an employee of the workshop. Accordingly, pay he or she received from the workshop was not wages for Social Security coverage purposes and not subject to Federal Insurance Contributions Act (FICA) taxes. Both agencies further held that an individual who continued to perform services in a sheltered workshop after completing a training or rehabilitation program and met the common law control test (CLCT), was an employee of the workshop whose pay was wages for coverage and FICA tax purposes. SSA also held that, “Whether an individual is an employee under these common law rules is largely a question of fact to be determined from the facts and circumstances in each individual case.” For a policy statement to use as a precedent, see Employer-Employee--Services Performed By A Handicapped Individual In A Sheltered Workshop in SSR 69-60 .
However, in the 1990s, the IRS began to issue Private Letter Rulings (PLRs) to specific sheltered workshops regarding the status of their workers as employees. These PLRs made blanket determinations that the individuals performing services in each workshop were not employees and their pay was not wages subject to FICA taxes. In addition, the Department of Justice settled a number of lawsuits against the IRS (filed by sheltered workshops) claiming FICA tax refunds because they were similar to workshops that received PLRs.
NOTE: A PLR legally applies only to the requesting entity. You cannot use a PLR for precedent purposes. For information on IRS rulings, see IRS Rulings, RS 01405.120. It appears some sheltered workshops improperly requested FICA tax refunds based on their knowledge of PLRs issued to other workshops.
Based on the PLRs or settlement agreements, these sheltered workshops received refunds of the employer’s share of FICA taxes previously paid for former workers who were no longer considered employees and they stopped paying FICA taxes for individuals still working. In some cases, the workshops also obtained their workers’ consent to seek refunds of the corresponding employees’ FICA tax share and submitted W-2cs (Corrected Wage and Tax Statement) to SSA to correct the workers’ earnings records (i.e., to delete previously reported wages). For the rules on when we may accept Forms W-2 and W-2c as evidence of wages, see Acceptance of Forms W-2/W-2c as Evidence of Wage, RS 01403.040. SSA generally does not screen individual earnings correction reports or question the basis for why we corrected these earnings.
D. Employment determinations for sheltered workshop cases
SSA is not involved in any employer’s determination(s) as to whether its workers are employees for Social Security coverage purposes. However, if a worker disagrees with his or her employer’s classification and brings the matter to SSA’s attention, we will investigate to determine the individual’s correct employment status.
Because the nature of work in a sheltered workshop program is not typical of most employment situations, claims of incorrect employer-employee relationship determinations by a sheltered workshop require special attention.
E. When to develop employer-employee relationship cases
Make an employer employee relationship determination when a worker claims that his or her alleged employer has misclassified his or her employment status. In most cases, the worker is in the best position to make such claims. However, some workers, particularly in sheltered workshops, may not understand how their employer’s classification might affect them and they may fear that their jobs will be jeopardized if they raise questions about their employment status. SSA also investigates misclassification claims made by:
a worker’s representative payee,
an advocacy group acting on his or her behalf, etc.
Example of when we would make a sheltered workshop employment determination
Charley has worked as an employee in the Goodwork sheltered workshop for ten years. Although the employer pays him less than the minimum wage, he has earned enough to get two Social Security credits every year. Charley’s parents anticipate that he will continue to work at the workshop and earn enough to qualify for title II benefits. However, if Goodwork changes Charley’s status to a non-employee, he can no longer earn work credits; and without those (or some other) wages, Charley may not be eligible to title II benefits (although he probably will qualify for SSI benefits). In such a case, either Charley, or his parent(s), could ask SSA to determine if Charley is an employee of Goodwork for coverage purposes.
CAUTION: In some cases, a sheltered workshop may be the representative payee for a worker who is also a title II beneficiary or SSI recipient. If, in its role as the worker’s employer, the workshop makes a decision that adversely affects the beneficiary’s potential entitlement to title II benefits, benefit amount, etc., such action may raise a question about whether the workshop is suitable to be a payee. For additional information on determining the need for a successor payee, see GN 00504.100.
NOTE: If a sheltered workshop is a State or local government entity, you may need to develop further to determine if we cover the worker’s services under a Section 218 agreement, or as a Medicare qualified government employee (MQGE).
For information on State and local coverage, see RS 01505.001.
For the rules of Mandatory Coverage for State and Local Government Employees, see RS 01505.011.
For the rules on Medicare Qualified Government Employment, see RS 01505.025.
In addition, if the field office or regional office judges that multiple claims of improper employer-employee relationship determinations by the same employer indicate a pattern of abuse (e.g., the employer is ignoring the common law rules and classifying all workers as non-employees to avoid paying FICA taxes), you can submit such cases to OISP to follow-up with the IRS. Send an explanation of the situation, evidence, and documentation to: SSA, ORDP, OISP, OEEMP
Attn: Coverage and Earnings Team
6401 Security Blvd.
Baltimore, MD 21235
F. Determining employer-employee relationships
Develop detailed information on the employer-employee relationship by having the worker alleging the misclassification (or someone acting on his or her behalf) and the sheltered workshop complete separate forms SSA-7160 (Employment Relationship Questionnaire). For development policy, see Coverage Development in Employer-Employee Cases—General in RS 02101.800.
