Ask your CPA How to Classify Workers as Statutory Employees

CPA have been hearing lately that worker classification issues are on the forefront for the IRS and state labor agencies. Because big companies and small businesses are misclassifying workers, this subject has become one of the hottest among CPA.

Oftentimes, you may think that the misclassification is for the independent contractor vs. employee category. However, that is not always the case because there are four worker classification categories that can be misclassified: independent contractors, common-law employees, statutory employees and non-statutory employees. The classification decision should not be based upon what the employer and worker decide, or any agreement they may create. Instead, CPA state the decision should be based on the type of services the worker will perform for the employer and whether the employer’s actions dictate “control” over the worker. Depending on the facts and circumstances, control is an issue in itself that can be argued various ways.

Once the control factor is determined, it becomes a bit easier to classify a worker in one of the four categories. The most common categories are independent contractor and common-law employee. Because these two categories are well known, let’s address the one that often gets misclassified. A classification mistake can be costly for the business and even more so for the worker. Although statutory employees are not as common, it can be just as costly if misclassified.

Ask Your CPA

To be a statutory employee, a worker must fall into one of the four categories and must meet the three conditions under Social Security and Medicare tax laws. The four categories for statutory employees are as follows:

  1. Driver who distributes beverages (no milk), meat, vegetables, fruit or bakery products, or picks up and delivers laundry or dry cleaning (paid on commission or is an agent).
  2. A full-time life insurance sales agent. The principal business activity must be selling life insurance or annuity contracts (or both) primarily for “one” life insurance company.

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Gustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO - Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.