Statutory employee

In the United States, a statutory employee is classified as an independent contractor but is treated as an employee for tax purposes. This classification is crucial because it determines how taxes are withheld and reported.

To qualify as a statutory employee, an independent contractor must meet specific criteria:

• They must have a continuous relationship with the same employer.

• They must perform services specified in their contract independently.

• They should not have a significant investment in the equipment used to perform their job.

According to IRS guidelines, workers eligible to be classified as statutory employees include:

• Home workers using supplies provided by an employer.

• Drivers who deliver certain goods (like food or laundry).

• Full-time life insurance sales agents working for one life insurance company.

• Full-time traveling or city salespeople who work on behalf of one employer.

The distinction between a regular employee and a statutory employee lies in how they control their work, are compensated, and manage their schedules. Statutory employees have more autonomy over their schedules but must still meet specific IRS criteria.

Both employees and statutory employees have taxes withheld by their employers for income tax, FICA (Medicare and Social Security), and FUTA (unemployment). Employers issue W-2 forms to both types of workers. Statutory employees also report income and expenses on Schedule C as independent contractors.

Unlike self-employed independent contractors who work for multiple clients and use their own equipment, statutory employees typically work for one employer and may use employer-provided equipment.

Misclassifying workers can lead to serious penalties and legal issues. It's essential for employers to accurately classify workers as employees or independent contractors based on IRS guidelines.

For more guidance on classification or to request an IRS determination, employers can refer to Form SS-8.