SSR 74-13: Sections 203(c) and (k), 210(a), 210(j)(2) (42 U.S.C. 403(c) and (k), 410(a), 410(j)(2)).—Deductions from Benefits—Non-Covered Work Outside the United States—7-Day Work Test 20 CFR 404.417, 404.418, and 404.1004(c)
This Ruling Distinguished From SSR 69-34, C.B. 1969, p. 75.
Where child beneficiary who is a citizen of United States performs services as apprentice in Germany under provisions of apprenticeship contract expressly precluding any remuneration (e.g., training allowance), held, such services by apprentice would not constitute "remunerative activity" or "services outside the United States as an employee" within meaning of sections 203(c) and (k) of Social Security Act, and, therefore, would not be cause for deductions.
C, the minor child of an insured worker, R, became engaged as an apprentice on August 31, 1971, to learn the trade of hairdresser. C is a citizen of the United States; the master hairdresser is a resident of Germany and not an American employer; and the apprenticeship is to be performed in Germany. Upon receipt of notice of the apprenticeship, the Social Security Administration suspended child's insurance benefits on the grounds that C was subject to deductions under the 7-day work test. C's mother subsequently requested resumption of benefits on the basis that terms of the apprenticeship contract had been modified so that C would no longer receive the customary training allowance. She contended that since C was no longer receiving compensation for her services, she should not be considered as employed.
The issue presented is whether an apprentice who performs services abroad and who does not receive a training allowance, should be considered to be engaged in noncovered remunerative activity outside the United States within the meaning of section 203(c) of the Social Security Act.
Under section 203(c) of the Act, deductions are to be made from any payments to which an individual is entitled for any month in which, on seven or more different calendar days, he engaged in noncovered remunerative activity outside the United States. Section 203(k) of the Act states, in pertinent part, that an individual shall be considered to be engaged in noncovered remunerative activity outside the United States if he performs services outside the United States as an employee and such services do not constitute employment as defined in section 210 and are not performed in the active military or naval service of the United States. Section 210(a) defines employment as, inter alia, any service outside the United States by a citizen of the United States as an employee of an American employer or of a foreign subsidiary of a domestic corporation.
Under the above cited provisions of the statute, a situation is envisaged where remuneration is a factor in an employment relationship. Accordingly, where services are to be performed outside the United States pursuant to a contract which expressly negates an intent by the individual for whom the services are to be performed to pay the individual performing the services an allowance or remuneration of any sort, i.e., where both parties intend that the services are to be performed gratuitously, services rendered by the worker do not constitute "services outside the U.S. as an employee for purposes of section 203(k) of the Act. The "services" referred to in this section of the Act are those for which there is at least an expectancy of compensation by the purported employee, whether or not such compensation is ever actually paid.
The Administration has previously held that where, pursuant to an apprentice contract, a master had the right to exercise, and exercised, common-law control over the apprentice's services and paid the apprentice a specified training allowance, the services of the apprentice should be considered to be "noncovered remunerative activity outside the United States" and deductions would have to be imposed against the apprentice's benefits for any month in which he engaged in such activity on seven or more days. See SSR 69-34, C.B. 1969, p. 75. However, such contract is distinguishable in that it provided for a training allowance whereas the instant contract expressly precludes such allowance or any other compensation.
The Social Security Amendments of 1954, P.L. 761, 83d Cong., §103, which put the retirement test on an annual basis for both wages and self-employment earnings, also added a new provision extending the retirement test to noncovered remunerative activity (either an employer-employee relationship or self-employment) outside the United States.
Thus, in enacting the seven-day test, now embodied in section 203(c)(1) of the Act, Congress was primarily concerned with extending the retirement test to noncovered work outside the United States and with adopting an administratively feasible substitute for the "dollar earnings" test applicable to services performed within the United States. See House Rep. No. 1698, 83d Cong., 2d Sess. 5 and 65 (1954) and Sen. Rep. No. 1987, 83d Cong., 2d Sess. 19 (1954). The seven-day test was intended to obviate the need for attempting to translate earnings in foreign currency into earnings in specific dollar amounts. In light of this legislative history and purpose, it appears that the provision was inserted in the statute to resolve a problem based on the medium of remuneration payable to the individual in those situations where the individual worked outside the United States in a non-covered activity; it was in no sense intended to eliminate expectancy of remuneration (clearly essential to deductions arising out of employment relationships outside the United States) as a factor in deductions arising out of work relationships outside the United States.
Because imposition of the seven-day test presupposes (where the worker is not self-employed) the existence of an employer-employee relationship, the question of remuneration is important in determining whether such relationship does, in fact, exist and whether an individual claimant has performed "services outside the United States as an employee" within the meaning of section 203(k). In this respect, section 210(j) of the Act states that the term "employee" means, inter alia, any individual who, under the usual common law rules applicable in determining an employer-employee relationship, has the status of an employee.
One of the factors to be considered at common law in deciding whether an employer-employee relationship exists is the payment of wages. See Matcovich v. Anglim, 134 F.2d 834, 837 (9 Cir., 1943), cert. denied 320 U.S. 744. An employee at common law has been defined as a person who renders service to another, usually for wages, salary, or other financial consideration, and who in the performance of such service is entirely subject to the direction and control of the other person. (See 556 C.J.S. § 1(b)). Although not necessarily conclusive, the worker's expectation of compensation must be considered in determining whether an employer-employee relationship exists.
Accordingly, where an apprenticeship contract expressly negates any expectation or right to remuneration, held, services subsequently rendered by an apprentice pursuant to such a contract would not give rise to an employer-employee relationship as envisaged by either section 203(c) or (k) of the Act; therefore, no deductions are applicable against C's benefits by reason of her activity as an apprentice.