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The State of Texas Is Cracking Down on Employee Misclassification

  • 18 November 2015
  • Author: Cari Holbrook
  • Number of views: 3150
  • 0 Comments
The State of Texas Is Cracking Down on Employee Misclassification

The Texas Workforce Commission is cracking down on employee misclassification, primarily as it applies to independent contractors (W9 workers). Before dismissing the issue as not pertaining to you and your business, understand that the TWC and related agencies may not agree with you. These agencies assume most workers are employees for the purposes of the Fair Labor Standards Act (FLSA), in an effort to combat what the Department of Labor believes to be employers taking advantage of the economic benefits of classifying workers as independent contractors.

In short: Texas businesses are increasingly bearing the burden of proof when it comes to worker classification. The TWC offers a checklist of 20 common law factors that determine whether a worker can be considered an independent contractor or not. Fail the test and you can be responsible for overdue employment taxes as well as the burden of reclassifying your workers.

A misconception about the list is that it’s more fluid than it actually is. Miss one mark on the 20-point list and you may have a big problem on your hands. If you pay any independent contractors at all, it’s important to understand the list and its implications. