Rural economic development: Worker cooperatives and employment of people with disabilities, Part three
Adapting a Worker Cooperative to Meet Disability Concerns
Rural Disability and Rehabilitation Research Progress Report #11
May 2001
The opportunities for self-empowerment and economic justice found in the worker cooperative structure may be especially relevant for people with disabilities, who as a population tend to experience extraordinarily high rates of unemployment.
People with disabilities already successfully engage in a wide range of employment and self-employment situations (Seekins & Arnold, 1996; Shelley, 1999). Employment within a worker cooperative structure carries many benefits for people with disabilities and requires only a few carefully structured adaptations. Benefits include fair wages and an equitable share of profits; authority to manage the business in the best interest of the worker-members; a community-friendly business philosophy; and a trend toward more equitable distribution of income and wealth.
There are only a few key ways a disability-friendly worker cooperative will differ from other worker cooperatives. One is the necessity to incorporate financial policies that will assure that worker-members do not unwisely or prematurely jeopardize their eligibility for government disability benefits. Another is the inclusion of support personnel, such as personal care assistants, interpreters, readers, or other support service providers, into the cooperative's formal structure.
Ideally a worker cooperative member with a disability would have good-quality private health insurance coverage and be able to earn sufficient income to support a satisfactory quality of life. An ideal situation such as this might well need time to develop. For a number of reasons, worker-members who have disabilities may need to make a gradual transition from entitlement income to earned-income, and from health benefits to private health insurance coverage.
As with any new job, it may take time to determine whether the new employment situation will be a good match for both employee and employer. It may also take time for adequate replacement health insurance coverage to take effect. There may be worker-members for whom the extent of disability varies enough from one time to another to occasionally interrupt the ability to work. There might even be premature cessation of a worker-member's ability to work at all. The cooperative should anticipate any of these possibilities and incorporate into its policies appropriate measures to provide members with as much protection as possible.
Given the number and complexity of policies and regulations governing Social Security and Rehabilitation Services benefits, the range of possible circumstances among a workforce of workers with disabilities is extraordinarily large. In light of this, any worker cooperative establishing a formal structure that is favorable to people with disabilities should find a way to provide its members with easy access to a disability benefits specialist. In a small cooperative, this might be done on a contractual basis, while a larger business might include such a specialist among the worker-members.
Every worker-member with disabilities will arrive at the cooperative with different benefits issues for consideration. There are, however, two main areas of concern for worker-members who receive Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) benefits: health insurance coverage, and limitations on earnings and asset ownership. Both SSI and SSDI limit the amount of earned income a recipient may receive. SSI also limits the total allowable value of the recipient's assets, or "resources." Other disability benefits, such as food stamps, energy assistance, or support for accessible housing, are typically also contingent upon eligibility for either SSI or SSDI.
Health Insurance
Some people with disabilities have above-normal health care expenses associated with their specific disability. In many cases, these expenses are extraordinarily high and may be lifelong. Such disability-associated conditions are, by definition, pre-existing when an employee begins work; as a result workplace health care insurance plans may not provide the coverage needed to meet these substantial costs. Entitlement to subsidized health care is typically subject to limitations on the amount of income one can receive. There is a risk then that someone with a disability would stand to lose more in unpaid health care expenses than she or he could earn in the workplace, even in a relatively high-paying job. If such a person takes part in a worker cooperative, she or he should pay careful attention to the ability to meet short and long-term health care expenses.
Limitations on Allowable Earnings
Common sense generally supports the idea that government income entitlement payments should decline, and eventually cease, as the recipient's level of economic security rises. In some cases, it is desirable for income supports to stay in place long enough to allow the recipient to develop the "infrastructure" necessary to remain successfully employed. Both SSDI and SSI limit benefits eligibility for benefits to persons whose monthly earned income does not exceed $700. However, there are a number of factors involved in calculating total income. Three of them deserve special mention here: (1) the PASS plan, (2) impairment related work expenses (IRWE), and (3) subsidies.
Plan for Achieving Self Sufficiency (PASS):
Anyone who receives SSI benefits, or who receives SSDI and could qualify for SSI, can use a PASS plan to help achieve some feasible employment goal that will increase self-sufficiency. The PASS plan does not provide any additional income or assets that the worker did not acquire in some other way, but it allows for exemption of substantial income and asset values when determining benefits eligibility.
