How to Determine if a Position is Covered Under Section 218
There are times when a coverage question presents itself, and you just do not know where to begin. Consider the following course to be a practical application and a starting point for addressing the very common question, “Are these positions covered?”
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- Who is the employee?
- Who is the employer?
- Is there an applicable Section 218 Agreement or modification?
- Interpreting the Modification
- What is the employing entity's legal status (i.e., a governmental or private)?
- Are there optional or required exclusions that apply?
- Is the employee's position under a State or local (public) retirement system?
- What is the retirement system status of the employee (i.e., member, ineligible, or optional)?
- Did the individual vote for or against coverage in the referendum?
- Was there a break in the employee's service or a break in retirement system membership?
- Was the individual in an employment relationship on the date controlling retroactive coverage (effective date)?
An employee, for purposes of State and local coverage, must meet the definition of employee as defined in Sections 210(j) and 218(b)(3) of the Social Security Act. You are an employee if, under the common-law test, the person you work for has the right to tell you what to do, how, when, and where to do your job.
There are several factors, or elements, which indicate such control over the details of your work. For a complete list of these factors, refer to Course 10: Employer & Employee Relationships: How to Apply the Common Law Control Test.
This question, in part, is answered during the application of question 1 (who is the employee?). Once it is determined that the individual is an employee, who does the employee work for? This is not always easily identifiable. Situations will arise when it is clear that an employee performed services, but the evidence is not clear or raises a question about the identity of the employer. Thus, the employer is the entity that has the final authority to hire, fire, supervise, and control the individual in the performance of his/her services, or which reserves the right to do so.
The following questions may be helpful in identifying the employing entity:
- Who hired him? Paid him? Had the right to discharge him? Was approval of such action required; if so, by whom?
- What was he told or led to believe about the identity of his employer?
- How were pay checks signed, pay envelopes marked, etc? Obtain complete details.
- How was he hired, by advertisement or otherwise? To whom was application made?
- To whom was he accountable, i.e., to whom did he go to ask for vacation; to whom did he report when unable to work because of illness, etc?
- Who set the rules and conditions under which he worked? Obtain a complete explanation.
In connection with the first bullet, above, a finding as to who pays wages is not a controlling factor in determining the identity of the employer. It is, of course, a fact to consider in arriving at a conclusion. Secure a copy of the authorization, where it is alleged that one entity delegated the authority to engage the employee and control his work. If the authorization was oral, describe the situation in detail. Be certain that the parties agree on the essence of the oral authorization. Where the parties are in disagreement, attempt to reconcile their statements. If the statements cannot be reconciled, attempt to obtain other evidence regarding this matter.
Example: an individual appears to be working for the State’s Department of Health (DoH). She reports to the DoH for duty, works on issues related to the DoH, wears a DoH badge, has a DoH e-mail address; however, for purposes of this example, the State’s leading medical institution hired her and paid her salary. Thus, the identity of the employing entity is the medical institution, not the DoH. The determination identifying the medical institution as the employing entity is based on their ability to control her continuation of employment. This comes regardless whether the employment takes place on site at the DoH or at the medical institution. The terms of the employment, most likely, are outlined in an agreement between the DoH and the medical institution. Obtain this agreement.
You can also refer to Form SSA-7160-F4, Employment Relationship Questionnaire (View PDF Version), which was designed for use in developing the question of employer and employee relationships, except where the worker is an officer of a corporation.
When developing the coverage status, the first and most obvious action is to ascertain whether the employee position in that governmental entity is covered for or excluded from the State’s Section 218 Agreement. If the governmental entity is not mentioned in either the State’s Section 218 Agreement or subsequent modifications, refer to the summaries of State Agreements. If you do not have copies of the aforementioned documents, contact the State’s Social Security Administrator, or the SSA RO to get this information.
Remember: Final determinations regarding Section 218 Agreements are governed by Federal law and are made by SSA. These determinations may be based on decisions regarding certain specific issues to which either Federal or State law is applied. Where State law may have a bearing on the issue, an opinion of the State Attorney General may be requested if one does not already exist. The opinion will be given due weight in making the final determination.
