Statutory Employees vs. Subcontractors Part I

I have received a large number of emails since the last time that I posted on Statutory Employees. I first posted on statutory employees after a South Carolina Supreme Court decision separated the employment status of statutory employees and subcontractors. There seems to be some confusion between the two classifications of workers.

I had searched for the best definitions possible to help analyze the differences. The IRS website had a great overall definition of statutory employees -

Some workers are deemed to be employees by statute. For an exempt organization, the most common employees in this category are its officers. In addition, while not as prevalent in an exempt organization, the following workers are also statutory employees:

1. A full-time traveling or city salesperson who solicits orders from wholesalers, restaurants, or similar establishments on behalf of a principal. The merchandise sold must be for resale (e.g., food sold to a restaurant) or for supplies used in the buyer's business;

2. A full-time life insurance agent whose principal business activity is selling life insurance and/or annuity contracts for one life insurance company;

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

4. A home worker performing work on material or goods furnished by the employer.

These are great examples of a statutory employee. The worker in the SC Supreme Court case did not necessarily fit any of those definitions exactly.

The IRS goes on to say "Statutory employees are not liable for self-employment tax because their employers must treat them as employees for social security tax purposes." That means the employer must withhold FICA taxes.

I kept researching Statutory Employees and found that they exist as a combination between an employee and a subcontractor. What should a company do for covering a statutory employee under Workers Compensation or make them obtain their own Workers Compensation insurance?

From the previous South Carolina decision, I am thinking that under the above circumstances that Workers Comp coverage should be supplied by the employer. The fourth one is asking the employer to cover home workers. That is still a hotly debated topic yet today.