Are you properly categorizing your workers as employees? Are they actually independent contractors? How can you tell if a worker is an independent contractor instead of an employee in Texas? Lucky for you Texas, or at least the Texas Workforce Commission (TWC), has a twenty factor test that you can use to determine whether your worker is an employee or independent contractor. A worker can be found to be an employee even if they do not meet each factor. Courts will examine each of the factors in turn to determine whether a worker is an employee or independent contractor. If a worker has most of the factors demonstrating an employee relationship, then they are most likely an employee. If the worker has most of the factors demonstrating an independent contractor relationship, then they are most likely an independent contractor.
The Texas Workforce Commission’s Twenty Factor Independent Contractor Test
Here are the twenty factors that the TWC considers and a brief description of each of them:
An employee receives instructions about when, where, and how the work is to be performed. An independent contractor does the job in his/her own way. Basically, an independent contractor does the job without instructions. They are given the task (i.e. contract) and perform it.
Employees are trained and required to attend meetings or take courses. Independent contractors services do not receive training. For example, an employee may be required to take sexual harassment or other training courses as required by a company.
Employees are merged into the operations of the business. Independent contractors’ services are separate from the business. For example, a janitorial service would be unlikely to have janitors as independent contractors. But the workers that mow the lawn each week of the company’s building could be independent contractors.
- Personal Service
Employees personally render services. Independent contractors may assign their duties to someone else in their place.
- Hiring, Supervising, and Paying Helpers
Employees are supervised by other employees of the company. Independent contractors select, hire, pay, and supervise any helpers used and are responsible for the results of their labor. In addition, this factor is important when avoiding joint employer status with a staffing company. Generally, staffing company employees should be supervised by managers of the staffing company.
- Continuing Relationship
Employees continue to work with the same employer month after month. Independent contractors are normally hired for one job of limited or indefinite duration.
- Set Hours of Work
Employees have set hours of work. Independent contractors may work the days and hours that they choose.
- Full Time Required
Employees normally devote their full time to an employer. Independent contractors cannot be required to devote their full time to one firm.
Employees work where an employer tells them to work. Independent contractors work where they choose.
- Order or Sequence
Employees perform the work in the order set by the employer. Independent contractors are free to perform the work in any order that they want and are only liable for the finished product.
- Oral or Written Reports
Employees must submit regular reports about progress. Independent contractors are normally not required to do so.
- Payment Frequency
Companies pay employees in regular amounts at regular intervals. Businesses pay independent contractors by the job or upon the submission of a bid
- Payment of Business and Travel Expenses
Employees typically have business travel paid or reimbursed by the employer. Independent contractors are not normally reimbursed.
- Furning of Tools
Employees normally have tools provided to them. Independent contractors provide their own tools
- Significant Investment
Employees have little or no investment in the business. Independent contractors have a significant financial investment in their business.
- Realize Profit or Loss
Employees do not realize profit or loss. Independent contractors may realize profit or loss depending on expenses and revenues.
- Working for More than One Business
Employees generally work for one employer at a time. Independent contractors often work for more than one client and are not subject to non-competition rules.
- Making Services Available to the Public
Employees do not make their services available to the public. Independent Contractors may hold a separate business license and advertise their business.
- Right to Discharge Without Liability
Employers can discharge employees at any time without liability on the employer’s part. Companies cannot fire independent contractors without liability for breach of contract.
- Right to Quit Without Liability
Employees can quit at any time without liability on their part. Independent contractors are legally responsible for job completion and upon quitting become liable for breach of contract.
What Else Matters When Determining Whether a Worker is an Independent Contractor
An independent contractor agreement is also evidence that a worker is an independent contractor. If you treat the worker like an employee in other ways, then that is also evidence that they are an employee. For example, if a company requires a worker to complete a I-9 for the when they are first hired, if the company completes a W-2 for the worker and files it, if the company pays employment taxes for the worker, if the business has the worker on the company health care plan, and if the business gives other benefits that are only given to employees, then these workers are going to be considered an employee.
Some Thoughts on Other Independent Contractor Tests
First, there is a new administration. Basically, this means that the rules that are at the federal level and were in my prior post are going to change at some point. There is the possibility that the various agencies (i.e. the Department of Labor, National Labor Relations Board, and Equal Employment Opportunity Commission) may even use different or conflicting tests. Only time will tell what these tests will be.
Second, Texas has special rules to determine whether workers that use a digital network are independent contractors or employees. A digital network is an app, software or website that connects the public with contractors that can provide the service. This rule essentially covers the food delivery, ride-sharing, and freelance apps. The TWC uses a nine factor independent contractor test that I outlined in my Independent Contractor or Employee post to determine whether these workers are independent contractors. Anyone looking to determine whether a worker that uses a digital network is an independent contractor should review my prior post.
It is critical to classify workers properly. Companies that improperly classify workers as independent contractors instead of employees pay hefty penalties and also must expend a lot of money in attorney’s fees. None of the twenty factors above alone are sufficient to determine whether a worker is an independent contractor or employee. Companies that want to make sure that a worker is an independent contractor should carefully analyze the independent contractor test and factors outlined above.
The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.
The information provided is my own and does not reflect the opinion of my firm or anyone else.