Rev. Rul. 73-268

Advice has been requested whether workers performing services for welfare recipients under the circumstances described below are employees of the county government with which they contract to perform the services for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

The county government operates a program, under state regulations, to aid aged, blind, and disabled adults who are welfare recipients to remain in, or return to, their homes by placing therein specially trained persons to provide direct services and to help welfare recipients raise their levels of functions in the areas of personal care and household management. The homemaker services are used to complement, and not substitute for, social work, out-of-home care, nursing, or other professional services, and are in the nature of domestic services, not requiring any professional training.

When a welfare recipient's need for services under the program becomes apparent to the county, a county welfare worker visits the recipient and assesses the nature and extent of the services required. The county government enters into written contracts with the individuals who perform the services. They must be people of demonstrated concern and responsibility whose services are essential to the well being of the recipients. Before concluding a contract with a prospective homemaker, the welfare worker determines whether the former meets the standards provided by state regulations and can provide the services needed by the welfare recipient. The contract must then be approved and signed by the appropriate county official before it becomes effective.

The contract between the county welfare department and the individual providing the homemaker services includes a description of the duties, the minimum hours of service per month covered by the contract, the amount of remuneration, a statement that the homemaker assumes responsibility for all work-related expenses, and a provision for the homemaker to notify the department in the event of illness or other circumstances which prevent the homemaker from providing the services required by the contract. The contract may be terminated by either party by giving 30 days notice; however, the county may terminate the agreement at any time if the homemaker fails to meet his obligations under the contract.

State regulations provide that the homemaker service must be under the general direction of an experienced social work staff. Direct supervision is assigned to a designated social work staff or to an appropriately experienced staff member, such as an experienced homemaker, nurse, home economist, etc. County employees visit the homes at which the homemakers are working at least once every three months to assure that the needed services are being provided, and the contract with the homemaker is reviewed at least once a year. In addition, the county provides the homemaker with training when necessary and appropriate. The training includes orientation as to the purposes, objectives, and structure of the program, necessary and appropriate training for the specific tasks to be performed by the homemaker, and additional inservice training at regular periodic intervals to enhance the depth and scope of the homemaker's knowledge, competence, and usefulness.

An individual is an employee for Federal employment tax purposes if he has the status of employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations: namely, sections 31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1. As stated in the regulations, generally, the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that work is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also a factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work to the individual who performs, the services. Generally, physicians, lawyers, dentists, veterinarians, contractors, subcontractors, public stenographers, auctioneers, and others who follow an independent trade, business, or profession in which they offer their services to the public are not employees.

Under the regulations, the term "employee" includes every individual performing services, if the relationship between him and the person for whom he performs such services is the legal relationship of employer and employee as discussed above. See sections 31.3121(d)-1(c)(1), 31.3306(i)-1(a), and 31.3401(c)-1(a).

Rev. Rul. 61-196, 1961-2 C.B. 155, states that nurses' aides, domestics, and other unlicensed individuals who continue to classify themselves as practical nurses are, in general, insufficiently trained or equipped to render professional or semiprofessional services according to the professional concept of "nursing" and that their services are normally those expected of maids or servants. Therefore, the Rev. Rul. holds that individuals performing such services are, like other domestics, subject to virtually complete direction and control in the performance of the services regardless of whether they work for a medical institution, physician, or in a private household, and are employees for Federal employment tax purposes.

Under the applicable state regulations and the terms of the contracts in the instant case, the county government has the right to control the details and means whereby the homemakers perform the services for the welfare recipients. Accordingly, the legal relationship between the county government and the individuals is that of employer and employee for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

However, for purposes of the taxes imposed by the Federal Insurance Contributions Act, section 3121(b)(7) of that Act excepts from the definition of "employment" service performed in the employ of a State or any political subdivision thereof. Section 3306(c)(7) of the Federal Unemployment Tax Act contains a similar provision.

When social security coverage is desired for employees whose services are excepted from "employment," as here, by section 3121(b)(7) of the Federal Insurance Contributions Act, the coverage may be obtained only by means of an agreement between the State and the Secretary of Health, Education, and Welfare, entered into pursuant to section 218 of the Social Security Act, as amended, 42 U.S.C. 418 (1970).