Definition of Statutory Employees
Statutory employees occupy a sort of middle ground between independent contractors and regular employees. They can be defined as workers in certain occupations who would not be considered employees under the usual rules, but who have been declared employees under the federal tax laws so that their employers must withhold FICA taxes on their income.
Thus, a statutory employee is one whose earnings are subject to Social Security and Medicare taxes but not subject to federal income tax withholding (although some employers may withhold income tax). These are workers who are independent contractors under the common-law rules but are treated by statute as employees. They are called statutory employees. The following are statutory employees:
Agent and Commission Drivers - Agent-drivers and commission-drivers who distribute meat, vegetable, fruit or bakery products, beverages other than milk, or laundry or dry-cleaning services for their principal (Code Sec. 3121(d)(3)(A)) and who meet the requirements of Code Sec. 3121(d)(3) are employees for FICA purposes. (Code Sec. 3121(d)(3)(A)).
For purposes of determining if someone is an agent-driver or commission-driver, it isn't relevant whether:
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The driver operates their own truck or the truck of their principal;
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The driver services customers designated by the principal or those the driver solicited;
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The driver’s compensation is a commission or the difference between what the customers are charged and the price the driver pays the principal (Reg § 31.3121(d)-1(d)(3)(i)).
A driver, who purchased his territory, set his own hours, and established methods of conducting his business without supervision from his principal was an employee for FICA tax purposes (Rev Rul 75-269, 1975-2 CB 401).
Full-Time Life Insurance Sales Agent - A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
Home Workers - An individual who works at home on materials or goods that are supplied by the employer and must be returned to the employer if the employer must also furnish specifications for the work to be done.
Full-Time Traveling or City Salespeople - A full-time traveling or city salesperson who works on behalf of an employer and turns in orders to the employer from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. The work performed for the employer must be the salesperson's principal business activity.
A person is a full-time traveling or city salesperson if the individual:
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Is not an agent- or commission-driver;
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Is engaged on a full-time basis soliciting orders on behalf of their principal and transmitting those orders to that principal (but side-line sales activities may be conducted on behalf of other persons as well);
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Obtains the orders from wholesalers, retailers, contractors, or operators of hotels, restaurants (Code Sec. 3121(d)(3)(D)) or other businesses whose primary function is the furnishing of food and/or lodging (Social Security Handbook (‘97));
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Sells merchandise for resale or for use as supplies in customers' business operations (Code Sec. 3121(d)(3)(D));
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Is not a “direct seller.”
Salespersons who operate off the premises of their principals and who are generally compensated on a commission basis are included in this occupational group. Such individuals are generally not controlled as to the details of their services or the means by which they cover their territories, but they are generally expected to call on regular customers with a fair degree of regularity (Reg § 31.3121(d)-1(d)(3)(iv)(a)).