Statutory Employees are workers who, while they are not Employees under the common law, are treated as Employees for certain employment tax purposes. Payments made by an employer to Statutory Employee are not subject to federal income tax withholding, but are subject to withholding for Social Security and Medicare taxes. Also, the employer must pay the employer’s share of Social Security and Medicare taxes and, in some instances, federal unemployment tax (FUTA). Statutory Employees fall into four categories.
Agent-drivers or commission-drivers
The driver must be engaged in distributing meat, vegetables, fruits, baked goods, beverages (other than milk), or laundry or dry-cleaning services. The driver must also be paid on a commission basis, or the difference between the sales price of the goods or services and the price paid by the driver.
Full-time life insurance salespersons
The salesperson’s principal business activity must be selling life insurance and/or annuity contracts, primarily for one life insurance company. Generally, the salesperson will use office space made available by the company and will not have to pay for the use of stenographic assistance, telephones, forms, rate books, or advertising materials.
The homeworker must work away from the employer’s premises, according to specifications provided by the employer, and with goods or materials provided by the employer that must be returned to the employer or someone designated by the employer. Also, the homeworker must be paid at least $100 in cash wages during the year before the wages become subject to Social Security and Medicare taxes. The earnings of a homeworker who is not an Employee under the common law test are not subject to FUTA tax. Homeworkers are not to be confused with domestic Employees who perform household duties in the employer’s home. They are governed by a totally different set of rules.
Traveling or city salespersons
The salesperson’s principal business activity must be working fulltime for the employer soliciting orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments who either resell or use the merchandise in their own businesses. If the salesperson occasionally solicits orders on behalf of another company, he or she is still a Statutory Employee, but only with respect to the primary employer.
Workers who fall into one of the above categories must also meet some general requirements before qualifying as Statutory Employees.
1. They must agree with the employer that all services are to be performed personally by the worker.
2. They must not make a substantial investment in business equipment or facilities (other than transportation).
3. Their work must be part of a continuing relationship with the employer, rather than a single transaction.