What is a Statutory Employee?
A statutory employee is a distinct employment class recognized by the Internal Revenue Service (IRS) for tax purposes. This special classification is typically reserved for individuals who meet specific criteria set forth in tax regulations. While statutory employees are considered independent contractors in many aspects of their work, they are treated as employees for tax withholding purposes. This category applies to various occupations, including salespeople who work on behalf of a company and earn commission-based pay. The IRS bestows statutory employee status to those working in specific roles, such as drivers, traveling salespeople, and certain home-based workers. While statutory employees may have some similarities to independent contractors, they are still required to have tax withholding, contribute to Social Security, and pay Medicare taxes, just like traditional employees. This system helps to simplify tax procedures while also, recognizing the distinct aspects of specific working arrangements.
Geeky Takeaways:
- A statutory employee is a tax-exempt employment class recognized by the IRS, excluding those who meet specific criteria.
- Despite being independent contractors, they are treated as employees for tax withholding purposes.
- The classification applies to various occupations, including salespeople and home-based workers.
- They are required to contribute to Social Security and Medicare taxes.
Table of Content
- Who is considered a Statutory Employee?
- Examples of Statutory Employee
- What can HR leaders do to manage statutory employees properly?
- Can a Statutory Employee Contribute to a SEP (Simplified Employee Pension Plan)?
- What are the benefits of being a Statutory Employee?
- Advantages of Statutory Employee over Standard Employee
- How to hire and pay a Statutory Employee?
- Frequently Asked Questions (FAQs)