Statutory Employee

Do you have Statutory Employees?

Do you have statutory employees and not know it? If you do you could be liable for payroll taxes and not even know it. If you have an Independent Contractor in any of the following categories you need to make sure that you know whether they are statutory employees or not.

“ A full-time traveling or city salesperson who solicits orders from wholesalers, restaurants, or similar establishments on behalf of a principal. The merchandise sold must be for resale (e.g., food sold to a restaurant) or for supplies used in the buyer's business;

A full-time life insurance agent whose principal business activity is selling life insurance and/or annuity contracts for one life insurance company;

An agent-driver or commission-driver engaged in distributing meat, vegetables, bakery goods, beverages (other than milk), or laundry or dry cleaning services; and

A home worker performing work on material or goods furnished by the employer” (Reprinted From http://www.irs.gov/charities/article/0,,id=131138,00.html)

If you have workers in these categories you could be responsible for withholding Social Security and Medicare taxes from their wages.

There are three additional conditions to be looked at. In addition to this two of the above categories are also to FUTA taxes. The agent-commisioned driver and the traveling and city salesperson.

So what are the conditions to look at whether or not you are required to withhold Social Security and Medicare? If the following statements are true of your worker and they fit into one of the above categories you are dealing with a Statutory Employee.

1) The services are perfomed continually for the same payer such as a transcriptionist.
2) The majority of the work to be done is to be done by the worker themselves.
3) The worker does not have a large investment in equipment or property to perform the required services.

Now with that being said there are two groups of workers who do not fall into this and they are Direct Sellers and Licensed Real Estate Agents.

The information contained on this site should in no way be considered to be professional advice in the form of either tax, accounting, or legal service or consultation. You should always consult with a professional familiar with your individual circumstances before making any specific decisions related to accounting, tax, or legal matters.