Rev. Rul. 55-500

A question has been presented to the Internal Revenue Service relative to the status, for purposes of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954), of college students performing services for a manufacturing corporation under the circumstances described below.

In order to afford its deserving and needy students a means for earning money for payment of their tuition, a college entered into an agreement with a manufacturing corporation whereby the college leased one of its campus buildings to the corporation, and the corporation agreed to conduct some of its business operations in that building using only college students as the production workers. All assignments and withdrawals of students to or from the jobs are to be made by the college and not by the corporation. In accordance with the agreement, the corporation notifies the college on the first day of each month as to the hours of student labor it will require during the ensuing month in its operations, and the college furnishes, so far as possible, all the labor necessary to comply with the corporation's request. The corporation pays to the college certain hourly rates set forth in the agreement for each student furnished to the corporation. The college has the complete right, power and authority to determine which students will be eligible and the number of hours any student is to work. The college also has absolute authority as to the hiring and releasing of any students.

The agreement further provides that the corporation has the right to submit a written report to the college about any student whose work is unsatisfactory, and that the college may or may not take such report into consideration in its control of the hiring or releasing of such student; that the corporation will reimburse the college for all monies spent by it for compensation insurance for the students who perform services for the corporation; and that the agreement may be cancelled by either party as of the close of any academic year, upon ninety days' written notice, or otherwise by mutual agreement of the parties.

The students are solicited, screened and assigned by the college to work for the corporation. The work involves inspection, assembly, packaging and machine-operation on a part-time basis in connection with the manufacture of the corporation's products. Training therefor is given by the corporation, and it controls the qualify and manner in which the work is performed. All equipment and materials used are provided by the corporation and all work is performed on the premises leased to the corporation. If a student worker is dropped from classes because of an unsatisfactory academic record, the college replaces him with another student for work with the corporation. If a student's production record is unsatisfactory to the college or to the corporation and the college, he is relieved and his place is taken by another student assigned by the college. All remuneration due a student for his services is paid to the college, and it in turn credits the amounts received to the student's account with the college.

Section 3121(d) of the Federal Insurance Contributions Act provides, among other things, that the term `employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Whether an individual is an employee under such rules depends upon the particular facts in each case. The guides for determining whether a common-law employer-employee relationship exists are found in section 408.204(c) of Regulations 128, applicable to the provisions of the Internal Revenue Code of 1954 by virtue of Treasury Decision 6091, C.B. 1954-2, 47.

It is concluded, in the instant case, that the manufacturing corporation exercises, or has the right to exercise over the students of the college in the performance of their services the direction and control necessary to constitute an employer-employee relationship. Accordingly, it is held that the students are employees, for Federal employment tax purposes, of the corporation with respect to the services performed therefor