(PPS-109)

SSR 83-35

SSR 83-35: TITLES II AND XVI: AVERAGING OF EARNINGS IN DETERMINING WHETHER WORK IS SUBSTANTIAL GAINFUL ACTIVITY

PURPOSE: To state the policy on the method of averaging earnings for determinations as to whether work is substantial gainful activity (SGA) under the disability provisions of the law.

CITATIONS (AUTHORITY): Sections 223(d)(4), and 1614(a)(3)(D) of the Social Security Act, as amended; Regulations No. 4, Subpart P, sections 404.1574(b), 404.1575(c), and 404.1584(d); Regulations No. 16, Subpart I, sections 416.974(b), and 416.975(c).

PERTINENT HISTORY: Under the disability provisions of the law, except within the trial work period (TWP) provisions, a person who is engaging in SGA is not eligible for payment of disability benefits. SGA is defined in the regulations as work "that involves doing significant physical or mental activities. . . [and] is the kind of work usually done for pay or profit...." See Social Security Ruling (SSR) 83-33, Program Policy Statement (PPS)-107, Determining Whether Work Is Substantial Gainful Activity -- Employees, regarding evaluation of work activity of employees. See SSR 83-34, PPS-108, Determining Whether Work Is Substantial Gainful Activity -- Self-Employed Persons, regarding evaluation of work activity of self-employed individuals. The present PPS (discussion and examples) is applicable to all employees and to those self-employed persons who, under the first SGA test for the self-employed, have been found to perform significant services.

Regulations sections 404.1574(b), 404.1575(c), 416.974(b) and 416.975(c) provide for evaluation of work in terms of average monthly earnings. If an employee's average monthly "countable earnings" (see SSR 83-33, PPS-107) exceed the Earnings Guidelines, the employee will ordinarily be found engaged in SGA. If a self-employed person's "countable income" (see SSR 83-34, PPS-108) exceeds the Earnings Guidelines, he or she will be found to have substantial income, and in conjunction with the performance of significant services, will ordinarily be found engaged in SGA. This PPS describes how "countable earnings" or "countable income" are averaged when averaging is necessary for SGA determination purposes. It enunciates policy currently followed in the averaging of earnings, with the exception of the concept regarding seasonal work patterns, which is being deleted from SGA policy and will no longer be applicable.

Earnings are generally averaged over the actual period of time in which work was performed. According to the seasonal work concept, however, earnings from seasonal work are averaged over the entire year. There have been, historically, several problems with this concept: (1) seasonal work has not been defined; (2) seasonal work often occurs for short periods of time, and termination of such work is generally unrelated to the impairment, which places the concept in logical conflict with the SGA policy concerning an unsuccessful work attempt (UWA),[1] and (3) since earnings from nonseasonal work are generally averaged over the period of time the work was actually performed (which increases the likelihood of a finding of SGA), the seasonal work concept gives the seasonal worker an advantage over other workers.

POLICY STATEMENT: An employee whose average monthly earnings (that is, " countable earnings" as discussed in SSR 83-33, PPS-107) exceed the Earnings Guidelines will ordinarily be found engaged in SGA. Most impaired employees who work do so at a single, ongoing job with a regular pattern of weekly (biweekly, monthly) earnings. In these cases earnings are uniform, so the averaging of earnings is not necessary. A determination as to whether the individual is engaging in SGA on the basis of earnings, therefore, can usually be made by comparing the individual's monthly earnings with the monthly amount for the particular calendar year shown in the Earnings Guidelines. However, when an employee's earnings or work activities vary somewhat from month-to-month, it may be necessary to average the "countable earnings" reported over a number of months in order to compare those earnings with the applicable monthly amount in the Earnings Guidelines. Generally, such earnings are to be averaged over the entire period of work requiring evaluation. However, it will be necessary to average separately the distinct periods of work involved when there is a regulatory change in the SGA earnings level or there is a significant change in work patterns or earnings. (See discussion below titled "When Earnings Are Averaged Over Separate Periods of Work.")

