Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: Arkansas Department of
Human Services
Decision No. 41
Docket No. A-93-023
DATE: April 7, 1993
DECISION
The Arkansas Department of Human Services (Arkansas)
appealed a
determination of the Regional Administrator of
the Administration for
Children and Families (ACF), dated
November 13, 1992, that payment of an Aid
to Families
with Dependent Children (AFDC) grant of $81 to JB for the
review month of March 1992 was erroneous. 1/ ACF
determined that JB was ineligible for the month because
Arkansas failed
to determine and budget the value of free
room and board JB received as
"in-kind" earned income in
determining eligibility. Arkansas objected,
asserting
that JB was not an employee and that the informal
arrangement
by which JB received free room and board did
not constitute in-kind earned
income for the purpose of
determining eligibility.
The issue, as narrowly framed by the parties, is whether
or not Arkansas
should have considered the value of the
free room and board JB received as
earned income. For
the reasons set forth below, we find that the value
of
the free room and board JB received did not constitute
income earned
by JB as an employee. Thus, we reverse
ACF's determination.
However, we make no determination
as to whether Arkansas, in making its
eligibility
determination, could have considered the value of the
free
room and board JB received as unearned income.
Furthermore, nothing in
our decision precludes ACF from
re-examining whether the value of the free
room and board
JB received would affect her eligibility other than as
earned income.
Statutory and Regulatory Background
Under the AFDC program, a state must take into
consideration an
applicant's "earned income" less certain
permitted "disregards" in computing
an applicant's
eligibility and grant amounts. Sections 402(a)(7)(A)
and
402(a)(8) of the Act. Federal regulations define "earned
income" to include income "in kind earned by an
individual through the
receipt of wages, salary,
commissions, or profit from activities in which he
is
engaged . . . as an employee." 45 C.F.R. �
233.20(a)(6)(iii). 2/
Section 210(j)(2) of the Act defines an "employee" as
"any individual
who, under the usual common law rules
applicable in determining the
employer-employee
relationship, has the status of an employee . . . ."
Regulations at 20 C.F.R. � 404.1007 provide that, in
general, an
individual is a common law employee if the
person or firm that individual
works for may tell that
individual what to do and how, when, and where to do
it.
That person or firm does not have to give these orders,
they
only need the right to do so. 20 C.F.R. �
404.1007(a). Section
404.1007(b) lists factors which
would indicate an individual's status as an
employee.
These are:
(1) The person you work for may fire you.
(2) The
person you work for furnishes you with
tools or equipment and a place
to work.
(3) You receive training from the person you
work
for or are required to follow that person's
instructions.
(4) You must do the work
yourself.
(5) You do not hire, supervise, or pay
assistants
(unless you are employed as a foreman, manager,
or
supervisor).
(6) The person you work for sets your
hours of
work, requires you to work full-time, or
restricts
you from doing work for others.
(7) The person
you work for pays your business or
traveling
expenses.
(8) You are paid by the hour, week or month.
Background
From November 1991, through the review month of March
1992, JB resided in
a boarding home for the elderly which
was managed by OR. OR provided
JB with room and board.
OR did not provide JB with any salary. A
note of a May
13, 1992 telephone contact made by the State QC reviewer
indicates that OR told the State QC reviewer that OR
provided JB and her
child room and board in return for JB
being on the boarding home's premises
at night and on
weekends. (See Attachment to Arkansas' November 13,
1992
appeal request, QC Worksheet ACF 4340, second page at
T.C.
5/13/92). On June 1, 1992, OR answered a State QC
form letter which
sought to verify JB's income. The form
letter asked OR, "If client is
no longer employed,
indicate the date of last work, reason for termination."
OR handwrote in the blank space provided, "not work for
wages,
working for room & board." (See Attachment to
Arkansas' November
13, 1992 appeal request, letter from
Quality Control Reviewer answered by OR
on June 1, 1992).
On August 24, 1992, OR responded to an August 12,
1992
letter from ACF's AFDC QC Specialist which stated, in
language
prepared in printed fashion by ACF, "In exchange
for monthly room and board,
. . . [JB] and her son . . .
lived on the premises of the Bird Haven
Boarding House.
