Statutory Employee
What Is a Statutory Employee?
A statutory employee is an independent contractor a business treats as an employee for income tax purposes.
Companies that hire statutory employees offer employment contracts outlining their duties and payment terms. A statutory employee may file claims for work-related expenses, and they must file the W-2 from their employer with their annual tax return. Statutory employment is considered a form of at-will employment.
Get At-Will Employment Contract here
Examples of Statutory Employees
According to the IRS, a statutory employee performs virtually all the services detailed in an enforceable contract but has no major investment interest in the company’s property used to perform those services. Also, this worker performs the services continually for the same employer.
Here are some typical examples of statutory employees:
- Traveling salespeople who work with wholesalers, retailers, contractors, etc., for one company
- Drivers who deliver or pick up laundry, dry cleaning, and food and beverages (not milk) for one company
- Life insurance salespeople who work full-time for one company
- People who work from home (not domestic workers), using company supplies and resources
Statutory Employees vs. Independent Contractors
One way to look at it is that a statutory employee is a mix of an independent contractor and a regular employee. Statutory employees usually work full-time for only one company. On the other hand, independent contractors typically offer their services to multiple individuals or businesses.
An independent contractor is considered to be self-employed and therefore is responsible for paying their own Medicare and Social Security taxes, which are collectively known as Federal Insurance Contributions Act (FICA) taxes.
In contrast, a statutory employee’s employer withholds a portion of their income on each paycheck to pay FICA taxes. Therefore, statutory employees do not pay a self-employment tax like independent contractors must pay. They must report their wages, income, and expenses to the IRS each year, however.
One way independent contractors and statutory employees are similar is that they both do not qualify for the same benefits –such as health insurance, retirement accounts, or vacation pay– as regular employees.
What Are the Pros and Cons of Statutory Employee Status?
The main advantage of working as a statutory employee rather than as an independent contractor is the reduced tax obligation. At the same time, a statutory employee may claim their work-related expenses. Some statutory employees may qualify for unemployment insurance if they lose their positions.
Another advantage of a statutory worker over an independent contractor is that a statutory employee does not have to invest in the supplies or equipment or have the start-up capital needed to perform their job. They use their employer’s supplies and equipment.
A disadvantage is that statutory employees do not receive valuable benefits that regular employees are entitled to, and they do not have the freedom of being their own boss and working with a variety of clients like independent contractors have.
Most workers in the U.S. have non-statutory status under common law. Non-statutory employees usually get health insurance, paid time off, retirement plans, and other benefits for which statutory employees and independent contractors are not eligible.
Hlpful Resources:
Internal Revenue Service - Statutory Employees
What Is a Statutory Employee?
A statutory employee is an independent contractor a business treats as an employee for income tax purposes.
Companies that hire statutory employees offer employment contracts outlining their duties and payment terms. A statutory employee may file claims for work-related expenses, and they must file the W-2 from their employer with their annual tax return. Statutory employment is considered a form of at-will employment.
Get At-Will Employment Contract here
Examples of Statutory Employees
According to the IRS, a statutory employee performs virtually all the services detailed in an enforceable contract but has no major investment interest in the company’s property used to perform those services. Also, this worker performs the services continually for the same employer.
Here are some typical examples of statutory employees:
- Traveling salespeople who work with wholesalers, retailers, contractors, etc., for one company
- Drivers who deliver or pick up laundry, dry cleaning, and food and beverages (not milk) for one company
- Life insurance salespeople who work full-time for one company
- People who work from home (not domestic workers), using company supplies and resources
Statutory Employees vs. Independent Contractors
One way to look at it is that a statutory employee is a mix of an independent contractor and a regular employee. Statutory employees usually work full-time for only one company. On the other hand, independent contractors typically offer their services to multiple individuals or businesses.
An independent contractor is considered to be self-employed and therefore is responsible for paying their own Medicare and Social Security taxes, which are collectively known as Federal Insurance Contributions Act (FICA) taxes.
In contrast, a statutory employee’s employer withholds a portion of their income on each paycheck to pay FICA taxes. Therefore, statutory employees do not pay a self-employment tax like independent contractors must pay. They must report their wages, income, and expenses to the IRS each year, however.
One way independent contractors and statutory employees are similar is that they both do not qualify for the same benefits –such as health insurance, retirement accounts, or vacation pay– as regular employees.
What Are the Pros and Cons of Statutory Employee Status?
The main advantage of working as a statutory employee rather than as an independent contractor is the reduced tax obligation. At the same time, a statutory employee may claim their work-related expenses. Some statutory employees may qualify for unemployment insurance if they lose their positions.
Another advantage of a statutory worker over an independent contractor is that a statutory employee does not have to invest in the supplies or equipment or have the start-up capital needed to perform their job. They use their employer’s supplies and equipment.
A disadvantage is that statutory employees do not receive valuable benefits that regular employees are entitled to, and they do not have the freedom of being their own boss and working with a variety of clients like independent contractors have.
Most workers in the U.S. have non-statutory status under common law. Non-statutory employees usually get health insurance, paid time off, retirement plans, and other benefits for which statutory employees and independent contractors are not eligible.
Hlpful Resources:
Internal Revenue Service - Statutory Employees