NCD Addendum to RSA regarding proposed CIE FAQs
Mr. David Cantrell, Deputy Director
Office of Special Education and Rehabilitative Services
U.S. Department of Education
400 Maryland Avenue SW, Room 5153
Potomac Center Plaza
Washington, DC 20202-5076
Re: ADDENDUM TO:
RSA’s Proposed Frequently Asked Questions: Criterion for an Integrated Employment Location in the Definition of “Competitive Integrated Employment” and Participant Choice.
Docket ID: ED–2021–OSERS–04
Dear Mr. Cantrell:
On behalf of the National Council on Disability (NCD), please allow this letter to serve as an addendum to our comments dated April 8, 2021. The comments and additional recommendations below are further intended to assist the Office of Special Education and Rehabilitative Services (OSERS) in developing guidance to clarify the Vocational Rehabilitation (VR) program’s criterion for an “integrated employment location” and improve VR program participants’ ability to exercise informed choice. NCD would again like to thank OSERS for its ongoing commitment to remove barriers that have historically misled VR consumers to believe they were exercising informed choices about their employment goals.
Q1; Q2. What constitutes “competitive integrated employment”?; Why is it important to know whether a job position is considered “competitive integrated employment” for purposes of the VR program?
OSERS’ proposed response to Q1 is ambiguous with respect to the terms “employee,” “compensation,” and “benefits.” Through discussions with disability advocates and community rehabilitation providers (CRP), NCD found that many remain unaware of the current patchwork of definitions for the term “employee” under the various federal employment statutes. NCD found that many erroneously assume that employee status under one federal statute guarantees employment status under other statutes. The following examples may help illustrate this confusion. Many people seem to be familiar with the Department of Labor’s (DOL) “economic realities test”1 used to determine employment status under the Fair Labor Standards Act (FLSA), yet many are not aware that this determination has little, if any, value to the Internal Revenue Service (IRS) which relies on a “common-law test”2 to determine employment status under the Internal Revenue Code (IRC). Likewise, DOL applies another test called the “Darden test”3 to determine employment status under the Employee Retirement Income Security Act of 1974 (ERISA). Because there are many varied tests that federal agencies rely on to determine employee status, NCD recommends that OSERS provide guidance to VR agencies about the various federal employment statutes, the employment protections those statutes govern, and the different tests that federal agencies rely on in order to determine employee status and qualify for those benefits.
Next, we also recommend that OSERS provide guidance to help VR agencies determine when the compensation paid to individuals with disabilities are “wages.” These rules are governed by the IRS, which has explained that if an individual in a sheltered workshop is not an employee, then the amounts paid to them cannot be classified as “wages” for employment tax purposes, should not be reported on an IRS Form W-2, and cannot be considered “other employee compensation.”4 NCD found that many are unaware of this IRS exclusion from the classification of “wages.”5 For this reason, OSERS should advise VR agencies to familiarize themselves with the tax rules governing compensation by going to the IRS.gov web site and entering the search term “sheltered workshop.” This page specifically addresses the classification of people with disabilities in sheltered workshops and their compensation.
Finally, we recommend that OSERS’ guidance emphasize how the classification of people with disabilities effects their eligibility to receive employee benefits. This is not limited to eligibility to pay Social Security and Medicare taxes in order to accumulate the credits needed to receive these benefits upon retirement, but other laws like ERISA, the federal statute that governs private employer retirement (pension plans), health insurance, life insurance, disability insurance, and apprenticeship plans.
Again, NCD would like OSERS to be aware of the current ambiguity that exists due to the multiple legal standards that government agencies apply and depending on the federal law being enforced. NCD recommends that OSERS develop guidance that VR agencies can reference to determine the proper employee classification, classification of compensation, and eligibility to receive the same employee benefits provided to other employees. This guidance is needed to help VR agencies identify integrated employment locations within the meaning of competitive integrated employment.
Q8. What is meant by “typically found in the community,” as used in the definition of “competitive integrated employment?”
NCD recommends that OSERS review the factors that courts have applied to determine when employment for individuals with disabilities are not typical. In Baltimore Goodwill Industries v. N.L.R.B.,6 the 4th Circuit recognized that Goodwill’s commercial services program, which received contracts pursuant to the Javits-Wagner-O’Day Act (JWOD), were primarily rehabilitative and therefore atypical compared with private industrial settings. The court relied on five factors: discipline, competitive placement, productivity standards, counseling, and the terms and conditions of employment.7 The court found that Goodwill disciplined its disabled employees in a rehabilitative manner that was different from the way it disciplined its non-disabled employees by using productivity standards to evaluate the rehabilitative needs of the workers with disabilities.8 The court also noted the unique nature of JWOD’s seventy-five percent direct-labor ratio, that Goodwill provided rehabilitative counseling on time management and interpersonal relations to workers with disabilities only, and that approximately eighty percent of the counselor’s time was spent counseling and monitoring workers with disabilities.9 Even though the workers with disabilities worked full-time, punched a time clock, were eligible for health insurance, and received sick leave pay, the court found that Goodwill structured its JWOD program to meet the employee’s rehabilitative needs and was therefore atypical compared to private industry settings.10 NCD encourages OSERS to develop a version of the 4th Circuit’s five-factor analysis to help VR agencies distinguish settings that are “typically found in the community” from settings that are “rehabilitative.”
Q9. How does a VR agency know whether a job position was formed for the purpose of employing individuals with disabilities?
NCD encourages OSERS to require that the determination that a job position is formed for the purpose of employing individuals with disabilities be supported with objective evidence. This may include a copy of the mission statement from CRP’s IRS Form 990 to help determine if the fundamental nature of the program is to provide “rehabilitative services” or “employment” to individuals with disabilities. OSERS should also advise VR agencies to inquire if the business has filed an IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding,” which CRPs have submitted to the IRS in the past in order to misclassify people with disabilities as “clients” and provide them with rehabilitative services (not employment).11
Q17. Is it possible for a VR agency to determine that a job position at an employment location satisfies the definition of “competitive integrated employment,” but another job position at the same location does not?