If we had not had this arrangement, the amount of
monthly
wage I would have paid an individual for this service is
$ ." OR handwrote, in the
blank space provided by
ACF, "$300 a month or $75 a week." (See
Attachment to
Arkansas' November 13, 1992 appeal request, August 12,
1992 letter from Janice W. Fowler, AFDC QC Specialist to
OR; ACF's
December 11, 1992 Response Brief, Exhibit A).
However, in response to
questions asked of OR in a letter
of September 11, 1992, written by
Arkansas' QC Reviewer,
Bobbie Wiscaver, OR stated that JB had not worked for
the
boarding home and had never received a salary. Further,
OR
stated that she had never reported any in-kind
remuneration to the IRS, nor
did she, on JB's behalf,
take taxes out of any purported in-kind
salary. (See
Attachment to Arkansas' November 13, 1992 appeal request,
September 11, 1992 letter from Bobbie Wiscaver to OR).
OR
supplemented this response with a letter to Wiscaver
of September 15,
1992. In it, OR stated that she did not
ask JB to come to the boarding
home. OR further stated
that she offered JB room and board only
because OR's son
brought JB home and JB had nowhere else to stay. OR
asserted that she never offered JB any money for staying
at the boarding
home, JB was not asked to work, and OR
could not have paid JB. (See
Attachment to Arkansas'
November 13, 1992 appeal request, September 15, 1992
letter from OR to Wiscaver).
By affidavit of February 23, 1993 3/, OR further
clarified
JB's position at the boarding home. OR
explained she requested that JB
remain on the premises
nights and weekends only to assure that JB did not
leave
her young child in someone else's care. Otherwise, OR
stated
that JB was free to take her child and leave the
boarding home on nights and
weekends. OR explained also
that when she answered the ACF AFDC QC
specialist's
correspondence, she was providing only the amount that JB
would have had to pay for room and board if JB had been
able to pay, not
what OR would have paid someone to do a
job. 4/
Arguments
The parties agreed that the receipt of free room and
board could
constitute in-kind earned income if it were
provided as compensation by an
employer to an employee.
However, in its appeal request, Arkansas
argued that it
was not required to consider JB's receipt of free room
and board as income for the purpose of AFDC eligibility
because there
was no employer/employee relationship in
this case. Arkansas further
asserted that while JB
received free room and board, OR did not ask JB to
work,
gave her no option to receive cash, and never considered
reporting
this "good will" gesture as income for tax
purposes. Further, Arkansas
asserted that OR had
answered the ACF AFDC QC specialist's letter
incorrectly.
Arkansas asserted that OR's statement that the value of
staying in the boarding home at night was $75 a week or
$300 a month did
not constitute what OR would have paid
JB, as OR had no money to pay
anyone.
In response, ACF stated that there could be no doubt JB
received free
room and board in return for overseeing the
boarding home evenings and
weekends in the manager's
absence. ACF argued, therefore, that the
value of JB's
free room and board was in-kind earned income which must
be considered in determining AFDC eligibility. 5/
In its reply, Arkansas reiterated its contention that
there was no
employer/employee relationship here. 6/
Discussion
Pursuant to the Act and regulations, in order to decide
whether or not
the $81 payment made to JB was erroneous,
the Panel first must establish
whether or not JB was an
employee of OR or of the boarding home. This
is because
if JB was not an employee, OR's provision of free room
and
board would not constitute earned income for JB. See
42 C.F.R. �
233.20(a)(6)(iii).
On January 28, 1993, this Panel invited the parties to
provide us with a
definition of the term "employee."
Title IV of the Act (which governs
AFDC) does not contain
a definition of what constitutes an employee.
In the
absence of a definition under Title IV, we asked the
parties to
comment on the definition of employee found in
Title II of the Act (which
governs Federal Old-Age,
Survivors, and Disability Insurance
Benefits).
Specifically, section 210(j)(2) of the Act defines an
employee as "any individual who, under the usual common
law rules
applicable in determining the employer-employee
relationship, has the status
of an employee. . . ."
Pursuant to our request, both parties provided
a
definition of what constitutes an employee. In so doing,
both
parties principally referenced the factors set forth
at 20 C.F.R. � 404.1007
as determinative of an
individual's status as an employee. As both
parties have
used the factors set forth at 20 C.F.R. � 404.1007, we
too
use these factors as guidelines by which to measure
whether JB was an
employee of OR or the boarding home.