Modifications can be used to amend the State’s Section 218 Agreement to extend coverage to new groups of employees, identify new political subdivisions joining a public retirement system, correct errors in previous modifications, implement changes in Federal or State law, and, under very limited circumstances, exclude services or positions previously covered. However, despite the modification’s applicability to numerous situations and circumstances, modifications do not cover individuals—THEY COVER POSITIONS.
Thus, is the service or position that the employee occupies covered for or excluded from Section 218 Social Security and Medicare coverage in a modification? If the position is covered for Social Security and Medicare under a modification, then the employee, or, for that matter, any employee, filling that position is covered and subsequently subject to Social Security and Medicare taxes.
Note: Modifications are, as the name implies, a way to modify the State’s original Section 218 Agreement or subsequent modifications. Therefore, interpreting modifications should never be done in isolation, but consideration should always be given to what has previously occurred. For example, the original Section 218 Agreement may have specified the exclusions, but the modification does not restate the information—even though they may apply. Consider the “BIG Picture,” not just the clips!
The state administrator, SSA, and the IRS, are responsible for keeping copies of modifications.
Section 218 coverage applies to governmental employees. Therefore, is the employing entity a government? The possible forms of government are States, covered territories, political subdivisions, instrumentalities of government, and interstate instrumentalities.
Making this distinction is not always as clear is it may seem though. For example, while identifying a State is obvious, other entity types, such as political subdivisions, interstate instrumentalities, or instrumentalities of government, can be significantly more difficult to identify.
To further complicate matters, there are other entity types that can appear to be governments, and can be governments, but are not always governments, such as those entities that are given 501(c)(3) status by the IRS. Finally, there are entities that act for governments, on behalf of governments, but are definitely not governments, such as contractors. And to further confuse the matter of determining an entity’s legal status—it is the State that is responsible for making this determination (within the constraints of Federal and State law). SSA will determine the accuracy of the determination during the modification review process. Thus, what may be a political subdivision or a governmental entity in one State may not be a governmental entity in another State.
For more information on determining the legal status of an entity, refer to Course 9: How to Determine an Entity’s Legal Status, and always consult your State Social Security Administrator or the Attorney General.
The biggest mistake made regarding “exclusions” is confusing the two uniquely different concepts of optional and required exclusions from voluntary coverage, with exclusions from required coverage. In this question, we will address the former—exclusions to voluntary coverage.
Voluntary coverage has two types of exclusions, required and optional.
Required Exclusions: Those services that are not covered under Section 218 of the Social Security Act. Required exclusions apply to voluntary Social Security coverage situations (coverage via a Section 218 Agreement or modification) and should not be confused with the different set of exclusions that applies to mandatory Social Security and mandatory Medicare coverage situations.
The following services are mandatorily excluded from Section 218 coverage. Refer to SL 30001.356 Required Exclusions.
- Services performed by individuals hired to be relieved from unemployment. (This does not include many programs financed from Federal funds where the primary purpose is to give the employee work experience or training.)
- Services performed in a hospital, home or other institution by a patient or inmate thereof as an employee of a state or local government employer;
- Services performed by an employee on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency;
- Transportation services covered under Section 210(k) of the Act (see SL 30001.365 Public Transportation Services);
- Services that would be excluded if performed for a private employer because the work is not defined as employment under Section 210(a) of the Act. For example, non-resident aliens with F-1, J-1, M-1, and Q-1 visas (see RS 01901.740 Foreign Students,…).
Optional Exclusions: Those services that Federal law gives states the option to include or exclude from coverage under a Section 218 Agreement. Refer to SL 30001.357 Optional Exclusions.
- Agricultural labor, but only those services that would be excluded if performed for a private employer;
- Elective positions;
- Election workers and election officials whose pay in a calendar year is less than the amount mandated by law, unless Section 218 agreement covers election workers;
- Positions compensated solely by fees that are subject to SECA (Self-Employment Contributions Act), unless Section 218 Agreement covers these services;
- Part-time positions;
- Students enrolled and regularly attending classes at the school, college or university where they are working.