Sheltered workshop programs usually consist of two phases: rehabilitation and post-rehabilitation. An individual’s status as an employee may change from one phase to the other. Use the information from the SSA-7160s and any available additional evidence (such as a copy of the worker’s individual rehabilitation plan, or a pamphlet describing the workshop’s programs, etc.) to determine which phase the worker is in.
1. Employer-employee relationship during the rehabilitation phase
When an individual enters a sheltered workshop program, he or she is usually diagnosed and evaluated. Then, the workshop establishes a training or rehabilitation plan for the program participant. Typically, rehabilitation includes personal adjustment training (i.e., how to cope with a disability, life skills, etc.), as well as vocational training, which frequently involves some productive work. During this rehabilitation period, the individual (often referred to as a client) may receive a stipend, personal allowance, etc. and hourly pay (in most cases at a fraction of the minimum wage with authorization from the Department of Labor) for his or her work.
Even though an individual in a sheltered workshop rehabilitation or training program may be working (and receiving some pay for that work) under the supervision and control of the workshop, the control exerted by the workshop is more like that of a teacher’s control over the students in a classroom, rather than that of an employer’s control over an employee. Therefore, under the common law control test rules, an individual working in a rehabilitation or training program is not an employee. For additional information regarding coverage of such work, see Services for Sheltered Workshops in RS 02101.270G.
NOTE: An individual cannot undergo rehabilitation indefinitely. The rehabilitation phase should be of a limited time and, in most cases, the workshop’s rehabilitation plan will set out a timetable to complete the plan. If a sheltered workshop contends that they provide continuous rehabilitation services, or that their program does not have distinct phases, evaluate the situation as if the worker is post-rehabilitation as follows.
2. Employer and employee relationship during the post-rehabilitation phase
An individual who does not enter regular employment after completing the rehabilitation phase of the workshop program may:
leave the workshop for a subsidized or supported job; or,
work in the workshop until a job is open if no suitable outside job is available; or
remain in the workshop indefinitely if his or her impairment is severe.
A worker in any of these post-rehabilitation situations may be an employee for coverage purposes. Use the information from the SSA-7160s and apply the CLCT to determine whether an employer-employee relationship exists. For the rules on the CLCT, see Common-Law Control Test in RS 02101.020.
NOTE: The CLCT evolved primarily as a way to differentiate between a worker who is an employee and one who is self-employed. In the context of sheltered workshop employment, we use the test to decide if a worker is an employee. Therefore, many aspects of the CLCT may not pertain here. Because the nature of work in a sheltered workshop post-rehabilitation program is not typical of most other employment situations, the common law control test may not provide a clear answer to the question of whether a worker is an employee (e.g., a severely impaired worker may require much more supervision than other workers, but that could indicate more care for, rather than control of, the worker). In addition to the CLCT, consider these additional factors:
Do the goods or services the worker produces have any commercial value?
If not, then the work may be occupational therapy (i.e., a service provided by the workshop to the client) and not service performed by an employee.
If yes, you may find that the worker is an employee of the workshop.
Are the payments the worker receives truly remuneration for services?
To be remuneration, the pay must have some relationship to the work. Usually, such a relationship exists when pay is by the piece or by the hour where the employer pays workers based on production. The more productive worker receives more pay than one who is less productive.
NOTE: The actual amount of pay the worker receives is not important:
A workshop might pay one worker several thousand dollars a year and another only a few hundred dollars, but if the difference in the amounts they receive is primarily due to their productivity, it is likely remuneration for both workers.
On the other hand, a worker may receive some token pay to learn how to handle money or as an incentive for trying to work. If that pay is not for productivity, it is not remuneration for services. If the worker and the workshop meet the CLCT, the individual working in a post-rehabilitation sheltered workshop program is an employee.
G. When we cover sheltered work
Under the CLCT rules, work done while an individual is in the rehabilitation phase of a workshop program does not constitute services performed as an employee, and pay for that work is not wages for Social Security coverage purposes.
However, if the worker and workshop meet the CLCT, work done while the individual is in the post-rehabilitation phase of a sheltered workshop program constitutes services performed as an employee, and pay for that work is wages for Social Security coverage purposes.
The fact that a worker’s earnings may derive from services performed in a sheltered workshop has no bearing on whether we can correct his or her earnings record. Similarly, the amount of pay an individual in a workshop receives is not a factor in determining whether that pay is wages for Social Security purposes. Regardless of their source or amount, we can add wages to the earnings record at any time. Conversely, we can remove wages only within the statute of limitations period, unless an exception to the time limitation exists.
NOTE: At the discretion of the regional office, you may report cases involving sheltered workshop wage reporting issues to the National Wage Reporting Problem System (WRPS).