NCD would like to bring OSERS’ attention to an issue that may lead VR agencies and CRPs to believe that some job positions at an employment location can meet the definition of “competitive integrated employment” while others may not. NCD found that the IRS follows a long-standing test to distinguish when individuals with disabilities in sheltered workshops are “trainees” or “employees” for federal employment tax purposes and recommends following two distinctive fact-patterns for guidance:
In the first fact pattern in the ruling, individuals were given orientation and training for 16 weeks in a program designed to prepare them to work in private industry. Under these facts, the individuals were not employees of the workshop for federal employment tax purposes while they were being trained.
In the second fact pattern, individuals who completed the training continued to work in the workshop, either while awaiting placement in private industry, or permanently if they could not find a job. The workshop paid the individuals, provided working conditions and pay scales comparable to those in private industry, and had fixed working hours and production schedules. The workers also received some benefits, and the workshop could discharge them if the work were not satisfactory. Under these facts, the individuals were employees for federal employment tax purposes.12,13
While employment in CRPs may be inconsistent with OSERS’ CIE provisions, this type of employment is permissible under the IRS’ regulations for employment tax purposes. For this reason, NCD recommends OSERS implement guidance to address the conflicting regulations and policies between the federal agencies. This should clarify that even though other federal government agencies, like the IRS, have long-standing policies in effect that recognize job positions at an employment location as “employment” while another job position at the same location as a “program of rehabilitation,” OSERS makes an independent determination of which job positions meet VR’s definition of “competitive integrated employment.” Therefore, findings from other federal agencies are not determinative for the VR program.
Q20. How can a VR agency help an individual with a disability to exercise informed choice in choosing a job position?
Individuals with disabilities cannot fully exercise informed choice unless they receive material information regarding their potential employment classification, classification of compensation, and eligibility to receive employment benefits. CRP’s have historically withheld this information from employees by maintaining dual capacities as both providers and employers while treating individuals with disabilities as both clients and employees. For this reason, NCD reiterates its recommendations to Q1 and Q2 here and encourages OSERS develop guidance that VR agencies can reference to determine the proper employee classification, classification of compensation, and eligibility to receive the same employee benefits available to other employees.
As your federal advisor, NCD is looking forward to discussing these comments with your staff during our meeting on April 28, 2021. Please have your staff contact NCD’s Executive Director, Anne Sommers McIntosh (amcintosh@ncd.gov), and NCD’s General Counsel and Director of Policy, Joan Durocher (jdurocher@ncd.gov), to discuss any questions you may have.
Thank you again for your leadership on these issues.
Respectfully,
Andrés J. Gallegos
Chairman
1 The DOL’s economic realities test applies the following factors: the extent to which the work performed is an integral part of the employer’s business, the worker’s opportunity for profit or loss, the extent of the relative investments of the employer and the worker, whether the work performed requires special skill, the permanency of the employer-worker relationship, and the degree of control exercised or retained by the employer. Administrator’s Interpretation No. 2015-1 at 4.
2 The IRS’ twenty-factor common-law employee test has been incorporated into Section 3121(d)(2) of the Internal Revenue Code (IRC) and Treasury regulations promulgated under Section 3401 of the IRC, applies the following factors: 1. Instructions; 2. Training; 3. Integration; 4. Services rendered personally; 5. Hiring, supervision, and paying assistants; 6. Continuing relationship; 7. Set hours of work; 8. Full time required; 9. Doing work on employer’s premises; 10. Order or sequence test; 11. Oral or written reports; 12. Terms of payment; 13. Payment of business and/or traveling expenses;14. Furnishing tools and materials; 15. Significant investment; 16. Realization of profit or loss; 17. Working for more than one firm at a time; 18. Making service available to the general public; 19. Right to discharge; and 20. Right to terminate. Rev. Rul. 87-41, 1987-1 CB 296; See also Staff of J. Comm on Taxation, 110th Cong., Present Law and Background Relating to Worker Classification for Federal Tax Purposes 8 (May 2, 2007), available at: http://www.irs.gov/pub/irs-utl/x-26-07.pdf.
3 The Darden test resulted from the Supreme Court case, Nationwide Mutual Insurance Co. v. Darden, 503 US 318 (1992), in which the Court applied the following factors to determine employment status: the hiring party’s right to control the manner and means by which the product is accomplished, the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants, whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.
4 Letter from Mark Schwimmer, Senior Technician Reviewer (Employee Benefits)/Division Counsel & Associate Chief Counsel(Tax Exempt and Government Entities), Internal Revenue Service to “Information Redacted” (May 14, 2001) (on file with the Autor); Also available at: https://www.irs.gov/pub/irs-wd/01-0142.pdf.
5 Rev. Rul. 65-165, 1965-1 C.B. 466.
6 134 F.3d 227 (4th Cir. 1998),
7 Id. at 230.
8 Id.
9 See Id.
10 See Id. at 231.
11 Priv. Ltr. Rul. 200703019 (I.R.S. October 23, 2006).
12 2001 IRS CCA LEXIS 247, 54-55, IRS CCA 200206053 (I.R.S. December 12, 2001)(citing* Rev. Rul. 65-165, 1965-1 C.B. 466).
13 Although revenue rulings do not have the force of law, they are ‘entitled to respectful consideration’, and are ‘to be given weight as expressing the studied view of the agency whose duty it is to carry out the statute. United States v. Howard, 855 F.2d 832, 836 (11th Cir. 1988).