Your Texas business may use independent contractors and employees to perform similar, if not the same duties from week to week. While the work they perform and their responsibilities may seem very similar, it is critically important that, as an employer, you understand the differences between independent contractors vs. employees. The differences between these two types of workers determine what types of laws apply to them when in your service.
Misclassification of Workers Increasing
Self-employed individuals have been providing services to businesses for decades, but there are more employment laws on the books now than ever before. In recent years, some employers have begun to classify larger percentages of their workers as independent contractors, perhaps in an effort to avoid paying employment taxes, benefits, and overtime pay. For this reason, there is greater scrutiny on the classification of workers as independent contractor vs. employee. Employers are advised that to be prepared for an audit by the Department of Labor or the Texas Workforce Commission, your classification of workers as employee vs. contractor should be examined carefully and any errors corrected.
It is important to understand that the employer does not decide if a worker is an independent contractor vs. employee just by choosing between the two terms. The Department of Labor’s “economic realities” test can help employers determine if their workers are contractors or employees. In addition, Texas employers can look to the Texas Workforce Commission’s Independent Contractor Test for help in making the determination.
Telling the Difference
The following checklist, summarized from the TWC Independent Contractor test, will give you an idea of the types of questions to consider when determining whether someone working for you is an employee or an independent contractor:
- Do you give exact instructions on how, where, and when the individual works?
- Does your company provide training to the individual?
- Are the individual’s services considered to be part of the company’s operations?
- Is the individual obligated to give their services personally?
- Do you pay the individual’s helpers with your own funds?
- Do you run the individual’s schedule?
- Do you require full-time work from the individual?
- Do you determine the sequence in which work must be completed?
- Do you require regular reports from the individual?
- Do you pay wages by the hour, week, or month?
- Do you withhold taxes for the individual?
- Do you pay for business and travel expenses and provide equipment?
- Does the individual work for you and you alone?
- Are the individual’s services available to the public only in affiliation with you?
- Can the individual quit or be discharged without breaching contract?
An answer of “no” to any of these questions favors independent contractor status. Affirmative answers favor classification as an employee. No single factor is determinative, however, and the analysis must be done as a whole. If there is any gray area and you need assistance with employee classification, or any other employment law matters, contact Simon|Paschal, PLLC, today at 972-893-9340.