Statutory Employee

A statutory employee is a worker the tax code specifically deems to be an employee, even if the individual might be an independent contractor under general tax rules. (See Employee vs. Independent Contractor.)


The employer of a statutory employee is liable for FICA and FUTA taxes, i.e., Employment Taxes other than income tax Withholding.1 As with other employees, the employer must give a statutory employee an IRS Form W-2, “Wage and Tax Statement,” by January 31 of each year and send a copy to the government by mid-February.2


Statutory employees report their wages, income, and allowable expenses on Schedule C of IRS Form 1040.3 Statutory employees are not liable for Self-employment Tax because their employers are responsible for FICA taxes.



The following workers are statutory employees, if the additional requirements set forth below are also satisfied:4



An agent-driver or commission-driver engaged in distributing meat, vegetables, bakery goods, beverages (other than milk), or laundry or dry cleaning services.



A full-time life insurance salesperson whose principal business activity is selling life insurance or annuity contracts, or both, for one life insurance company.



A home worker performing work on material or goods furnished by the employer according to the employer's specifications.



A traveling or city salesperson who works full-time for one person or firm (except for sideline sales activities) soliciting orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments.



Additional requirements. If an individual falls within one of the above categories, he or she is a statutory employee if all of the following requirements are met:5



The arrangement contemplates that the individual is to perform substantially all the services, i.e., he or she can't delegate the work to someone else;



The individual has no substantial investment in the facilities used for providing the services, except for the individual's own vehicle; and



The services are part of a continuing relationship rather than a single or isolated transaction.




1           IRS Publication 15, “(Circular E), Employer's Tax Guide” (2017), page 9.

2           The Form W-2 has a box the employer checks to show that the recipient is a statutory employee.

3           Instructions for Schedule C, “Profit or Loss From Business.”

4           IRC Sections 3121(d)(3) and 3306(i); Reg. Section 31.3121(d)-1(d).

5           IRC Sections 3121(d)(3) and 3306(i); Reg. Section 31.3121(d)-1(d).