Supreme Court Finds Medical Students Are Employees for FICA Purposes

Every once in a while I like to throw in something that does not appear to immediately be a "benefits" related item but secretly is. Susan Jordan of our Pittsburgh office brought this case to my attention and I thought it might be worth mentioning. In January 11, the Supreme Court ruled Jan. 11 that medical students training to be residents are employees, and not students, and therefore subject to Federal Insurance Contributions Act taxes (Mayo Foundation for Medical Education and Research v. United States, U.S., No. 09-837, 1/11/11). After deciding the proper analysis to use, the court found that the Internal Revenue Service's interpretation of the "student rule" for FICA purposes-which found the medical students were employees-was reasonable and therefore taxes were owed. "We do not doubt that Mayo's residents are engaged in a valuable educational pursuit or that they are students of their craft. The question whether they are "students" for purposes of ยง3121, however, is a different matter," the court concluded. "Because it is one to which Congress has not directly spoken, and because the Treasury Department's rule is a reasonable construction of what Congress has said, the judgment of the Court of Appeals must be affirmed." So FICA tax them. Very "tax" related. But now for the benefits part. While not directly analogous to FICA tax requirements, consider that rules governing benefit plan administration are pretty specific about who is eligible to participate, how they are eligible and what can be done to limit their eligibility. Paid interns or paid students are "employees" and, absent any more specific limitations, are treated as employees. Arguably they could be seasonal, or temporary, but they are still employees. Depending on how much they work, they could obtain eligibility to participate in benefit plans. This is particularly important if you are in a state that has regulations about required compensation to interns or students. Generally employers have authority to determine who is eligible to participate in their plans. But they have to affirmatively exercise that authority and should not leave open questions about eligibility. The important thing to remember before hiring students, interns or other temporary employees is that you have to check your plan eligibility rules in advance. Don't assume these classifications automatically exclude participation, Check to be sure. And if necessary, amend the language to be really sure. And of course, check with your attorney at Fox Rothschild if you have concerns.

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