TN 25 (06-24)

DI 10505.010 Determining Countable Earnings

A. Policy — subsidies

An employer may subsidize the earnings of an employee with a serious medical impairment by paying more in wages than the reasonable value of the actual services performed. When this occurs, the excess will be regarded as a subsidy rather than earnings. See DI 10505.001C. for a discussion of how subsidies are considered in determining whether an individual has engaged in SGA.

1. Circumstances indicating strong possibility of a subsidy

  • The employment is "sheltered," as defined in DI 10505.025D.; or

  • Childhood disability is involved; or

  • Mental impairment is involved; or

  • There appears to be a marked discrepancy between the amount of pay and the value of the services; or

  • The employer, employee, or other interested party alleges that the employee does not fully earn their pay (e.g., the employee receives unusual help from others in doing the work); or

  • The nature and severity of the impairment indicates that the employee receives unusual help from others in doing the work; or

  • The employee is involved in a government-sponsored job training and employment program (see DI 10505.025B.).

  • The person is in the military service (see DI 10505.023).

2. Employer calculates subsidy

An employer who wants to subsidize the earnings of a worker with a serious medical impairment may designate a specific amount as such, after figuring the reasonable value of the employee’s services. Such a calculation is more likely to be made by an institutional employer, such as a sheltered workshop, than by a private employer. However, regardless of the type of employer, an adequate explanation as to how a specific subsidy was calculated will normally suffice without the additional development indicated in DI 10505.010A.3.

3. Nonspecific subsidy

a. Employer cannot furnish a satisfactory explanation identifying a specific amount as a subsidy

If the employer does not provide an explanation of the calculation of a specific subsidy, send the employer an SSA-3033-BK, Employee Work Activity Questionnaire (OS 15025.310).

In most instances, the amount of a subsidy can be ascertained by:

  • Comparing the time, energy, skills, and responsibility involved in the individual's services with the same elements involved in the performance of the same or similar work by unimpaired individuals in the community; and

  • Estimating the proportionate value of the individual's services according to the prevailing pay scale for such work.

b. Answers to the following questions will help determine the time energy, skills and responsibility involved

If the SSA-3033-BK is not returned or does not provide sufficient information, answers to the following questions will help determine the time, energy, skills and responsibility involved. When this is necessary, the employer should be informed that the questions are asked in the interest of the employee for the purpose of determining their "countable earnings." In some cases, information already obtained on a SSA-3033-BK will eliminate the need for some of the questions. It is also appropriate to document information obtained from employers on a Report of Contact (SSA-5002).

  • Need for Services (Omit if Employer Is a Sheltered Workshop)

  • Why was the individual hired?

  • What are the individual's job duties?

  • How much time does the individual spend on those duties?

  • Who performed the duties before the individual was hired; and how much time did that person spend on those duties?

  • If the individual were separated from the job, would they be replaced; if so, how much time would the replacement spend on the individual's duties?

  • How often is the individual absent from work?

  • Does someone else do the individual's work when they are absent?

  • How much time does the temporary replacement take to do the individual's job?

  • Relationship of Pay to Services

  • How are the individual's total earnings computed?

  • Is the individual's pay reduced proportionately when they are absent from work? (Compare the employer's practice concerning an individual with an impairment to that of an unimpaired individual, explaining any difference.)

  • Does the individual receive any unusual assistance or supervision? (Describe.)

  • If the individual's pay is not set according to normal business practices, what consideration is given to the size of the individual's family, number of years of past service with the employer, previous earnings, friendship or relationship to the employer, or other factors unrelated to the performance of the work?

  • Does the employer consider the individual's work to be worth substantially less than the amount paid and, if so, what are the employer's reasons for this view? (Give the employer's estimate of the value of the services and explain how this estimate was reached.)

  • If the individual is still on the payroll, despite unsatisfactory work, what is the employer's reason for retaining them?

  • If the individual is no longer employed, what led to the termination of employment?

c. Precise monetary evaluation is not feasible

When precise monetary evaluation is not feasible, it may be possible to determine the approximate extent of a subsidy on the basis of gross indications of a lack of productivity; for example, when unusual supervision or assistance is required in the performance of simple tasks, or the employee is extremely slow and inefficient or otherwise unproductive.

NOTE: If an organization hiring individuals with serious impairments operates at a deficit or receives charitable contributions or government aid, this would not necessarily establish that a particular employee is being paid a subsidy. An individual employee in such an establishment may be as productive as those in other establishments with more favorable financial balances. The individual's productivity, rather than the financial condition of the employer's business, must be the determinant of whether there is a subsidy and the amount of it.