After considering the factors
set forth at 20 C.F.R. �
404.1007, on which the parties relied to determine
employee status, and after reviewing the record with
regard to all of
OR's statements concerning JB's receipt
of room and board at the boarding
home, including OR's
affidavit, we find that JB was not an employee of OR or
the boarding home. 7/ In reaching this conclusion,
we
recognize that there is evidence from which we might
deduce that JB
was an employee. For example, OR's fill-
in-the-blank response to the
ACF AFDC QC Specialist's
form letter indicated that OR would have paid
someone $75
a week or $300 a month if she and JB "had not had this
arrangement." Additionally, the State QC reviewer's May
13, 1992
note of her conversation with OR suggested that
JB received room and board
"in return for" staying on the
premises on nights and weekends.
Finally, OR's June 1,
1992 response to the State QC reviewer's form letter
stated that JB did not work for wages but was "working
for room and
board." However, we are not persuaded by
this evidence that JB's
receipt of free room and board
makes her an employee. Instead, we
believe that, on
balance, OR's later statements rebut any conclusion we
might draw from this evidence that JB was an employee of
either OR or
the boarding home.
Specifically, all the record before us
indicates with
certainty is that OR was providing JB with room and
board. The parties do not agree on the factual
circumstances
surrounding JB's receipt of this room and
board. When we analyze the
factual record before us,
however, we find that OR's statement that she
provided
free room and board in exchange for JB's remaining at the
boarding home nights and weekends is not provided in a
written
communication from OR, but is provided only in
the form of the State QC
reviewer's note of a telephone
conversation with OR. There is nothing
in this note to
indicate why JB was asked to remain in the boarding home
at night and on weekends. While on June 1, 1992, OR did
state, in
answer to a State QC reviewer's letter, that JB
was working for room and
board, and on August 24, 1992,
OR did state, in answer to the ACF AFDC QC
Specialist's
letter, that she would have paid someone $75 a week or
$300
a month to provide the services JB allegedly
provided, OR's later statements
and her February 23, 1993
affidavit clarify her responses. OR asserts
in her
affidavit that she simply wanted JB to remain in the
boarding
home to assure that JB did not leave her young
child in someone else's care,
not to provide services
related to the boarding home. We find OR's
clarification
to be credible. There is no indication in any of OR's
prior written statements that JB was performing an
oversight function in
the boarding home or any other
specific reference that JB worked in some
other capacity
for OR or the boarding home. We find credible also OR's
assertion that her fill-in-the-blank response to the ACF
AFDC QC
Specialist's form letter was the amount JB would
have had to pay for room
and board, not what OR would
have paid someone to do a job.
In its brief of February 18, 1993, ACF referenced the
factors set forth
at 20 C.F.R. � 404.1007, which it
believes indicate JB's status as an
employee. ACF
asserted that OR, as manager of the boarding home, had
the authority to fire JB, as well as to tell JB what to
do and how, when
and where to do it. ACF asserted also
that JB performed oversight
services at a work place
provided by OR. ACF argued that JB would have
been
required to follow any training and instruction provided
by OR,
although it acknowledged that OR probably provided
only minimal training and
instruction. ACF stated that
JB was required to perform services
personally and did
not hire, supervise or pay assistants. ACF asserted
that
OR set the hours JB was to perform services. Finally,
ACF
argued again that OR was able to put a value on JB's
services ($75 a week or
$300 a month). However, when we
weigh OR's clarifying statements and
affidavit concerning
the factual issues in the case against the legal
definition of an employee as embraced by both parties, we
disagree with
ACF's conclusion that JB's receipt of free
room and board conforms with the
legal definition of an
employee as set forth at 20 C.F.R. � 404.1007.
With reference to 20 C.F.R. � 404.1007, we find, by a
preponderance of
the evidence, that JB was not an
employee of either OR or the boarding home
such that OR
could tell JB what to do and how, when, and where to do
it. Additionally, we find no evidence in the record from
which we
could conclude that: 1) OR could fire JB 8/;
2) OR furnished JB
with tools, equipment or a place to
work; 3) OR trained JB for work or JB
was required to
follow OR's directions; 4) JB was assigned work that she
must do herself; 5) OR set work hours for JB or
restricted her from
working for others; 6) OR or the
boarding home paid JB's business or travel
expenses; or
7) JB was paid by the hour, week, or month. What we do
know from the record is that JB was not paid in cash, and
that OR's
affidavit asserts JB's receipt of free room and
board was a gratuity, not
compensation for any work done
by JB at the boarding home.