Worker expenditures exempted under a PASS plan could include equipment and start-up capital needed to establish a business; training to enhance the individual's ability to work successfully; personal assistance; child care; some work-related transportation costs; and earned income used to repay a loan that was obtained to establish the business--a detail of particular interest to members of a worker cooperative. Such loans tend to be small by normal business standards; however, a group of workers pooling their loan resources might collectively accumulate a substantial sum of start-up money without diminishing their eligibility for disability benefits.
Impairment Related Work Expenses (IRWE):
Impairment-related expenses that enable a person with a disability to work are allowable deductions when determining monthly earned income. Some costs exempted as IRWE are also allowable under a PASS plan; however, it is often less difficult to qualify for IRWE exemptions. Examples of IRWE include work-related attendant care services; transportation costs; unreimbursed costs for medical and other assistive devices; costs of owning a service dog; and costs of residential modifications that permit home-based employment or that enable access to transportation for reaching the workplace.
Subsidies:
In some cases a person's disability diminishes the hourly or monthly value of his or her labor services to less than the value created by someone without a disability who earns the same wage and does the same type of work. The dollar value of that difference is considered a subsidy "paid" by the employer. When determining the allowable amount of Substantial Gainful Activity (SGA), the worker's monthly income is reduced by the amount of the subsidy. This effectively allows the worker to earn a higher monthly sum without exceeding the SGA threshold beyond which benefits would be reduced or lost.
Limitations on Allowable Assets
Under Social Security Administration regulations, workers in the SSI entitlements program are usually not eligible for government disability benefits if, excepting home and car, they possess personal resources exceeding $2,000 in value. Because members of a worker cooperative are also its owners, they are entitled to a share of profits earned, as well as normal wages and fringe benefits. Profit shares are allocated to members through special member accounts called Internal Capital Accounts . Each member has his or her own account and is entitled to earn interest on the balance; however, funds may not be withdrawn from the account until the member leaves the business. This means that it is possible for a cooperative employee-owner to accumulate total assets substantially in excess of the $2,000 allowable limit. Two regulatory provisions, the IRS Subchapter T options for disbursement of patronage dividends and the OBRA 93 Special Needs Trust, can prove useful in addressing this dilemma.
IRS Subchapter T Options:
Subchapter T of the federal tax code enables a worker cooperative corporation to avoid income taxation on the share of profits distributed to member Internal Capital Accounts as patronage dividends. This is a very substantial tax advantage for the business; however, members of the disability-friendly cooperative should pay careful attention to the two Subchapter T options for allocation of patronage dividends.
Under the Qualified Written Notices option, the corporation may deduct patronage dividends from its current income tax liability; however, members must pay income tax now on the dividend posted to their personal internal capital account. In order to assure that the member has sufficient cash on hand to meet his or her associated tax liability, Subchapter T requires that at least 20% of the member's dividend be paid in cash.
Under the Non-Qualified Written Notices option, the corporation is not allowed to deduct patronage dividends from its tax liability until they are actually paid out from the Internal Capital Account upon the member's departure from the business. The member's tax liability is also deferred until the time of actual payout from his or her Internal Capital Account.
From the individual member's point of view, this distinction appears to parallel the one between a Roth IRA (Individual Retirement Account), and a conventional IRA. With respect to income tax liability, the former is a "pay now" option and the latter, a "pay later" option. In any worker cooperative corporation, the worker-owners themselves choose which of these dividend allocation options they will adopt. In the disability-friendly cooperative, members should carefully consider the potential impacts of each allocation option on their respective disability benefits, both now and in the future.
OBRA 93 Special Needs Trust:
Another means for retaining substantial personal assets while still qualifying for SSI benefits is the OBRA 93 Special Needs Trust. Such a trust permits expenditures that enhance the beneficiary's quality of life, above and beyond costs for basic food, clothing and shelter. The trust must be created before the individual reaches age 65, and no further contributions to the trust can be made after age 65. This provision suggests that worker cooperative policies should permit retirement sufficiently in advance of age 65 to allow full pay-out of the balance in the internal capital account before the trust contribution deadline passes. Once assets are placed in a Special Needs Trust the decision is irrevocable.
