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Wage Employment vs. Self-Employment - 2011
It is not uncommon for WIPA personnel to encounter individuals who receive some form of income, but who are unclear about whether or not this income counts as “wages” for Social Security purposes. Furthermore, in some instances, it is difficult to determine if the income a person gets is from wage employment (i.e.: an employer-employee relationship exists) or if the person is actually self-employed. This is further complicated by the fact that some businesses pay workers as if they were self-employed (i.e.: independent contractors), when, based on U.S. Department of Labor wage and hour laws, they actually meet the definition of employees.
Determinations about whether income is “earned” as opposed to “unearned” and subsequent decisions about whether earned income represents “wages” or should be counted as “net earnings from self-employment” can get very complicated. To make matters worse, these issues do not fall simply under the jurisdiction of the Social Security Administration. Both the U. S. Department of Labor (DOL) and the Internal Revenue Service (IRS) have a stake in these matters and often have overlapping laws and regulations. These determinations are critically important, since the DI/SSI programs treat various forms of income in drastically different ways. There can also be legal ramifications for beneficiaries and their employers if the Federal tax and wage & hour laws are not complied with. If CWICs are not clear about what a form of income is and how it is treated by SSA, incorrect advice will be provided which may cause the beneficiary to make a series of poor choices about work.
The purpose of this document is NOT to make CWICs experts in determinations of wage employment or self-employment. There are literally hundreds of POMS citations covering this topic and the issues involve complex legal interpretations. This document was written to provide a general understanding of how wage employment and self-employment differ, and how SSA decides which situation applies to a beneficiary with earned income.
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