A traveling salesman, T, became entitled to social security retirement benefits in January 1960. He did not work for the year 1960; however, he returned to work for a women’s apparel company from January 1961 through May 1961.
He earned commissions in the amount of $1900, from which Social Security taxes were deducted and withheld. He also received $800 for designated expenses.
Because he earned more than $1,200 for the year, T’s benefits were subject to work deductions (the threshold amount has obviously changed over time, but it was $1,200 back in 1961). T claimed that he had actually traveling expenses of $1,510 and that, therefore, his actual earnings were only $1,190 for the year, which was below the threshold amount for imposing work deductions.
It was held that T was an employee of the dress manufacturing company. This was because he met the three-pronged test for determining whether a traveling salesman was an employee; namely: 1) he worked full-time for the company in soliciting and transmitting orders to his principal from retailers or other establishments for resale of the principal’s goods, 2) he had no substantial investment in the facilities used for performance of these duties other than for transportation, and 3) he was required to perform substantially all of the services personally.
As an employee, his earnings were characterized as wages, and not net earnings from self-employment for social security purposes. As an employee, was only allowed to deduct the amount of designated expenses from his earnings.
Because his wages were $1,900 after deducting his $800 of designated expenses, and because he earned more than $100 per month in each month he worked, T’s social security benefits were subject to work deductions for the month of January through May 1961.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.