SSR 78-23: Rescinded 1981

20 CFR 416.1101 and 416.1102

SSR 78-23

Where a disabled individual, who is a recipient of Supplemental Security

Income, is unable to work in an environment other than a sheltered

workshop and where the services he performed in the workshop are not

considered part of a rehabilitation program, held , his services are

rendered as an employee within the meaning of section 210(j)(2) of the

Social Security Act thus, his remuneration constitutes earned income

within the meaning of section 1612(a)(1)(A) of the Social Security Act

subject to the earned income exclusions under section 1612(b)(4)(B) of the

Social Security Act.

It has been previously determined that the claimant meets all factors of

eligibility for supplemental security income, but that the amount of his

supplemental security income benefits should be reduced because income

received by the claimant for working in a sheltered workshop should be

classified as "unearned," rather than "earned" income. Accordingly, the

issue to be determined is whether the claimant's income received from

working in a sheltered workshop should be treated as "earned" or

"unearned" income.

The claimant began receiving Supplemental Security Income as a disabled

individual on January 1, 1974, based upon an application filed on his

behalf by his mother. At that time, the claimant was receiving income for

work performed in a sheltered workshop at the rate of 40 cents per hour,

amounting to about $13.50 per week. It was determined by the Social

Security Administration that this income should be treated as "earned"

income, with the proper exclusions for earned income being applicable. In

August 1976 the claimant's mother advised that, although income received

by the claimant from the sheltered workshop had been treated as wages in

the past, such income would henceforth be treated as unearned income, thus

reducing the amount of the claimant's SSI benefits beginning in October

1976

ated as "earned"

income, with the proper exclusions for earned income being applicable. In

August 1976 the claimant's mother advised that, although income received

by the claimant from the sheltered workshop had been treated as wages in

the past, such income would henceforth be treated as unearned income, thus

reducing the amount of the claimant's SSI benefits beginning in October

1976. Upon reconsideration, the claimant was advised, in November 1976,

that section 210(j)(2) of the Social Security Act defines remuneration

received for services performed in a sheltered workshop rehabilitation

program not to be wages, and therefore this remuneration must be

considered unearned income. The claimant's mother disagreed with that

determination and requested a hearing, stating that the claimant was not

receiving any rehabilitation at the workshop and his income should

therefore be considered as earned income, as he works for his pay.

The claimant is 26 years of age, suffers from brain damage, and attended

school in a special education program from the age of 8 until 17. He was

sent to a sheltered workshop under the sponsorship of the State Vocational

Rehabilitation Department in July 1967 which sponsored him for three

months. He has remained at the sheltered workshop since that time. The

claimant's mother pays $65.00 per month tuition for him. Initially his pay

at the workshop amounted to 5 cents per hour; he now earns 77 cents per

hour and his mother considers him to be working, rather than being

trained.

A recent psychometric evaluation of the claimant indicates that he

suffers from moderate to severe mental retardation and that his full scale

IQ, as extrapolated from a Wechsler Adult Intelligence Scale, is 37. The

examining psychologist stated that the claimant does not have potential

for functioning above the level of moderate retardation and it will always

be necessary to provide him with a structured environment.

on of the claimant indicates that he

suffers from moderate to severe mental retardation and that his full scale

IQ, as extrapolated from a Wechsler Adult Intelligence Scale, is 37. The

examining psychologist stated that the claimant does not have potential

for functioning above the level of moderate retardation and it will always

be necessary to provide him with a structured environment.

The manager of the sheltered workshop stated that all clients of the

workshop are continually in some form of rehabilitation therapy and

benefit from continuous behavior modification efforts whether or not they

are enrolled in a specific skill training program. He also stated that the

ultimate goal of the sheltered workshop is to enable clients to become

more acceptable and productive in their community and, at best, to place

them as competitive in the community labor market. He did not, however,

specifically describe the program as it relates to the claimant.

