What is an Employee?

Who Are Employees?

Employee status under common law

Generally, a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action.

What matters is that you have the right to control the details of how the services are performed. See Pub. 15-A for more information on how to determine whether an individual providing services is an independent contractor or an employee.

Generally, people in business for themselves aren't employees.

For example, doctors, lawyers, veterinarians, and others in an independent trade in which they offer their services to the public are usually not employees. However, if the business is incorporated, corporate officers who work in the business are employees of the corporation.

If an employer-employee relationship exists, it doesn't matter what it is called. The employee may be called an agent or independent contractor.

It also doesn't matter how payments are measured or paid, what they’re called, or if the employee works full or part time.

Statutory employees

If someone who works for you isn't an employee under the common law rules discussed earlier, don't withhold federal income tax from his or her pay, unless backup withholding applies.

Although the following persons may not be common law employees, they’re considered employees by statute for social security and Medicare tax purposes under certain conditions.

  • An agent or commission driver who delivers meat, vegetable, fruit, or bakery products; beverages (other than milk); laundry; or dry cleaning for someone else.
  • A full-time life insurance salesperson who sells primarily for one company.
  • A homeworker who works at home or off premises according to guidelines of the person for whom the work is done, with materials or goods furnished by and returned to that person or to someone that person designates.
  • A traveling or city salesperson (other than an agent or commission driver) who works full time (except for sideline sales activities) for one firm or person getting orders from customers. The orders must be for merchandise for resale or supplies for use in the customer's business.

The customers must be retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging.

For FUTA tax, an agent or commission driver and a traveling or city salesperson are considered statutory employees; however, a full-time life insurance salesperson and a homeworker aren't considered statutory employees.

Who is Considered to Be a Statutory Nonemployee?

Direct sellers, qualified real estate agents, and certain companion sitters are, by law, considered nonemployees. They’re generally treated as self-employed for all federal tax purposes, including income and employment taxes. 

Treating employees as nonemployees.

You’ll generally be liable for social security and Medicare taxes and withheld income tax if you don't deduct and withhold these taxes because you treated an employee as a nonemployee. 

Wages.

You continue to owe the full employer share of social security and Medicare taxes. The employee remains liable for the employee share of social security and Medicare taxes. 

Relief provisions.

If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker.

To get this relief, you must file all required federal tax returns, including information returns, on a basis consistent with your treatment of the worker. You must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977.

If you want the IRS to determine whether a worker is an employee, file Form SS-8. 


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