SSR 73-42: SECTIONS 202(a) and 213(a) (42 U.S.C. 402(a) and 413(a)) -- WAGES -- CONSTRUCTIVE PAYMENT TO CORPORATE OFFICER -- INSURED STATUS
20 CFR 404.103(e) and 404.1026(b)
- Where a long-time officer and director in family corporation is authorized in minutes of annual meeting of board of directors an annual salary without restriction or limitation as to time or manner of payment, ample funds are available for such payment, and such wages are credited to or set aside for her, held, there is constructive payment of wages within the provisions of section 404.1026(b) of the Social Security Administration Regulations No. 4, and such wages may be allocated equally to each calendar quarter of her employment for purposes of determining quarters of coverage.
R, born January 1907, filed application for retirement insurance benefits in October 1971. For nearly 14 years she was an officer and director in a family corporation at an annual salary of $1,000 until 1970, when it was increased to $1,200. This sum was drawn once a year, although R alleged that it was available to her at any time.
R's duties for the company, of which her husband was president, were to take messages for him during his frequent business trips out of town, to receive calls at all hours concerning business emergencies, and to supervise administrative personnel in charge of the corporation's minutes books, for as much as 12 hours per week.
On the basis of R's date of birth, she needed 18 calendar quarters of work to qualify for benefits but had only 14 quarters of coverage credited to her account. Thus, the general issue is whether the evidence establishes that R has sufficient quarters of coverage for a fully insured status. The specific issue is whether, in fact, there was a constructive payment of wages to her to permit a credit of wages to each calendar quarter of the year.
Section 404.1026(b)(2) of Social Security Administration Regulations No. 4 provides that wages are constructively paid when they are credited to the account of or set apart for an employee so that they may be drawn by him at any time although not then actually reduced to possession. To constitute payment in such a case, the wages must be credited to or set apart for the employee without any substantial limitation or restriction as to the time and manner of payment or condition upon which payment is to be made and must be made available to the employee so that they may be drawn upon at any time, and their payment brought within his own control and disposition.
Evidence submitted on R's behalf indicates that ample funds were available in the corporate treasury to meet salary and current expense needs. It is also shown that R's wages were credited to or set aside for her without any substantial limitation or restriction on the time or manner of payment. The tenure of R's employment and her salary as a corporate officer was fixed for at least 14 years by the board of directors. The time of payment was not specified and R, as an officer, was permitted, as a matter of practice, to draw her salary at any time without objection on the part of the directors. As a matter of preference, she drew them late in the year.
A copy of the minutes of the annual meeting of the board of directors on December 1, 1969, fixing R's salary for 1970 at $1,200, was also submitted and is indicative of similar resolutions fixing her salary during her entire service as a corporation officer. The facts warrant a finding that the corporation intended to pay, set apart, and credit the sum designated as wages and was financially able to pay the wages when due.
Accordingly, it is held that the amount of R's salary should be allocated equally to each calendar quarter of the year of her employment, thereby affording her, on the basis of her October 1971 application, a fully insured status for retirement insurance benefits.