The Assessment Evaluator of the workshop stated that the claimant's

training in the sheltered workshop included assembly work, inserting

plastic tableware into plastic bags, janitorial training, and operating a

button machine. He now makes signs by a silk screen process, and he

performs the entire process. According to the evaluator the claimant's

wages are computed on the type of work performed, longevity, and

production. His production capacity is 60 percent of normal. She said that

the claimant last received formal classroom work in 1967, and that he

receives no training at the present time and no close supervision. He has

completely learned the silk screening job and will stay in that

department. She said that he works better in a structured situation, and

will continue in his present job indefinitely with no further training.

s 60 percent of normal. She said that

the claimant last received formal classroom work in 1967, and that he

receives no training at the present time and no close supervision. He has

completely learned the silk screening job and will stay in that

department. She said that he works better in a structured situation, and

will continue in his present job indefinitely with no further training.

The significance of the determination of the Social Security

Administration to treat the claimant's sheltered workshop income as

"unearned" rather than "earned" income, as it had been treated in the

past, lies in the fact that section 1611(b)(1) of the Social Security Act

provides that the amount of SSI benefits for an individual such as the

claimant shall be reduced by the amount of his income not excluded

pursuant to section 1612(b). Section 1612(b), as applicable in this case,

provides that the first $240 per year ($20 per month) of income, whether

earned or unearned, may be excluded in determining the countable income to

be deducted from the SSI benefit. In addition, the first $780 per year

($65 per month) of earned income, plus one half of the remainder of the

earned income, may be excluded in determining the countable income to be

deducted from the SSI benefit. Thus, in this case, at least $65 per month

of earned income could be excluded in determining the countable income, in

addition to the $20.

Section 1612(a) of the Social Security Act defines earned income as

wages, as determined under section 203(f)(5)(C) and net earnings from

self-employment, and defines unearned income as all other income. It must

therefore be determined whether the remuneration received by the claimant

for his services performed in the sheltered workshop constitutes "wages"

or "other income."

to the $20.

Section 1612(a) of the Social Security Act defines earned income as

wages, as determined under section 203(f)(5)(C) and net earnings from

self-employment, and defines unearned income as all other income. It must

therefore be determined whether the remuneration received by the claimant

for his services performed in the sheltered workshop constitutes "wages"

or "other income."

The issue of whether services performed by a handicapped individual in a

sheltered workshop were performed as an "employee" in employment was

considered in Social Security Ruling 69-90. In that Ruing it was stated:

"As defined in section 210(j)(2) of the Act the term "employee" means, as

pertinent here,

(2) An individual who, under the usual common law rules applicable in

determining the employer-employee relationship, has the status of an

employee; *** 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. The guides for determining when an

employer-employee relationship exists are set out in Social Security

Administration Regulations No. 4, section 404.1004(c)(20 C.F.R.

404.1004(c)). Generally such a relationship exists when the person for

whom the services are performed has the right to control and direct the

individual who performs the services, not only as to the result to be

accomplished by the work, but also as to the detail and means by which

that result is accomplished. Where, however, the intent of supervision and

control of the individual who performs services is to rehabilitate and

protect him, and to accustom him gradually to industrial working

conditions outside the sheltered workshop, there is not that degree or

kind of direction and control necessary to establish as employer-employee

relationship under these common law rules."

lt is accomplished. Where, however, the intent of supervision and

control of the individual who performs services is to rehabilitate and

protect him, and to accustom him gradually to industrial working

conditions outside the sheltered workshop, there is not that degree or

kind of direction and control necessary to establish as employer-employee

relationship under these common law rules."

It was held in that case where a handicapped individual performs simple

services and receives token remuneration during a sheltered workshop

rehabilitation program, such services are not performed as an employee in

employment as defined in section 210(j)(2) of the Social Security Act. It

was further held that services performed in the workshop by an individual

after he has completed the rehabilitation program of the workshop,

constitutes services as an employee in employment as defined in section

210(j) of the Social Security Act, even though he is unable to obtain

regular employment outside.

Since the claimant in this case no longer receives training and will

continue indefinitely in his present job without further training, it must

be found, under the rule enunciated in Social Security Ruling 69-60, that

the claimant is, in fact, an "employee" of the workshop, even though he is

not yet able to obtain regular employment outside the institution and

probably never will be. As an "employee" his remuneration must be

considered to be "wages" and thus, to be earned income.