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What is a Statutory Employee?

Mary McMahon
By
Updated May 16, 2024
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A statutory employee is a worker who straddles the divide between being self-employed and being considered a regular employee. People who work in several different occupations may be considered statutory employees for tax purposes and their taxes must be handled in a special way. Tax authorities usually provide specific information about which kinds of employees will be considered statutory so that taxpayers and employers can confirm that taxes are handled appropriately.

A statutory employee is a person who is in business for her or himself, but who works primarily or wholly for a specific company. Traveling salespeople are an example. Agent or commission drivers can be another form of statutory employee. People who do piecework in their homes are also classified as statutory employees for tax purposes.

When someone is considered a statutory employee, the employer treats the person like a regular employee, paying taxes on that employee's wages and withholding for tax agencies. However, when the person fills out his or her own taxes, the statutory employee is allowed to file deductions as though he or she is self employed, even though the taxpayer does not file self employment tax. This recognizes that statutory employees incur expenses of a special nature in the course of their work. The employee may also have income from other sources which is handled differently on taxes.

It can sometimes be difficult to determine if someone should be considered a statutory employee or an independent contractor. From the point of view of the employer, an independent contractor can be easier to deal with. Independent contractors are simply paid for their work and they handle all of their taxes themselves; the employer does not pay taxes on the employee, withhold taxes, and so forth. However, tax authorities can crack down on employers who incorrectly classify people as independent contractors when they are in fact statutory employees.

Lawyers with experience in the field of tax law can provide advice and consultation for people who are unsure about how they should be classified, as well as providing assistance to employers who want to confirm that the people who work for them are handled appropriately. Representatives of tax agencies are also able to provide assistance for employers and individual taxpayers who want to make sure that classifications are correct and taxes are handled properly. People will not be penalized for making an honest mistake but intentional misclassification of employees can make an employer subject to legal penalties.

MyLawQuestions is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a MyLawQuestions researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon989143 — On Feb 21, 2015

My accountant states my employer should classify me as a statutory employee. I am employed by a company, not a contractor, salesperson, etc., but a regular full time employee. However, I work from my home on a PC my employer provides and they also reimburse me for my internet. But, I am also using my own personal resources such as office space, utilities and any improvements I make in my office space. Could I be considered a statutory employee? And if so, not sure my employer would be willing to classify me as such. Thoughts?

By anon306563 — On Nov 30, 2012

I have questions in regards to an independent contractor or statutory employee.

I have a new business I am starting which consists of selling marketing. I will be the only employee, using my sales skills to sell to other companies to improve their marketing.

I have an opportunity to work for a specific company as a contractor who does the same thing. I would act as a salesperson for their company to sell to companies to improve their marketing (this would be for contracts of a specific nature that are a part of their core business)

Here are the details: I would decide when I am selling for them, with no set hours. I will work from my own office space; provide all of my own equipment (phone, laptop, I-pad, vehicle, etc.) I can sell to companies on my own for myself. I will be compensated by a contract stating payment for completed sales to be paid by a percentage of sales based on margin. I may also have the opportunity to collect an upfront fee and a monthly fee regardless of a sale. These fees would be a charge to help me offset my expenses. I'm not sure how to structure them - xx dollars for a minimum 20 hour week, showing I performed some type of outreach, or just a fee for my time and services with no set expectations.

Any thoughts on if this should be an independent contractor or statutory employee? Any thoughts on how to set fees?

By Bhutan — On Dec 11, 2010

A statutory employee non employee is a real estate agent or a direct seller.

These types of employment under the IRS are classified as independent contractors that are self employed and have to pay all employment taxes.

Statutory employees are also considered contract employees. For example, a staffing firm may hire some independent contractors to work on a long term contract for a client of the staffing firm.

The contractors that work for the staffing firm are really a good way to define statutory employees.

Employee statutory rights require that they receive health benefits as these contractors did. It can get a little confusing to understand the statutory employee deductions and the employee laws. It is best if you have any questions to seek an accountant or tax attorney.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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