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.

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.

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.

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.

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:

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  a worker’s representative payee,

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  parent,

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  guardian, or

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  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:

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.

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).

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  RS 01404.003 Wage Development Policy

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  RS 01405.003 Earnings Record Correction Policy

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  RS 02201.008 Exceptions to the Statute of Limitations

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  RS 02201.013 Crediting Wages Where Employer Reported Less Than Correct Amount

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  RS 02201.034 Relationship Between Statute of Limitations and Rules of Administrative Finality

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  SL 60001.645 Sheltered Workshops