4. Special conditions provided by employers and/or organizations other than the individual's employer

Although special conditions on the job, for example, job coaching and like services, are not technically “subsidies,” we must consider how they affect the value of the work and the SGA determination. For example, special conditions and certain special on-the-job assistance provided by an employer and/or organization(s) other than an individual's employer must be considered whether or not the individual's employer pays for the assistance directly. In determining SGA, we must count only those earnings that are based on an individual's own productivity and exclude any income that is not directly related to their own productivity.

Examples of special conditions include on-the-job-coaching and substitution during which the job coach performs part or all of the individual’s job duties, or close and continuous supervision. If the individual is not fully earning their wages because the work is performed under special conditions, then we count only that part of their wages that are “earned” by the individual. This is true whether or not the employer or someone else provides the special (on-the-job) conditions.

In order to determine the amount an individual actually earns; follow the same procedure found in DI 10505.010A. The value of the individual's services (i.e., work) may be determined by contacting the individual, their employer, supervisor(s), work peers, job coach, and anyone else who would have this knowledge. The value of the individual's actual services may require contact with other employers or the Department of Labor to determine the wages usually paid for such services. Stop development when there is sufficient information to make a determination.

NOTE: Do not consider the salary paid to the job coach in calculating the individual's countable earnings in determining SGA. Follow DI 13010.066C to compute average monthly wages when you know the hourly wage and the individual’s employer is unable to provide a monthly breakdown of earnings. In the examples below, we know the exact hours worked and the hourly wage.

  • EXAMPLE A: Joe works 32 hours per week, making $6.25 an hour. Joe's gross monthly pay is $867 ($6.25 per hour X 32 hours per week X 4.333 weeks). The employer pays for a job coach who works with them 16 hours per week. The employer explains that the job coach performs all of Joe's duties during those 16 hours, while Joe observes and practices. When Joe is performing the job duties, their services are reasonably worth their wages of $6.25 per hour. Joe receives wages for 138.65 hours of work a month (32 x 4.333), but they perform the work for half of those hours. The job coach performs the other 69.28 hours of work for the month. Based on this information, we determine that the portion of Joe's monthly pay attributable to the job coach's assistance is $434 (50% subsidy). The portion of Joe's monthly pay attributable to their own productivity is $434.

  • EXAMPLE B: Jane’s employer explains that Jane is not fully earning their wages because the State Vocational Rehabilitation Agency pays for a job coach for Jane, but is unable to tell us the value of their work. Jane works 120 hours a month and they are paid gross wages of $720 per month (120 hours at $6.00 an hour). The State Agency explains that the job coach is with Jane 40 hours a month. For 10 of these hours, the job coach performs the more technical work while Jane simply observes, and during the remaining 30 hours, the coach just observes Jane working and verifies the quality of Jane's work. Based on this explanation, we determine that Jane is fully earning their wages during these 30 hours. The amount of Jane's income not directly attributable to their own productivity (due to a special condition) is $60 per month (10 hours at $6.00 an hour). The amount of Jane's earnings attributable to their own productivity is $660 (110 hours at $6.00 an hour).

B. Policy — impairment related work expenses (IRWE)

When determining countable income, the cost of certain items and services that a person, because of their impairment, needs in order to be able to work is deducted from earnings. See DI 10520.000 for the policy and procedures on IRWE.

C. Policy — sick and vacation pay

When evaluating earnings for substantial gainful activity purposes, consider only earnings derived from actual work activity for the month under consideration. If an individual receives sick or vacation pay for non-work days in a particular month, that pay should not be considered countable income for that month. Rather, the question is what work activity did the individual actually perform in the given month and what earnings did the individual actually receive for that work activity. Only the earnings paid as a result of work activity should be used in determining if the individual has engaged in SGA in a particular month.

If an individual works one week in a month, but is paid sick pay for the rest of the month due to time-off from work, only the earnings that are derived from the actual work activity should be considered when determining if the individual has engaged in substantial gainful activity in that month. If the earnings for that one week of actual work activity represent SGA, then a determination should be made that the individual has engaged in substantial gainful activity for that month unless it is determined that the work activity constitutes an unsuccessful work attempt. On the other hand, if the earnings from the one week of work are not SGA, then a determination can be made that the individual did not engage in SGA for that given month.

If an individual takes sick and/or vacation pay in lieu of time off, only the earnings that can be directly attributed to their work activity in that month should be used in determining if the individual has engaged in substantial gainful activity in that month.

NOTE: POMS has not previously addressed how to evaluate sick/vacation pay for SGA purposes in the past, therefore do not initiate reopenings that would be unfavorable to the claimant/beneficiary simply because a different policy was applied in a previous case.

