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Rise Glossary

What is a Statutory Employee?

A statutory employee is a type of worker that is classified differently for tax purposes than an independent contractor or an employee. Statutory employees have some characteristics of both employees and independent contractors, but are considered to be employees for tax purposes.

According to the Internal Revenue Service (IRS), there are four types of workers who may be considered statutory employees:

  • Commissioned salespeople who work on behalf of a company and are paid entirely on commission.
  • Drivers who distribute goods for a company and are required to use their own vehicle to do so.
  • Full-time life insurance salespeople who sell policies for a company and are paid entirely on commission.
  • Certain home workers who perform work for a company that is done entirely on the company's premises and under the company's control.

Statutory employees have some of the rights and benefits of regular employees, including being eligible for unemployment benefits, workers' compensation, and certain tax benefits, such as the ability to participate in a company's 401(k) plan. However, they may also have some of the responsibilities of independent contractors, such as paying their own self-employment tax.

Employers are responsible for withholding Social Security and Medicare taxes from the pay of statutory employees, just as they would for regular employees. The employer must also report the wages paid to a statutory employee on Form W-2, just as they would for a regular employee.

It is important for employers to accurately classify their workers as employees or statutory employees, as misclassification can result in penalties and fines from the IRS. Employers should consult with a tax professional or review IRS guidelines in order to determine the proper classification for their workers.

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