What is a Statutory Employee?
A statutory employee is an independent contractor that is treated as an employee for tax withholding purposes if they meet certain conditions. Employers are not permitted to withhold taxes for most independent contractors, but statutory employees differ in that they exist in a place between an employee and an independent contractor.
What are some examples of Statutory Employees?
A statutory employee is an individual who falls under any one of the following categories as specified by the IRS:
- A driver who conveys drinks (other than milk) or meat, vegetable, natural product, or bread shop items, or a driver who gets and conveys clothing or cleaning, if the driver is your operator or is paid on commission
- A full-time extra security deals specialist whose essential business movement is selling life coverage or annuity contracts, or both, basically for one life coverage organization
- A person who works at home on materials or products that you supply and that must be come back to you or to an individual you name on the off chance that you additionally outfit details for the work to be finished
- A full-time traveling or city sales rep who chips away at your sake and diverts in requests to you from wholesalers, retailers, contractual workers, or administrators of inns, eateries, or other comparable foundations (The products sold must be stock for resale or supplies for use in the purchaser's business activity; the work performed for you should be the sales rep's main business movement.)
Who Qualifies as a Statutory Employee?
An employee must meet three separate criteria to be considered as statutory. First, all work must be done by the employee personally. Second, the person cannot have a large investment in the tools and property they use to do their work. Lastly, their work must be for one employer on a continuing basis.
People who fall under the category of statutory employee could perform a number of jobs.For instance, an individual who telecommutes utilizing acquired supplies from a business could be a statutory representative. A driver who disseminates nourishment and furthermore gets clothing for commission pay could be viewed as a statutory representative. Another case of a statutory worker could be a voyaging sales rep or somebody in protection deals.
Commonly, statutory representatives make their own interest in their work office. They normally don't play out a pivotal job in the organization and might not include a stable situation inside the organization.
In spite of the fact that a few workers may appear to be in a hazy area with regards to their representative assignment, eventually, any worker who has gotten a W2 structure with Box 13 checked for "Statutory Employee" will be considered in that capacity by the legislature.
Can a Statutory Employee Contribute to a SEP?
- Most independently employed people can fit the bill for a SEP, otherwise called a Simplified Employee Pension Plan. Statutory representatives are incorporated under this class, which means they can add to a SEP if their manager offers the arrangement, and on the off chance that they meet these three necessities:
- The representative is 21 or more seasoned.
- The representative has worked for the business at any rate 3 years out of the last 5.
- The representative made at any rate $600 in compensation inside the schedule year.
Are Statutory Employees Eligible For Benefits?
Employers usually pay half of Medicare and Social Security taxes for statutory employees. But generally, most statutory employees do not receive traditional benefits from their employer. Employees receiving benefits like health insurance, vacation time, or a 401(k) plan are usually considered common law employees.
The more advantages a laborer gets from their boss, the almost certain they are to be a run of the mill precedent-based law representative. Statutory representatives do have the advantage of being dealt with like a self employed entity for personal expense purposes, while as yet being dealt with like a precedent-based law worker for Social Security and Medicare charge purposes.
What are the advantages of Statutory Employee over Standard Employee?
To begin with, note that a few outlets report the accompanying data erroneously with regards to statutory workers:
• That the four classes are instances of who might be a statutory representative. This isn't right. You should can be categorized as one of these underlying four classes so as to qualify, at that point meet the three conditions test for qualifying laborers inside those classifications.
• That a statutory worker is charge advantaged in light of the fact that they can deduct their costs of doing business on Schedule C. While genuine, this is normal expense groundwork for self employed entities and it is fundamental to comprehend that a statutory worker is a class of self employed entity.