SSR 71-6
The State of Wisconsin timely requested a review pursuant to section 218(s) of the Social Security Act of an assessment of contributions due. The Secretary of Health, Education, and Welfare has delegated to the Commissioner of Social Security authority to make reviews and findings and to give notice of his findings as required by section 218(s). The assessment made was based on the Administration's determination that stipends received by the subject individual while on educational leave from the State Department of Welfare constituted wages for employment under section 209 of the act and were paid for services covered under the State's section 218 agreement. The State is of the view that the employment relationship between the individual and the State was officially terminated during the period of educational leave and that the payments thus were not wages.
The facts in this matter establish that the wage earner began employment as a social worker with the Wisconsin Department of Public Welfare in January 1960. During the periods September 1961 through June 1962 and September 1963 to May 1964, the wage earner was on approved leave to attend St. Louis University for the purpose of pursuing courses which would qualify him for a masters degree in social work. He stated that he did no work for, and was not required to make any reports to, the Department of Public Welfare while he was on educational leave.
The conditions covering the two periods of the wage earner's educational leave were outlined in training agreements with the employing agency. The training agreements, which contained basically the same stipulations, specified the periods of training, the University to be attended, the area of study, and the monthly amount of the stipend. The wage earner agreed not to assume any activity "which would impair his ability to complete all training requirements within the minimum period of time." The initial training agreement stated that "upon completion of training, the trainee agrees to accept employment as a social worker with the appointing authority, institution or county welfare service." The minimum period of such employment was indicated to be 12 months for each academic year for which a stipend was received. Under the terms of the second training agreement, the wage earner agreed ". . . that he, if appointed before or within 30 days of the completion of training will serve for a period of not less than 12 months for each academic year for which a stipend was paid, as a social worker for the State Department of Public Welfare or other agency approved by the appointing authority." Under the terms of both agreements the appointing authority could cancel the agreement at any time for just cause with the wage earner being liable for repayment of the amount of monies he had received.
Information submitted by the Personnel Administrative Officer of the State Department of Health and Social Services revealed that the wage earner did not accrue annual or sick leave during the periods he was receiving stipend payments and that he was required to serve a six-month probationary period, the same as any new employee, upon his return to work. The personnel officer also indicated that the wage earner had the option of returning to work as a social worker with the State in his former organization or in other related aspects of social work within the State upon completion of his training. His personnel action data forms indicated that he resigned to return to school and also showed that he was on educational leave.
The National Office of the Internal Revenue Service determined the stipend payments received by the wage earner were not excluded from gross income under section 117 of the Internal Revenue Code of 1954.
Coverage was provided, effective January 1, 1951, under the Wisconsin social security coverage agreement for services of all State employees. The Department of Public Welfare is an integral part of the State.
Section 209 of the Social Security Act, as amended, reads in pertinent part as follows:
In pertinent part, section 210 read as follows:
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Section 218 of the act, as amended, reads in pertinent part as follows:
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Subpart K of Social Security Regulations No. 4, in pertinent part, provides as follows:
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Wisconsin Statutes Annotated, in pertinent part reads as follows:
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The State is of the view that the wage earner was not an "employee" during the periods of educational leave and thus the payments he received during these periods were not wages. It is the State's contention that the employer-employee relationship was terminated when the wage earner went on educational leave and that there was no binding obligation on the part of the State to rehire him upon completion of the training period. It is further indicated that his employment was terminated in accordance with civil service rules and that his return to employment was subject to his meeting the civil service eligibility requirements and serving a 6-month probationary period, the same as a new employee. It is stated that the wage earner did not accrue annual leave; that the stipend payments were not made from the statutorily required civil service salary schedule from which all salary payments to State employees must be made; and that he was not subject to any degree of supervision or control by the State while he was on educational leave.
It is the position of the Social Security Administration that the employment relationship between the wage earner and the State of Wisconsin continued while he was on educational leave and that the stipend payments he received were wages for social security purposes. The terms of the training agreements gave the State the option of terminating the agreements with notice in the absence of reasonable cause or without notice with cause and required the wage earner to return to employment as a social worker with the State upon completion of his training. While it might be questionable whether or not he was required to return to his former position there seems no doubt that he was obligated to return to work as a social worker, with the specific job being at the option of the State.
In addition, the State had first call on the wage earner's services during the training periods since his continued employment was contingent upon his pursuit and successful completion of the required training courses, as required under the terms of the training agreements. Thus, the position was taken that the State continued to exercise the control of an employer during the training periods. The fact that an individual is not performing services under the direct control and supervision of an employer during a period of time does not preclude a finding that services were performed in employment (Social Security Board v. Nierotko, 327 U.S. 358; 66 Sup. Ct. 637 (1946)).
It is the long-standing mutual position of the Internal Revenue Service and the Administration that the status of a stipend as wages for social security purposes (including the Federal Insurance Contributions Act and the Self-Employment Contributions Act) is dependent on the status of the stipend for Federal income tax purposes under Section 117 of the Internal Revenue Code of 1954. Where the stipend is not excludable from gross income under section 117 of the code and it is determined that the recipient is an employee whose services are covered, the stipend is wages.
The case of Ussery v. United States, 296 F.2d 582 closely parallels the instant case in that it involved an employee of a State Department of Public Welfare who was granted leave under similar conditions to further his education and was required to return to his former job upon completion of training. The court in that case held that the stipend payments were not excluded from gross income of the recipient as the primary purpose of the grant was for the benefit of the employer. Also, the U.S. Supreme Court in Bingler v. Johnson, 394 U.S. 741; 89 Sup. Ct. 1439 (1969), upheld the regulations issued under section 117 of the Code which provide that amounts representing compensation for past, present, or future employment services or amounts enabling the recipient to pursue studies or research primarily for the benefit of the grantor are not excludable.
The Wisconsin Department of Public Welfare, in return for the stipend payments made to the wage earner, expected him to render future services as a social worker either in his former position or in another position approved by the State thereby benefiting the Department of Public Welfare.
The State statute under which the stipend payments were made emphasizes the policy of the State in making the payments as being that of promoting efficiency and economy in the operation of the State government with the objective of the programs being to improve the quality of public service. That is, the educational leave stipend payments were primarily for the benefit of the State of Wisconsin.
The Commissioner found, on review pursuant to the State's request, that there was no termination of the employment relationship during the periods the wage earner was on educational leave and that the stipend payments constituted wages paid for services covered under the State's Section 218 coverage agreement. On the basis of these findings the Commissioner affirmed the Administration's assessment.