What is a statutory employee and how do they effect a workers compensation audit?

A statutory employee is an employee as defined, determined and applied by any individual states statute. Payroll or compensation to a statutory employee will be added to the workers compensation audit. A little confusing? More confusion ahead…please read on…

From an employers point of view, when operating a business, they will have, at any given time, different folks performing a variety of tasks or work process at or for their business. Sometimes the work will be performed at their business premises, sometimes away. Think about it. If you own a business you typically have employees working for you in your office, manufacturing plant, distribution center or retail store performing different jobs that create, organize, sell, store or otherwise process those items you make or conducting services you perform for others. I think most employers readily recognize most of these folks as their employees.

You may ocassionally subcontract work to others. This subcontracted work may include specialized operations that for whatever reason, you have a need for, but in which you do not have the expertise. You may also use independent contractors to perform work not at all related to your products or services. These may include services provided for janitorial or repair and service to your machinery, building or facilities. You may hire casual or day labor in your daily activities.

And let’s not forget those “off the books” employees! You know, it’s where a business owner fraudulently pays somebody cash or gives them some other form of compensation usually done so to avoid paying the proper taxes or providing the benefits they owe. (Shame on you!) 

Depending on the specifics…all of these may be considered your employees!

The effect statutory employees have on a workers compensation audit comes when an employer or business owner is not aware of the treatment and inclusion for premium purposes of the payroll or compensation given to the statutory employee. Hey, I’ve got an idea…lets just call them unknown employees!

Our company is contacted every day by employers who after having their workers compensation audit completed is presented with an unknown audit bill where compensation to “statutory employees” have been picked and included by the auditor.

So here’s a few things you need to remember about statutory employees:

  • You may have them and not even know it;
  • If you issue 1099’s to anyone, you should be aware that they may be considered a statutory employee, research the topic and ask questions so you know for sure;
  • If you use any subcontractors, they may be considered a statutory employee. Be sure to check it out;
  • If you use any independent contractors, they may also be considered statutory employees. Again…be sure to check it out;
  • Cash payments, casual labor and day labor may all be subject to statutory employee status;
  • If you have had an adverse audit result due to statutory employees make sure you have your audit reviewed by an independent workers compensation consultant for accuracy.

A few words to the wise…be careful about who you consider your employees to be. Due to various individual state statutes you may have employees that you don’t think you have!

Hope this helps you out! Thanks!