What is Statutory Employee?
A statutory employee is a worker treated as an employee for Social Security and Medicare purposes by law, even if otherwise considered an independent contractor.
Most workers are classified as employees or independent contractors under common-law rules. The tax code also creates a special category: statutory employees, who are treated as employees for Social Security and Medicare tax purposes when certain conditions are met. The IRS explains the categories in Publication 15-A.
Who can be a statutory employee
- Certain drivers who distribute food, beverages or laundry and dry cleaning, if they are agent drivers or on commission
- Full-time life insurance sales agents working primarily for one company
- Home workers who work by guidelines of the person they work for, with materials furnished and returned
- Full-time traveling or city salespeople who take orders from wholesalers, retailers, contractors or hotels and restaurants for merchandise for resale or supplies for use in the buyer's business
Each category has conditions, including that the worker does not have a substantial investment in facilities and performs services in a continuing relationship.
Tax treatment
- The employer withholds Social Security and Medicare taxes and pays the employer share
- Federal income tax is generally not withheld
- The W-2 marks the statutory employee box
- The worker reports wages and related business expenses on Schedule C, but does not pay self-employment tax on them
Related category: statutory nonemployees
Direct sellers, licensed real estate agents and certain companion sitters are statutory nonemployees: treated as self-employed for federal tax purposes if their pay is based on output rather than hours and a written contract says they are not employees.
Getting it right
These categories are narrow. Most classification decisions still turn on the common-law factors; see employee or independent contractor and our payroll services.
Related terms
- Self-Employment Tax: Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves, calculated on net earnings from self-employment.
Browse more definitions in the small business glossary.
FAQs
Frequently asked questions
Do statutory employees pay self-employment tax?
No. Social Security and Medicare taxes are withheld by the employer, so they do not pay self-employment tax on those wages.
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