Identifying a statutory employee is not archaic but a term still used today. In this post, not only will you be able to tell if your colleague is a statutory employee, you’ll also understand what the term means and how to properly use it.
Who is a Statutory Employee?
A statutory employee is an individual who is considered an employee for tax purposes, but may not necessarily be considered an employee under common law. As a country that practices a mix of common law, statutory employees also exist in Nigeria. Statutory employee as the name suggests is a designation that is made by statute. This designation is often associated with workers who are not traditional employees but still require certain benefits and protections.
A statutory employee can be a full-time life insurance sales agent, home workers who perform work on materials or regular real estate agents. Remember we said that a statutory employee is an individual who is considered an employee for tax purposes, but may not necessarily be considered an employee under common law.
As a result, these employees are entitled to certain benefits such as medical benefits, workers compensation, and other forms of insurance available to them.
Noteworthy, they are subject to tax withholding and other employment taxes.
Box 13 on the Form W-2 Statutory Employees
For those in developed countries, particularly in the US, Box 13 on the Form W-2 refers to the designation of an individual as a statutory employee. In matters related to tax, Box 13 on the Form W-2 is often encountered.
As we’ve already mentioned, a statutory employee is considered an employee for tax purposes, but may not necessarily be considered an employee under common law. They are not traditional employees but they require certain benefits and protections.
So, when Box 13 is checked on the Form W-2, it indicates that the individual is a statutory employee and is subject to both Medicare taxes and Social Security, but not federal income tax withholding. In the US, the statutory employee designation is used for workers such as agents or commission-driven salespeople who are considered independent contractors under common law, but are treated as employees for tax purposes.
As such, you find employers responsible for things like Medicare taxes and Social Security for the employee.
Human Resources and the Management of Statutory Employees
Human Resources play a critical role in managing statutory employees within an organisation. HR is saddled with responsibilities that include ensuring they are properly classified and that the organisation is in compliance with all relevant laws and regulations. They also ensure that statutory employees are paid correctly, receive the required benefits, and are subject to the correct taxes.
Liaising on behalf of the organisation, HR communicates status, benefits, and other relevant information to statutory employees.
