Most people in Texas expect that, when they apply for a job and receive a job offer, the employer will treat them as employees. Federal, state and local labor laws guarantee employees minimum wages, overtime and workers’ compensation insurance. Independent contractors, on the other hand, have few legal protections and generally cost employers less to hire. For this reason, a widespread problem of employers misclassifying workers as independent contractors exists throughout the country. Misclassification can deny workers proper compensation and benefits and subject their employers to legal action.
Worker classification rules
The Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) have developed rules that govern how to classify workers. At their heart, the rules focus on your financial relationship with the company and how much personal control you have over your work schedule.
In general, an employee relies 100% on the employer for income and must perform work according to the schedule set by the employer. An independent contractor normally works for multiple companies and does not rely on a single entity for income. Additionally, contractors have control over the work schedules.
IRS employee classification test
The IRS looks at 20 factors to see if the employer controls most aspects of a worker’s activities. Majority control indicates that employment law could view the person as an employee who deserves minimum pay and benefits.
DOL economic reality test
The DOL looks at the scope of a worker’s relationship with a company. If you need to buy your own tools or equipment to perform your job and the employer does not reimburse you, then you could be a contractor. The permanency of the relationship plays a role in classification as well. Contractors normally come and go for special projects, whereas an employee is expected to show up continually.