Payroll Articles
Statutory Nonemployees
Certain categories of workers, while they may qualify as Employees under the Common Law Test, are nevertheless treated under the
IRC as independent contractors for federal income tax withholding and Social Security, Medicare, and FUTA tax purposes. They are known as Statutory Nonmployees and are not subject to federal income tax withholding or Social Security, Medicare, or FUTA taxes regardless of their status under the Common Law Test, so long as certain conditions are met. There are two categories of Statutory Nonmployees.
Qualified real estate agents. This exemption applies to salespersons who are licensed real estate agents performing services in connection with the sale of real property, including advertising or showing the real property.
Direct sellers. This exemption applies to individuals who sell consumer products on a buy-sell or deposit commission basis to be resold in the home or someplace other than a permanent retail establishment. It also applies to individuals who sell the products themselves in the home or someplace other than a permanent retail establishment. The exemption also applies to workers engaged in delivering or distributing newspapers or shopping news (including any directly related services).
General requirements. Real estate agents or direct sellers who meet these criteria must also meet two general requirements before their earnings are considered exempt from Payroll Tax laws.
1. Most of their compensation must be directly related to sales or other work output rather than the number of hours worked.
2. Their work must be performed under a written contract providing that the individual will not be treated as an Employee for federal income, Social Security, Medicare, or FUTA tax purposes.