In general, any balance remaining in the trust upon the beneficiary's death must first be applied toward reimbursement to the government for medical assistance costs that have been paid on behalf of that beneficiary. However, there is an exception that may be especially relevant for worker cooperatives. If the trust has been established and managed by a nonprofit association, then any balance that remains in the individual's trust can be retained in the association's account of pooled trust balances. This suggests that a worker cooperative might consider creating a nonprofit subsidiary solely for the purpose of managing the pooled trust assets of its affected members. This type of trust is covered by Section 1917 of the Social Security Act (42 U.S.C. § 1396p), Liens, Adjustments and Recoveries, and Transfers of Assets.
Employee or Self-Employed?
The potential for a disability benefits recipient to earn income, accumulate net worth, and own assets is generally greater for a recipient who is classified as self-employed than for one who earns strictly wages or salaries. In the worker cooperative, members may be viewed as wage earners and self-employed, at the same time. They earn a conventional wage or salary paid by the corporation. They are also owners of the corporation entitled to receive a share of any profits earned and of any residual value if the business is sold or liquidated--rights that clearly indicate self-employment. At this time, we are not aware of any precedent-setting interpretations by the Social Security Administration that would draw a definitive distinction in this matter.
Disability-Friendly Adaptations of Corporate Charter, Bylaws, and Policies
Worker cooperative organizers should anticipate adapting disability-friendly Articles of Incorporation, Bylaws, and Policies from the very beginning. Once the cooperative has been spun off as an autonomous business, the worker-owners, within the bounds of sound business practice and the law, will have the right and the responsibility to make any additional disability-friendly changes.
Articles of Incorporation is the official legal document filed with, and approved by, the government of the state in which the cooperative is incorporated. It is also referred to as the Corporate Charter. Because it is difficult to change, organizers typically limit the Articles to matters that are legally required, or are of such importance that organizers do not wish them to be easily changed. In simplest form, the Articles would include the name of the corporation, its purpose, specification of stock classes and their associated rights and restrictions, and the names of the founding directors. It is common for a corporation to declare its purpose in very broad terms in order to maximize its ability to engage in future business activities that might not have been anticipated by the original founders. However, any desire to deliberately focus the corporate purpose should be spelled out in the Articles of Incorporation. Organizers of a disability-friendly cooperative may wish to explicitly state their disability focus as part of the legally defined corporate purpose.
Corporate Bylaws relate mainly to matters of governance: size and composition of the board of directors; shareholder and board meetings; elections; voting rights; relationships among the shareholders, board members, and officers; and other important corporate matters. There are two provisions that may deserve amendment in the case of a disability-friendly cooperative. Organizers may wish to specify that a designated percentage of total board members be people who have disabilities. This would assure that disability interests would always be represented in the decision-making process, perhaps even to the point of assuring a voting majority. Organizers may also wish to stipulate that a prescribed number of members with disabilities must be in attendance in order to have a quorum at a meeting of the membership.
A balance should be maintained while declaring these specifications. While taking measures to assure that the business remains disability-friendly in the future, organizers may also want to recruit board members, with or without disabilities, who will bring with them an appropriate mix of skills, experience, and organizational connections to meet the needs of the corporation. It is not always easy to find the desired breadth of skills and experience within the cooperative's membership, especially during the early stages of development.
Corporate Policies directly address the details of company operations; consequently, they offer the most potential for disability-friendly adaptations, particularly in the area of support services. Some individuals with disabilities require the services of a personal care attendant, an interpreter, a reader, or other support service provider in order to achieve their potential as productive workers. To the degree that such support services are viewed by the law as "reasonable accommodations" they may be required by the Americans with Disabilities Act as conditions of the worker's employment. Members of the disability-friendly cooperative may wish to go so far as to state in corporate policy that any necessary support services will be routinely provided at company expense. (An analogous situation in the conventional corporate world would be those cases where employees are provided with company cars, apartments, special clothing, or special equipment to ensure that they are able to perform their duties as effectively as possible.) Once a policy on necessary support services has been established, corporate policymakers must also consider whether support persons should be admitted as members of the cooperative corporation, or whether they should be hired under some other contractual arrangement, either with the cooperative or the individual member they serve.