A self-employed person whose average monthly income (that is, "countable income" as discussed in SSR 83-34, PPS-108) exceeds the Earnings Guidelines will have substantial income, and in conjunction with the performance of significant services, will ordinarily be found engaged in SGA. Since self-employment income may fluctuate widely due to transitory business conditions, changes in the nature and size of the business, improved methods of operation, etc., the self-employed person is less likely than an employee to have a uniform income which can be readily compared to the Earnings Guidelines. It is, therefore, necessary to average the individual's "countable income" by figuring total "countable income" over a representative period and dividing by the number of months in that period. It is essential, then, for the evaluator to consider whether the period of time included in determining average monthly "countable income" is, in fact, representative of the individual's financial situation during the period involved in the SGA issue. As in the case of employees, income is generally to be averaged over the entire period of work requiring evaluation. However, it will be necessary to average separately the distinct periods of work involved when there is a regulatory change in the SGA earnings level or there is a significant change in work patterns or income.

If an individual's "countable earnings" or "countable income," when averaged, indicates SGA, an individual may for purposes of the disability determination be considered to have engaged continuously in SGA during the entire period being averaged. On the other hand, although the average for the entire period may not indicate SGA, a disability adjudicator would not be barred from finding that the individual has the ability to engage in SGA, if the medical and vocational factors of the case support such a conclusion.

This PPS explains averaging in initial disability cases and in continuing disability cases except during the reentitlement period. (See SSR 82-67, PPS-77, Extension of Eligibility for Benefits Based on Disability, concerning averaging during the reentitlement period in continuing disability cases.)

When Earnings Are Averaged Over the Entire Period of Work

If the individual's pattern of work was (or is) continuous without significant change in work patterns or earnings, and there was no change of SGA earnings levels during the period involved, earnings are to be averaged over the entire period of work requiring evaluation.

1. Determining period of work to be averaged when pattern of work is complete. When the individual worked for a continuous period of time but is no longer working, earnings are to be averaged over the actual period of work involved. The following example illustrates how earnings are to be averaged in this situation.
Example A:
Mrs. A. filed a claim in September 1982. She alleged that her onset date of disability was December 1981, when she had a heart attack. Until that time she was earning $12,000 a year. She worked from January 1982 to August 1982 doing part-time clerical work, and she had the following earnings:
January $305
February 290
March 305
April 290
May 305
June 290
July 305
August 290
$2,380 ÷ 8 = $297.50
In this example, the "actual period of work involved" is the 8-month period from January through August. During this period neither of the qualifying situations occurred: there was no real change in work pattern or earnings, and the SGA earnings level (i.e., over $300 a month) was applicable during the entire period of work. The entire 8 months of earnings are, therefore, averaged.
Example B:
Mr. B. filed a claim in September 1982. He alleged that his onset date of disability was January 1982, when he was hospitalized for 2 weeks due to exacerbation of his arthritic condition. He had done seasonal work on a farm during the months of April through August for a number of years. He worked during the 1982 season, earning about $600 a month, or a total of $3,000.
In this example, earnings from this seasonal work are averaged over the period April 1982 through August 1982, the "actual period of work involved." During this period neither of the qualifying situations occurred: there was no real change in work pattern or earnings, and the SGA earnings level (i.e., over $300 a month) was applicable during the entire period of work. Thus, Mr. B.'s earnings averaged $600 a month during the period April 1982 through August 1982.
2. Determining period of work to be averaged when pattern of work is ongoing. When the individual has been employed for some time (e.g., a number of months after onset in initial cases or throughout the TWP), it should be possible to determine from the facts at hand the pattern of work and the average monthly earnings expected on a continuing basis.
When the individual has been employed for a short time (e.g., the work has been performed for only 3 or 4 weeks), evaluation must be made on the basis of the individual's expected work pattern and earnings. If work was going on at the time of last contact with the individual, evaluation should be made in anticipation of its continuance without other interruptions, in the absence of evidence clearly indicating the contrary.
When subsequent evidence shows that an anticipated pattern of SGA did not materialize, a revision may be warranted.

