The new administration is moving away from the pro-employer trend that we saw emerge during the last 4 years. One area still in flux is independent contractor vs. employee status.
At Gardner Employment Law, we provide expert guidance on a person’s working status. This article is a short summary, but if you need in-depth analysis, feel free to call.
Independent Contractor or Employee?
An independent contractor differs from an employee primarily in the degree of control exercised by the employer over the details of the work. This basic control test evolved from common law. Legally, the distinction is more complicated and turns on a number of variables. These are explained by the Texas Workforce Commission in a chart of 20 factors.
Here are some of the differences:
|Takes instructions about when, where and how the work is to be performed.
|Does the job with few, if any, instructions as to the details or methods of the work.
|Often receives training.
|Does not need or receive any training.
|Employer provides needed equipment.
|Furnishes all tools and equipment.
|Works for one company on a continuing basis.
|May work for more than one company.
|Employer decides the schedule and hours worked.
|Decides own hours and when to work.
|Must devote service to the employer.
|Often does work for many companies.
|Employers withholds taxes.
|Responsible for all taxes.
|File a W-2 with your income tax return.
|File a 1099.
Why is the Distinction between Employee and Independent Contractor Important?
You might ask why this matter is important to a professional. One primary reason is that employers do not pay benefits to independent contractors. So, if employee benefits are important to you and your family, you do not want to be misclassified as an independent contractor. Under ERISA, an employer cannot discriminate among employees regarding which ones are provided employee benefits. In other words, an employer cannot decide who does and who does not receive health insurance coverage.
I had a client, a high-level manager, whose wife developed a very serious heart condition that required expensive medical treatment. The company continued to demote him to lower-level positions, apparently in an effort to encourage him to resign. He did not because he needed the insurance benefit. However, when the company attempted to reclassify him as an “independent contractor” to avoid paying for his wife’s health insurance coverage, that action crossed the line.
The distinction of independent contractor implicates other federal laws, including payroll taxes, social security, minimum wage, and overtime. The IRS has its own standard for purposes of income taxes. However, if the question is about workers compensation or unemployment, then Texas statutes govern. Both federal and state laws come into play depending on the issue.
Regulations under the Department of Labor Are in a State of Flux
The Department of Labor (“DOL”) was in the process of redefining the standards for classifying independent contractors, which would have given employers more leeway. The DOL had reaffirmed an “economic reality” test to determine whether an individual was in business for himself or herself, i.e., an independent contractor, or was “economically dependent” on an employer, i.e., an employee. The DOL’s rule had been set to become effective on March 8, 2021.
On March 12, 2021, the DOL issued a press release rescinding the previous plan to implement the new “economic reality” test because, it stated, that test would significantly weaken protections afforded American workers. The DOL explained that neither the text of the Fair Labor Standards Act nor the case law supported the test. Under the Fair Labor Standards Act, employees have protections such as a minimum wage rate and overtime pay. Independent contractors receive neither.
For the present, the DOL regulations on independent contractor vs. employee status are on hold until after public comments are collected, hearings are held, and the rules are rewritten.
The status of independent contractor may affect your employment. If you need any help in answering questions or analyzing your employment status, feel free to contact us.