The general rule that payroll tax obligations only arise with respect to workers who are considered employees is not without exception. For workers in specific occupations, businesses are required to withhold and pay certain payroll taxes even if those workers are not common-law employees. Such workers are referred to as “statutory employees” and are as follows:
- Agent-drivers and commission drivers – delivery of specific products such as beverages (other than milk) or meat, vegetables, fruit, or bakery products, or if they pick up and deliver laundry or dry cleaning—and:
- operate their own trucks or the trucks of the persons for whom they perform services;
- serve customers designated by their principals and customers they solicit on their own initiative;
- make wholesale or retail sales; and
- are paid commissions on their sales or earn the difference between what they charge their customers and what they pay their principals for the products or services they sell
- Traveling or city salespersons (other than agent-drivers or commission drivers) who work full time on the company’s behalf and remit orders from customers who are retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses whose primary function is the furnishing of food or lodging. The orders must be for items that the company’s customers will resell or will use as supplies in their business operations
- Home workers who perform work for a business, generally on a contract or piecework basis, in their own homes or in the homes of others. Individuals who perform word processing tasks on their home computers would be considered home workers
- Full-time life insurance salespersons who work primarily for one insurance company
Companies that retain the services of any of these types of workers, who would otherwise be independent contractors, are not required to withhold income taxes from their compensation. However, you must withhold and pay FICA taxes and, in the case of drivers and traveling salespersons, you must pay federal and state unemployment taxes, if each of the following conditions exists:
- the service contract, whether written or oral, contemplates that the worker will personally perform substantially all of the work,
- the worker’s investment in equipment and property, other than transportation equipment, used in providing services is insubstantial,
- the worker performs services for you on a regular or frequently recurring basis, and
- with respect to home workers, you’ve paid the workers $100 in cash wages during the year. Once you have reached the $100 threshold, all wages paid during the year are subject to FICA taxes, including the initial $100 as well as any noncash wages that you pay
If you have questions, please contact Victor C. Belgiorno at 516-861-3704 or or Christopher J. Sena at 516-541-6549 or .