For Section 218 purposes, a retirement system is a pension, annuity, retirement or similar fund or system established by a State or political subdivision. The plan is considered established by the entity if there is any payment of public funds toward the cost of the plan or the plan is established under the entity's authority. The system need not have been created by the legislature of the State or the political subdivision, nor does it have to be a plan under which the benefits are guaranteed by State constitution. A retirement system can include a group annuity policy purchased by a State or political subdivision from a private insurance company to provide retirement benefits for its employees. A retirement system is established if State law requires retirement system protection for employees on a mandatory basis. (This is true whether or not the employing entity has actually implemented the law.)
It is critical that you identify whether the position is under a retirement system because retirement systems have multiple considerations in Section 218 coverage. For instance, when a State enters into a Section 218 Agreement, employees are brought under the agreement in groups known as “coverage groups.” There are two types of employee groupings for coverage purposes:
- absolute coverage groups (Section 218(b)(5)), composed of positions not under a retirement system, and
- retirement system coverage groups (Section 218(d)), composed of positions under a retirement system.
Retirement systems, or more so the lack of, will also determine whether Mandatory Social Security coverage applies. In some instances, the retirement system may not be a qualifying retirement system (aka: Social Security equivalent); and for purpose of Mandatory Coverage does not count as a retirement system, and Mandatory Social Security Coverage applies. The Internal Revenue Service (IRS) is responsible for determining whether a retirement plan or system meets qualifying (Social Security equivalent) status under the Mandatory Social Security provisions. (See Chapter 6 of the IRS Pub. 963).
For verification of an employee’s position under a retirement system, contact your State Social Security Administrator or your State’s public retirement system.
An employee’s eligibility for participation in a public retirement system is dependent on the enrollment policies defined by the entity and the State. In some cases, an employee may have to meet requirements such as time on the job or have to wait for the enrollment date in order to begin participation in the retirement system. In some cases, an employee is eligible from the date of hire. It is dependent on the policies for that specific entity.
Generally, an employee is a member of a retirement system if the employee’s personal relationship to the system qualifies the employee for benefits under the system or for additional benefits if the employee is already qualified.
An ineligible is an employee who performs services in a position under a retirement system but who is personally ineligible for membership in that system because of a personal disqualification, e.g., age, length of service, number of hours worked, or date of hiring. (Another employee who has no such personal disqualification from membership who occupies the same position would be eligible for membership in that retirement system.) Ineligibles, other than ineligible police officers and firefighters, can be covered as part of, or as an addition to, the retirement system coverage group if the State takes appropriate action. For purposes of extending coverage, the individual must meet the definition of ineligible at a critical time point. Refer to SL 30001.340 Retirement System Ineligibles, for more information.
An optionalis an individual who had an option to join the retirement system on August 1, 1956, or if later, the date he/she first occupied a position under the system. With respect to an interstate instrumentality, an optional is an individual who had an option to join the retirement system on August 30, 1957, or if later, the first day he/she occupied a position under the system.
Or, sometimes a position is under more than one retirement system and the employee occupying the position either is a member, or has the option to become a member, of more than one retirement system. Refer to SL 30001.350 Positions Covered by More Than One Retirement System, for more information.
For verification of an employee’s retirement system status, contact your State Social Security Administrator or your State’s public retirement system.
Depending on whether the referendum is a divided vote or a majority vote—a person’s yes or no vote could lead to entirely different outcomes.
In a divided vote State, the State must have authority under State law and the State’s Section 218 Agreement to extend coverage to employees in positions under a retirement system on a divided vote basis. There are currently 23 States with this authority. For a complete list, refer to SL 30001.330 Divided Voter Referendum Authority. Members who elect Social Security coverage are part of the deemed retirement system composed of positions of members who voted “yes” for Social Security coverage. They remain covered as long as they continue to be members of the retirement system or as long as they continue to occupy any position that is part of the retirement system coverage group.
