In California, a statutory employee is a worker who is classified as an employee (rather than as an independent contractor) by statute. There are only a few types of statutory employees in California. If a worker is a statutory employee, they have more legal protections. But their employer has to withhold certain taxes from their paycheck.
What is a statutory employee?
A statutory employee in California is a worker whose job is classified as that of an employee by state statute. The jobs that are listed in these statutes cannot be done by independent contractors. Instead, the law states that any worker who performs these jobs under the circumstances described is necessarily deemed to be an employee.
These statutes override any agreement between the worker and the company that has hired the worker. Even if the parties agree that the worker will be an independent contractor, if California law classifies the worker as a statutory employee, they will be legally considered an employee.
Which jobs are for statutory employees under California law?
If a worker is not considered to be a common law employee, the California Unemployment Insurance Code 621(c)(1) states that they are a statutory employee if they work in any of the following roles, so long as certain circumstances are met:
- a driver who distributes any of the following products:
- bakery products,
- beverages other than milk,
- laundry, or
- products for dry cleaning services,
- a full-time traveling or city salesperson taking orders for resale or for supplies for the business operations of eligible establishments like:
- hotels, or
- a home worker performing services for a person that is providing them with the goods or materials that they need to do their job.
These workers, however, have to also meet the following requirements to be a statutory employee:
- their service contract has to contemplate that all of the work will be done personally by the worker,
- the worker cannot have a substantial investment in the facilities used to do the work, other than the necessary transportation facilities, like a car, and
- the services to be performed are not in the nature of a single transaction.1
Additionally, other sections of the Unemployment Insurance Code state that people in the following roles are also statutory employees in California:
- an officer of a corporation, other than the director,2
- an artist or author in the movie, radio, or television industry whose employer can control the performance of their services, whose product is work for hire, and whose collective bargaining agreement lists them as an employee,3
- a member of a limited liability company (LLC), other than a partnership, that is treated as a corporation for federal income tax purposes,4 and
- an unlicensed contractor performing construction work that requires a license.5
How is this different from a common law employee?
Common law employees are California workers who have been classified as employees through legal tests that come from California Supreme Court decisions, rather than from statutes.
These common law tests aim to differentiate employees from independent contractors. There are two of them in California:
- the ABC test,6 and
- the “manner and means” test.7
While recent wage orders have created numerous exceptions to these tests, they both look to the practical realities of the employment relationship. If the hiring entity has more than a certain amount of control over the worker, the worker is classified as an employee. If there is not enough control over the worker, then the worker is classified as an independent contractor under the common law rules.
This is different from a statutory employee. The employment status of a statutory employee comes from rigid categories in a statute that does not look at the practical realities of their job.
How is a statutory employee different from an independent contractor?
Employers are entitled to exert far more control over their employees – including their statutory employees – than over their independent contractors. That control, however, comes with additional responsibilities on the employer’s part.
Some examples of the control that employers can exert over their employees, but not over workers with an independent contractor status, include:
- preventing employees from working for competitors,
- requiring employees to commit to working full-time over the long term,
- telling employees how to do their job, and
- requiring or forbidding certain behaviors in the workplace.
Some examples of the responsibilities that employers have for employees, but not for independent contractors, include:
- providing paid meal and rest breaks,
- being liable for damages from the worker’s negligence or mistakes,
- providing workers’ compensation coverage, and
- withholding certain payroll taxes.
What difference does it make under California employment law?
If a worker is classified as a statutory employee, then their employer has to withhold certain employment taxes from the worker’s paycheck. The worker is also entitled to certain legal protections and benefits.
In California, the taxes that have to be withheld from a statutory employee’s paycheck are:
- Social Security taxes,
- Medicare taxes,
- California unemployment insurance (UI),
- state disability insurance (SDI), and
- employment training tax (ETT).
In some cases, state law also requires the withholding of California personal income tax (PIT) for statutory employees.8
California employers may also have to match the statutory employee’s contributions to these taxes to the IRS.
Statutory employees are entitled to certain legal protections and benefits that they might not have had as independent contractors. These include:
- unemployment benefits,
- disability insurance,
- Paid Family Leave (PFL) coverage,
- ETT benefits,
- protection from discrimination pursuant to the California Fair Employment and Housing Act (FEHA), and
- protections under California Labor Code sections dealing with minimum wage laws.
What happens if a statutory employee has been misclassified?
Employers who misclassify bona fide statutory employees as independent contractors can be in violation of state and federal law. They can face civil penalties and a misclassification lawsuit.
This is not an uncommon occurrence in California. Employers often benefit from having workers classified as independent contractors, rather than as employees or statutory employees.
Workers who think that they are statutory employees, but who are being classified as an independent contractor, can request a determination by California’s Employment Development Department (EDD). They can also file a lawsuit for violating California’s wage and hour laws. There may even be a violation of the United States Fair Labor Standards Act (FLSA).
These lawsuits can demand compensation for:
- California Unemployment Insurance Code 621(c)(2).
- California Unemployment Insurance Code 621(a) and 622.
- California Unemployment Insurance Code 601.5.
- California Unemployment Insurance Code 621(f) and 623.
- California Unemployment Insurance Code 621.5.
- Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018).
- S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989).
- California Unemployment Insurance Code 13004, 13004.5, and 13009 UIC.