D. Policy — bonus and incentive payments

When evaluating bonus/incentive payments, generally consider that those payments represent the person’s own productivity unless the beneficiary provides evidence indicating that they are not. Bonus and incentive payments should be counted as earnings because most companies and state governments have certain requirements that have to be met in order for a person to receive the bonus, (i.e., employed for a certain amount of time, worked a set amount of hours per week, directly participated in an area that saw increases in business) . Bonuses that are paid based on the employer’s profits, sales, accident reports, etc., should also be counted as earnings since the employee’s own productivity would have had an impact on the employer’s success . The adjudicator is not required to verify whether the bonus is related to the person’s own productivity; instead, determine if the bonus/incentive payment represents a specific period of time, and if it does, distribute the earnings over the period of time it was earned. If the amount does not represent a specific period of work activity, or a specific time period is not determinable, distribute the payment(s) monthly over the time period the person had worked for the employer up to but not exceeding a year.

NOTE: If the beneficiary provides evidence that the payments are not related to their employment (for example, dividend or shareholder payments), determine that those payments do not represent the person’s own productivity.

E. Policy — cafeteria plans

1. Definition — cafeteria plan

See RS 01402.030 for a definition of a cafeteria plan.

2. Policy — are earnings above SGA?

a. Earnings are above SGA

Regardless of whether the individual is participating in a cafeteria plan, if the individual has countable wages that are above SGA limits there is no need to investigate further.

b. Earnings are below SGA

If earnings are below SGA, further investigation may be required to determine if any pre-tax dollars are being set aside or used to purchase benefits under a cafeteria plan and are not reflected in the taxable earnings. If the beneficiary/claimant reports that they have no participation in a cafeteria plan, no further investigation will be required. On the other hand, if the beneficiary reports participation in a cafeteria plan, any income set aside pre-tax, or used to purchase pre-tax benefits should be added to the gross income.

If earnings reported on the SEQY/DEQY are below SGA, ask the beneficiary if they are participating in a cafeteria plan. Only taxable income is reported on a SEQY/DEQY; therefore, a pay stub or other documentation from the employer will be necessary to determine gross pre-tax income if the beneficiary reports participation in a cafeteria plan.

If necessary, determine the amount of pre-tax cafeteria plan contributions and add this income to the gross income. Such contributions could include the cost of services/benefits that were purchased pre-tax under the cafeteria plan. Once the new gross income amount is calculated, deduct any subsidy, IRWE, etc to determine the countable income.

F. Policy — royalty and similar payments

1. Activities performed in the past

If a beneficiary is receiving royalties or similar payments for activities performed in the past, evaluate the payments for SGA purposes by looking at when the income was earned.

EXAMPLE: Mr. A was a painter all their life and their art work was sold at various art shows and galleries. Mr. A filed for disability benefits when the arthritis in their hands made it impossible for them to hold a paint brush and therefore unable to paint. Mr. A continues to receive royalties for their art work but since the payments represent work activity performed in the past, the income is considered earned for SGA purposes when the work activity occurred.

2. Activities performed in the past, similar activities are ongoing

Royalties and similar payments being received for activities performed in the past can be used to place a value on current work activity, if the activities are of a similar nature to those performed in the past. The royalties should be considered as another source of information that will assist in determining if the beneficiary is engaging in SGA. Even though a beneficiary may have received or is receiving a substantial royalty payment for work performed in the past, that does not mean that current work activity is necessarily SGA.

EXAMPLE: Mr. A, the painter, after taking a year off from painting, begins experimenting with finger painting since they are unable to hold a paint brush. Since Mr. A???s work is of a somewhat similar nature to their previous work, we can consider the royalty payments that they are currently receiving as one factor in placing a value on their current work activity. Upon investigation, we learn that Mr. A was producing 4 paintings a month before they became disabled, and the current royalties (which represent the work of 4 paintings a month) are averaging $900 a month in 2004. Mr. A is now only able to paint 2 paintings a month. Since Mr. A is receiving $900 a month for producing an average of 4 paintings a month, and they are now only able to produce two paintings a month, it is unlikely that their royalty payments would be more than $450 a month--½ of what they are making now. Therefore, we could make a determination that their current work activity is not SGA.

3. Activities associated with a hobby

Some endeavors begin as hobbies with no intention by the claimant or beneficiary of ever making a profit. Such activities generally do not constitute SGA, regardless of the effort. If the beneficiary receives a royalty payment based on products that had been made originally as part of a hobby, the payments will not be used to determine SGA for the period the individual was doing the activity as a hobby. However, if the beneficiary continues to provide the same services or products with the intention of making a profit, apply the policy in DI 10505.010F.2.

EXAMPLE: Ms. D began receiving disability in 1993. In 1998 they began writing in a journal as therapy, with no intention of selling the journal. In 2002 they shared their journal with a support group which encouraged them to find a publisher and sell their journal. Ms. D was successful in getting their book published and they began receiving royalty payments in 2004. The payments they were receiving in 2004 would not be used to determine that they were engaging in SGA in 1998, because the activities they were performing at that time would be considered a hobby.


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DI 10505.010 - Determining Countable Earnings - 06/13/2024
Batch run: 06/13/2024