Statutory Employee – IRS Defines The Term Well
Who is a statutory employee under Workers Comp? I recently received a question on our post regarding the South Carolina employee being ruled an employee.
I rarely copy from another website, but this is very important and I do not want to change the language of the IRS. There are cases (such as the previous post on SC) where statutory employees may look like subcontractors but are instead statutory employees. I think it is best to assume that you will need a contractor subcontractor agreement that spells out the fact the worker is a subcontractor. The following is an exact definition and not just examples.
Statutory Employees – IRS Definition
If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employers compensation employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social Security and Medicare taxes, below.
A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission
- 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
- An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
- A full-time traveling or city salesperson who works on your behalf and turns in orders to you 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 you must be the salesperson’s principal business activity.
One of the best examples of a statutory employee under Workers Comp is an employee that is hired to do the same work that the company employees regularly do may be considered a statutory employee. There was a famous Missouri Supreme Court decision that spells out a four-prong test to see if an employee is a statutory employee or not. The case was Bass v. National Super Markets, Inc. The four prong test is centered on the activities of the possible statutory employee in question:
- Activities that are routinely done;
- On a regular and frequent schedule
- Contemplated in the agreement between the independent contractor and the statutory employer to be repeated over a relatively short span of time
- The performance of which would require the statutory employer to hire permanent employees absent the agreement.
I know that was not exciting reading. However, it may keep a company from being sued under an unlimited liability policy versus under Workers Comp as the sole remedy.
Next Up – Contractor Subcontractor and The Ladder of Insurance Revisited
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