For medical residents, the fine line between “student” and “employee” is blurred almost from the beginning of medical school. They begin by sitting in classes similar to those they attended as undergraduates, but quickly progress to clinics; internships; and finally, just before they are set loose on the world of medicine, a residency that could last several years depending on their specialty.
While working as a medical resident, these doctors in training work full-time schedules at hospitals and clinics around the country, and draw paychecks that average $50,000 per year. They also are required to attend formal lectures, informal “rounds” with a chief resident or supervising doctor, and are generally monitored closely as they learn their specialty. For advanced specialties, such as neurosurgery, a residency may last several years.
The Internal Revenue Service (IRS) has long exempted student workers from Social Security tax, which is equal to 12.4 percent of the applicable wages. The employer and employee normally split the cost, which means that for full-time students and those who employ them, there is significant savings available. This means that, based on the average $50,000 annual salary earned by medical residents in the U.S., each medical resident’s salary costs his or her employer an additional $3,100, and it costs the medical resident himself or herself $3,100 as well.
In 2005, however, the IRS ruled that full-time employees are those who work 40 hours per week – and, moreover, medical residents are not students. Law clerks and apprentices in trades such as plumbing also are not considered students.
The Wall Street Journal reported that on Jan. 11, 2011, the US Supreme Court upheld this decision after the Mayo Clinic “challenged the rule, arguing that like other students, residents attend lectures, perform laboratory work and are focused primarily on learning.”
For hospitals and clinics, including the Mayo Clinic, the cost savings from Social Security tax represented an attractive cash cow in a time when these organizations are especially strapped for contributions and grant money due to a poor economy over the last few years. Ivy Baer, regulatory counsel at the Association of American Medical Colleges, expressed the groups’ disappointment at being unable to funnel the money into additional patient care resources and educational programs for their doctors and medical residents.
According to court documents, there are currently approximately 100,000 medical residents in the U.S., representing an estimated $700 million in annual Social Security tax revenue.
For their part, however, the Supreme Court justices, in their unanimous opinion, claim to not only be concerned about the balance in the Social Security system’s checkbook, but about the medical residents themselves. Chief Justice John Roberts wrote in his opinion that the medical residents in question “are the kind of workers that Congress intended to both contribute to and benefit from the Social Security system.”