Individuals who do not elect Social Security coverage are members of a separate retirement system that is composed primarily of the positions of those members who did not elect Social Security coverage. They can be covered for Social Security if they elect to transfer to the covered group or after a favorable majority referendum is held among the members of their retirement system.
Note: Even though a divided retirement system is referred to as separate retirement systems—it does not mean the two parts belong to different retirement systems, literally; it just means that the system is simply divided.
In a majority vote State, the State must have authority under State law and the State’s Section 218 Agreement to extend Social Security coverage to employees in positions under a retirement system. Social Security coverage may be extended to employees in positions covered by a retirement system only if a majority of the eligible employees vote in favor of such coverage. A majority of all of the eligible employees under the system, rather than a majority of the eligible employees voting, must favor Social Security coverage. Coverage is then applied universally to all eligible employees regardless if they voted “no.” Most States use a simple majority (>50%) to distinguish a majority
Remember: Social Security coverage cannot be terminated once elected—regardless of how the individual voted.
Whether a member (who has a break in service after coverage was extended to the divided vote retirement system coverage group) is considered a new member upon return to employment is a State matter. The State’s decision depends upon the provisions of the particular retirement system involved and on State law. If the State considers an individual to be a new member of the retirement system upon return to employment, the employee is compulsorily covered for Social Security. If the State considers an individual to have retained membership in the retirement system during a break in service, the employee is not considered a new member upon return to employment and retains his/her "no" vote--provided the entire retirement system to which the employee belongs was covered as a single retirement system coverage group. If the retirement system was divided into deemed systems, an individual who returns to work for the same deemed system after a break in service retains his/her "no" vote if the employee is not considered a new member of the deemed system under State law. This is a change of position effective July 15, 1976. However, an individual who returns to work for a different deemed retirement system coverage group is compulsorily covered for Social Security as a new member even though the employee previously voted against Social Security coverage.
The State's decision on whether an individual is considered a new member under State law must be applied consistently to all individuals similarly situated.
In those retroactive modification situations that do not involve an error modification, the applicable date can be no earlier than the date the agreement or modification is mailed or delivered to SSA (and designated by the State in the body of the agreement or modification), or no later than the date SSA executes that agreement or modification. Generally, only employees who are members of the coverage group and in an employment relationship with the entity being covered on the date which controls retroactive coverage (applicable date) are covered for any retroactive period of coverage. Such an employee would be covered as follows:
- Absolute coverage group – Employee obtains coverage for that part of the retroactive period in which the employee worked and received wages.
- Retirement system coverage group (majority or divided vote) – Employee obtains coverage for that part of the retroactive period in which the employee worked and received wages in a position under the system.
Under certain conditions, the State may use an error modification, which provides coverage as of the date on which the error occurred. In error modification situations, the date the error began is the applicable date. Another way to preserve coverage for former employees is to include those employees who had been part of the coverage group, and whose earnings were erroneously reported as a part of the coverage group, provided no tax refund has been obtained. The State may, by deeming former employees to be part of the coverage group on the date designated to control retroactivity, give them whatever retroactive coverage is provided current employees. See SL 30001.375 D Effective Dates of Coverage for preserving retroactive coverage under section 218 for former employees where reports were erroneously made to IRS or to SSA without coverage under a section 218 agreement.
In those situations not involving error modifications, if an employment relationship was terminated by death, retirement, or otherwise, during the interval between the effective date of coverage and the date which controls who is covered for the retroactive period, there is no coverage for the retroactive period.
Services performed by an individual whose employment relationship was terminated before the date which controls who is covered for the retroactive period (applicable date), but who was rehired before that date (applicable date) is covered retroactively. Services of an individual whose employment relationship terminated prior to that date (applicable date) but who was rehired after that date (applicable date) would not be covered retroactively; coverage would be prospective from the date of the rehiring.
If an employee changed employers during the retroactive period but the employee occupies a position in the same retirement system coverage group on the date that controls retroactive coverage, the employee is covered for the retroactive period. This is true even though there is a break in the continuity of the employee’s employment provided the employee is in an employment relationship on the controlling date (applicable date).