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What is a "Statutory Employee"?

By Robert S. Schriebman, SJD
copyright 2011. No part of this article may be taken and used in any way whatsoever without the express written consent of Robert S. Schriebman

While a "rose is a rose is a rose," a "statutory employee" is an employee is an employee. Both the worker and his or her employer need to know this very important reality.

A "statutory employee" is defined as an employee under a specific statute. The term "statutory employee" does not apply to everyone. In fact, very few workers meet the criteria of a "statutory employee". For the average worker, the employment status is determined under the so-called common law rules. These rules are found in multi-factor tests applied by both the IRS and the EDD. Both "statutory employees" and common law employees must have federal and state employment and withholding taxes taken from gross pay and, where appropriate, matched by the employer. In California we have four categories of employment and withholding taxes - Unemployment Insurance, State Disability Insurance, Employment Training Tax, and the Personal Income Tax (PIT).

The EDD has a very informative "Information Sheet" that discusses the various categories of statutory employees. (DE231SE.) You can obtain this publication on-line by going to the EDD's website.

Corporate officers who are either residents of California or non-residents performing services in California are deemed to be statutory employees. Please see my article entitled "An Officer of a Corporation or LLC is a 'Statutory Employee.'"

Statutory employees include workers performing services for an individual or an entity such as a corporation or LLC. These workers are classified as follows:

  • An agent-driver or commission-driver engaged in distributing eat, vegetable, fruit, or bakery products, beverages (other than milk), or laundry or dry-cleaning service for his/her principal.
  • A traveling or city salesperson, other than an agent-driver or commission driver, working full time on behalf of their principal (except for sideline activities on behalf of some other person), taking orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies to be used in their own business operations.
  • A homemaker performing domestic services at the direction of the individual he or she is serving.

For more information, see Information Sheet DE 231SE revised 1-11.

Other "statutory employees" are most unlicensed construction workers as well as entertainment industry artists.

Statutory Employees in the Construction Industry

Any individual not holding a valid contractor's license but performing services requiring such a license will be considered to be the employees of a licensed contractor. In other words, if a licensed general contractor hires unlicensed subcontractors, those unlicensed workers will be presumed to be employees. A rebuttable presumption is created that assumes the unlicensed worker to be an employee. It is an uphill battle for the licensed contractor to convince the EDD or an administrative law judge that the unlicensed workers are indeed independent contractors. The lesson is clear - if you are going to hire unlicensed workers, treat them as employees if you want to keep both the EDD and the IRS out of your life.

Entertainment Industry Artists

In the motion picture, radio or television industry, an artist or author is a statutory employee if:

  • The individual's work is done under a collective bargaining agreement in which he/she is defined as an employee, and
  • The employer has the right to control and direct the services to be performed.

For more information, see Information Sheet DE 231SE revised 1-11.