As we find no evidence substantiating JB's status as an
employee, we find
that JB's receipt of free room and
board was a gratuity and did not
constitute in-kind
earned income. Therefore, the $81 payment made to
JB was
not erroneous based on ACF's determination that the free
room and
board JB received constituted in-kind earned
income. However, as
stated above, nothing in our
decision precludes ACF from re-examining
whether the
value of the free room and board JB received would affect
her eligibility other than as earned income.
Conclusion
For the reasons set forth above, we reverse ACF's
determination.
Peggy McFadden-Elmore
Leslie Weyn
Maxine Winerman
* * * Footnotes * * *
1. AFDC
payments are made pursuant to Title
IV-A of the Social Security Act
(Act). We identify the
recipient by her initials to protect her
privacy. The
State Quality Control number for this case is
110467.
2. A state's
AFDC policies must include a
definition of "earned income" which is in
accord with
federal regulations, including 45 C.F.R. �
233.20(a)(6)(iii). 45 C.F.R. � 233.20(a)(6). Section FA
2360
of Arkansas' Financial Assistance Handbook defines
"earned income" to
include ". . . wages, salaries, tips,
commissions, and any other payment
resulting from labor
or personal service. Income from farming,
business or
other type of self employment (including room and board)
is
considered earned income." With regard to FA 2360's
definition of
income from self-employment as including
room and board, in the present case
neither party
contended that JB was self-employed. Furthermore,
Arkansas stated that FA 2360 refers to income earned by
providing room
and board to others, and does not address
whether an individual's receipt of
room and board at no
charge would constitute earned
income.
3. In an
attempt to clarify the factual issues
in this case, Arkansas submitted an
affidavit signed by
OR along with its brief of February 24, 1993.
Arkansas
asserts that this affidavit explains OR's statement to
the
State QC reviewer on May 13, 1992, as well as OR's
answer to the ACF AFDC QC
Specialist on August 12, 1992.
ACF has not objected to the
introduction of this
affidavit. In the absence of an objection, we
admit it
for the purpose of clarifying the factual issues in the
case.
4. In her affidavit,
OR stated also that: 1) JB
was never employed by her or by the boarding
home; 2) OR
allowed JB to live in the boarding home because JB was
dating OR's son and had nowhere else to go; 3) OR
intended only to
confer a gratuity upon JB, not to employ
JB; 4) JB had no responsibilities
to the home or its
tenants; 5) JB was not responsible for taking action in
the event of an emergency; 6) OR gave JB no instructions
with regard to
the facility; 7) JB was not authorized to
accept rent or call for
maintenance; 8) JB did not
control the residence evenings and weekends; 9)
OR had no
right to tell JB what to do; 10) JB did not have to be in
the
boarding home at set hours; 11) it was OR's son, not
JB, who acted as the
boarding home's night and weekend
supervisor; 12) OR gave JB no training or
instruction,
and did not provide JB any tools or materials with which
to
do a job; 13) JB did not replace an employee when she
moved into the
boarding home, nor was an employee trained
to replace JB when she ceased
residence in the boarding
home.
5. ACF also argued
that use of fair market
rental value is a reasonable method to establish the
value of in-kind earned income, because, pursuant to 45
C.F.R. �
233.20(a)(3)(ii)(E), a state is required to
"reasonably evaluate" the
income, including in-kind
income, of AFDC recipients and applicants.
6. Arkansas argued
also that references to fair
market value for a determination of what free
room and
board would be worth in wages is not appropriate.
Arkansas further argued that establishing a value for
resources rather
than income does not address this case.
7. Since JB was not an
employee, we do not have
to consider the parties' arguments as to
whether: 1) the
free room and board JB received was in-kind income to
be
credited in determining JB's eligibility for an AFDC
grant; and 2) if
JB's income did constitute in-kind
income, was the value of that income as
established by
ACF correctly computed.
8. We recognize OR
could have refused to
continue to provide free room and board to JB.
However,
we do not believe that such a refusal would be tantamount
to a
firing.
(..continued)