When Earnings Are Averaged Over Separate Periods of Work

1. SGA level changes. When an individual works over a period of time during which the SGA level changes, earnings are not averaged over the entire period of work involved; rather, they are averaged over each period for which a different SGA level applies.
Example C:
Mr. C., who is 35 years old, filed a title II disability application in March 1982. He alleged that his onset date of disability was January 1981 due to blindness. He began working in September 1981 and was still working when he filed his application in March 1982. He had the following earnings:
September $475
October 475
November 475
December 475
January 475
February 475
In this example, work beginning September 1981 and continuing needs to be considered. Different SGA earnings levels apply during the period of work under consideration. The SGA earnings level for title II blind individuals was $459 in 1981 and $500 in 1982. The adjudicator, therefore, cannot conclude that since the earnings over the entire period averaged less than $500 (the 1982 level), the whole period of work is not SGA. For example, if the claim had been filed in November 1981 and adjudicated then (at which time the earnings averaged $475 and the SGA level was $459) rather than in March 1982, the work would have to have been considered to be SGA. The only reason for concluding that the same work for the same earnings is no longer SGA is because of the higher earnings guide, i.e., $500. However, the $500 level applies only to work beginning in 1982. Therefore, in the above example, work through December 1981 should be considered SGA, and work beginning January 1982 should not be considered SGA.
2. Change in work patterns or earnings. When there is significant change in work patterns or earnings during the period of work requiring evaluation, earnings are not averaged over the entire period of work involved. When there is such a change, it would not be appropriate to average earnings over the entire period of work, since one period of work activity may not be representative of the other period. Unrepresentative periods of work involve separate and distinct work efforts. When there is a significant change in work patterns or earnings, the earnings must be averaged over each separate period of work involved to determine if either effort was SGA.
Example D:
Ms. D. began receiving title II disability benefits in October 1978. (This is a "no waiting period" case because disability began within 5 years of a prior cessation of disability. Since Ms. D. did not serve a waiting period, she is not entitled to a TWP, and thus is not entitled to an extended period of eligibility (EPE).) In April 1981 she began selling greeting cards by telephone solicitation, not spending much time at it, and receiving $85 monthly; it was determined, however, that this work was not SGA. In February 1982, Ms. D. discontinued the telephone work to take a course in assembly of electronic parts. In May 1982, she began to work in a sheltered shop, doing the simplest type of electronics assembly. She was paid on a piecework basis, without any subsidy, at rates normal for beginners; she had no impairment-related work expenses (IRWE). In May and June she earned $250 per month. In July, the shop found that her skills had increased to the journeyperson level, and assigned her complex assembly duties at journeyperson rates. Ms. D. reported that beginning July 1982, and thereafter, her earnings would be $400 per month. It was determined that she was engaging in SGA as of July 1982. Earnings for the period of May and June 1982 were not averaged with the period beginning July 1982, since a significant change in earnings and work activity had taken place to make the two periods unrepresentative of each other; the earnings of May and June 1982 could not be averaged with those of July to reduce July earnings below the SGA level. A finding of disability cessation was made effective July 1982, and Ms. D. was paid benefits for July and the 2 succeeding months.
Example E:
Mr. E. had previously been entitled to disability benefits from March 1973 to June 1976. He became entitled to disability benefits a second time, beginning in July 1979, without serving a waiting period. (This is a non-EPE case because Mr. E. was not entitled to a TWP.) He opened a newsstand in July 1980, 1 year after he again became entitled to disability benefits. For the next 2 years his self-employment "countable income," after the deduction of the value of unpaid help, averaged $2,400 a year, or $200 a month. Mr. E. was found not to have engaged in SGA on the basis of the first SGA self-employment test; his work was also found not to be SGA under the tests of comparability and worth of work. In July 1982, a new shopping center opened adjacent to his stand, and as a result of the increased volume of business, Mr. E.'s "countable income" for the period of July-December 1982, rose to $2,280, or an average of $380 a month. Since this appeared representative of a new pattern to his business, he was found to have engaged in SGA beginning with July 1982, even though his annual income for 1982 was only $3,480, or an average of $290 a month for the period of January-December 1982.

EFFECTIVE DATE: The policy explained herein is effective as of the date of publication of this PPS.

CROSS-REFERENCES: Program Operations Manual System, Part 4, sections DI 00503.125 and 00503.310.B.2.b.; SSR 83-33, PPS-107, Determining Whether Work Is Substantial Gainful Activity -- Employees; SSR 83-34, PPS-108, Determining Whether Work Is Substantial Gainful Activity -- Self-Employed Persons; SSR 82-67, PPS-77, Extension of Eligibility for Benefits Based on Disability.

[1] An "unsuccessful work attempt" is an effort to do substantial work in employment or self-employment which was involuntarily discontinued or reduced below the SGA level after a short time (that is, no more than 6 months) for reasons relating to the individual's impairment.

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