Other concerns will undoubtedly surface in which the particular needs and perspectives of workers with disabilities should be incorporated into official corporate policy. It is worthwhile to consider obligatory involvement of members with disabilities in the resolution of such issues.
Questions that Remain to Be Answered
A small number of promising North American worker cooperatives already help rural residents with disabilities to create good-quality jobs for themselves. One day we may be able to declare with confidence that worker cooperatives in rural areas have proven to be a means for people with disabilities to achieve a substantial degree of social and economic independence. In the meantime, numerous questions remain to be answered.
- Will disability-friendly worker cooperatives succeed in a wide range of rural communities?
- Will government disability agencies and commercial lenders in the United States be adaptable enough in their monetary policies to make a community partnership of this kind successful?
- What mix of people with disabilities and people without disabilities will be most successful at creating a financially-viable business while sustaining a disability-friendly workplace?
- What are the proper thresholds for a successful transition of the fledgling cooperative from a sheltered project to an independent, self-sufficient business?
As time and experience provide the answers, they might well provide a substantial track record of successful and enduring cooperative ventures as well.
An Existing Disability-Friendly Worker Cooperative Experiment
Description:
Sparkling Clean Janitorial Service is a legally
incorporated business that is wholly owned by its worker-members, all of
whom have psychiatric disabilities. Its main client is the Blue Ridge Mental
Health Center in Asheville, NC.
Start-Up:
When a stream of funds became
available for innovative projects, the Blue Ridge Mental Health Center chose to
explore the worker cooperative idea. A history of difficulty in securing
satisfactory janitorial services for the Mental Health Center led the staff to
conclude that this was a good market niche for a start-up business. They
contracted with the Southern Appalachian Center for Cooperative Ownership
for training in cooperative management and in relevant job skills, and with the
Mountain Micro-Management Fund for expertise in starting a small business.
Sparkling Clean started in October of 1988 with five worker-owners. Since
start-up 12 years ago, one of the five has moved away and another recently
resigned, leaving three remaining owners.
Organization and Operation:
The business is wholly owned by the consumer-workers; the by-laws stipulate
that every member is also a director; that education in basic business practices
is a prerequisite for membership; and that shares may only be sold to other
members when a member resigns. The cooperative's capital equipment was
purchased by the Blue Ridge Mental Health Center and is still owned by them.
An informal contract stipulates ownership is to be turned over to the
cooperative once it has remained in business for a period of several years.
While the worker-members do have full authority to manage the business, a
lack of internal expertise has caused them to rely on outside help for financial
services such as accounting and bookkeeping.
Benefits Management:
Questions regarding Social Security and other benefits have remained
superfluous because cooperative members have avoided exceeding allowable
income limits. By using surplus income to purchase supplies, and spending all
other income on wages and bonuses, the cooperative has maintained a residual
business value of zero. No member has even come close to exceeding the
earnings limit; in fact, most members have preferred to work part-time. The
Social Security Administration has treated them as employees, and not as self-employed business owners.
This work was supported by a grant from the The U.S. Department of Agriculture, Rural Business-Cooperative Service, Cooperative Agreement Number RBS-99-17, with additional support from The National Institute on Disability and Rehabilitation Research Grant #H133B70017-01.
The contents of this progress report do not necessarily represent the policy of the Department of Agriculture, nor should readers assume endorsement by the federal government.
For more information, please contact us at:
Research & Training Center on
Disability in Rural Communities
The University of Montana Rural Institute: A Center for
Excellence in Disability Education, Research and Services
52 Corbin Hall, Missoula, Montana 59812-7056
(406) 243-5467
(V/TT)
(>406) 243-2349 fax
(888) 268-2743 toll-free http://rtc.ruralinstitute.umt.edu
This report was prepared by Charles Sperry,
Joyce Brusin, and Tom Seekins email the Rural Institute
This publication is available in Braille, large print, and ASCII DOS text
formats.
Posted 9/5/01.
