Question

the text notes that the IRC provides that certain “statutory employees” are deemed to be employees, rather than independent contractors, regardless of how they would be categorized under the common law criteria normally used to classify workers. The text also notes that the IRC provides that some workers are deemed to be independent contractors, rather than employees, regardless of how they would be categorized under the common law criteria normally used.

1.         List and describe the types of workers who, according to the IRS, are “statutory employees.”

2.         List and describe the types of workers who, according to the IRS, are deemed by statute to be independent contractors, regardless of how they would be categorized under the common law criteria.

3.         Are any of the types of workers in your answers to the first two questions treated as employees for some purposes and independent contractors for other purposes? If so, please describe the circumstances in which they are categorized each way.

Please answer each question in complete sentences, and cite name and number of the IRS publication or form/instruction where you found each answer, and the page number on which the answer is found. Use your own words in the answer – do not copy the IRS’ language.

Answer 1

1. According to the IRS, the Statutory Employees are:

Where the workers are independent workers then such workers cannot become the employees by statue i.e. statutory employees for certain employment tax purposes. This would happen if they fall within any one of the following categories and meet three conditions described under social security and medicare taxes.

a) 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.

b)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.

c)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.

d)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 per-formed for you must be the salesperson's principal business activity.

Social Security and Medicare Taxes

The person must hold social security and medicare taxes from the wages of statutory employees if all the 3 conditions are satisfied

1. The service contract states that substantially all services are to be performed personally by them.
2. They don’t have a substantial investment in the equipment and property used to perform the services (other than an investment in facilities for transportation such as a car, truck).
3. The services are performed on a continuing basis for the same payer.

2. According to the IRS, the individual deemed to be independent contractors are:

            To determine whether an individual is an employees or an independent contractor, the relationship of worker and the business must be examined. Some of the facts like degree of control and independence would be taken into consideration such as behavioural control, financial control, and the type of relationship of the parties.

Behavioural Controls indications are the instructions that the business gives to the worker, such as

• When and where to do the work.
• What tools or equipment to use.
• What workers to hire or to assist with the work.
• Where to purchase supplies and services.
• What order or sequence to follow.

Financial Controls show whether the business has a right to control the business aspects of the workers job such as:

• The extent to which the worker has unreimbursed business expenses.
• Significant investment in the facilities or tools he or she uses in performing services for someone else.
• Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
• An independent contractor is often paid a flat fee or on a time and materials basis for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
• An independent contractor can make a profit or loss.

Depending upon the nature of services to be provided and the agreement entered between the individuals it can classified either as a statutory employee or an Independent contractor.

3. Individuals to be classified as both employees and independent contractors are

• Where a professional like doctor or an engineer can have his/her own office at the residence, and also he/she is an employee in such other establishment then in such case such individual will become an employee as well as a proprietor.
• A driver distributing the milk as the transportation.
• A life insurance agent who was not in his full time employment, in such case will receive salary and if he does another business he will become an individual contractor.
• Likewise a salesperson travelling to its dealers, wholesalers, traders as not a full time employee.
• Individual who does not participate in the payment of social security and medicare taxes.

Number of IRS publication is Publication – 15A, Page no. 7