When it comes to hiring employees, it is important to know the specifics of different types of employees. It is your responsibility to report what kind of employees you have working for you, common-law employees, statutory employees or statutory non-employees. Therefore, it’s important you know the differences between these and also the impacts of being one or another. Here is some basic info for you as an employer to take into account.
What You Need to Know About Statutory Employees
Statutory employees are employees that are placed between “normal” employees (or “common law” employees) and independent contractors. The difference is important for both state and federal income reporting and calculation of tax purposes. Statutory employees have special employment circumstances that require different income reporting rules so that their gross income is fairly determined. They are employees defined by statute that fall within four specific categories.
The first category could be a driver that delivers meats, vegetables, bakery products, or beverages other than milk. Or, a driver that is acting as the employer’s agent for a commission and picks up and brings laundry or dry cleaning. The second category could be full-time insurance or annuity contract salesmen working for one life insurance company. The third category would be workers who work from home on materials supplied by, and under specifications supplied by, the employer and who also delivers the output to this employer or someone determined by his employer. And the fourth category of statutory employees would be a full-time traveling salesperson who gets orders from retailers, wholesalers, contractors, or operators of hotels, restaurants, or similar establishments and turns them to their employer.
Statutory employees are considered special workers. Their wages are not subject to federal income tax withholding, but they are subject to social security, Medicare, and unemployment taxes. Under common law test, they would be independent contractors by definition. But, they can be treated by statute to avoid paying federal income tax.
In order to qualify as a statutory worker, the work or service must be done personally by the statutory employee and said employee can´t have a substantial investment in equipment or property used in the performance of the job. Also, the work or service must be done on a continuing basis for the same employer.
What You Need to Know About Statutory Non-Employees
On the other hand, there are statutory non-employees who do qualify as independent contractors under the common law test and are treated as self-employed for federal tax purposes, including income tax, social security tax, and Medicare taxes. Examples of statutory nonemployees are direct sellers (also newspaper and shopping news distributors fall in this category), qualified real estate agents, and certain companion sitters or caregivers that are qualified to prepare meals, do light housekeeping and offer help with laundry and other errands.
For statutory non-employees to be exempt from all withholding taxes, their services must be performed under a written contract that states they will not be treated as a regular employee and their payment will be directly related to the sales they make and not to the hours worked.
As an employer, it is your responsibility to determine correctly whether an employee is common-law, statutory or statutory non-employee. You will have to report the employee’s status to the Internal Revenue Service (IRS) with a W-2 Form. Statutory employees are subject to Federal Insurance Contributions Act (FICA) and Medicare tax withholding like an employee, but they need to report their deductible unreimbursed business expenses on the IRS schedule C just like independent contractors do.
Which Is Better: Hiring Statutory Employees or Non-Statutory Employees?
If you plan to hire statutory employees or non-statutory employees, you should consider the tax ramifications of your decision. That way, you can determine which option is the most cost-effective for your organization.
Furthermore, it helps to consider the current job market. If you offer the right career opportunities to job seekers, you can boost the likelihood that candidates will apply for positions in your organization. This can help you attract top talent like never before. And it can help you add quality personnel who can support your organization now and in the future.
Of course, if you want extra help in your quest to find top talent, you can partner with a professional staffing agency. This gives you quick, easy access to a large talent pool. It ensures you can engage with quality professionals, regardless of your industry. Most importantly, it can help you attract top talent, any time you need it.
If you’re ready to get started with a staffing agency, consider what questions you’ll need to ask. From here, you can seek out a staffing agency that has your best interest top of mind. Meanwhile, when you assess staffing firms, you may quickly find one stands out from the pack: BOS Staffing.
We’re the Top Choice for Talent Recruitment
Along with being able to explain the difference between a statutory employee and statutory non-employee, we offer help in many areas of talent recruitment. To do so, we follow a tried-and-true methodology as we work with organizations.
First, we learn about your talent recruitment needs. We then craft a detailed plan to help you connect with top talent across your industry. As we look for job candidates on your behalf, we keep you in the loop. And as we find candidates, we ensure you can meet with them and see if they align with your requirements.
We can provide tips, tricks, and recommendations for talent recruitment as well. If there is anything we can do to assist you in your talent search, we’re here to assist you.
Get Started with Us Today
Don’t wait to start working with us to recruit talent. To get started, request an employee using the form below: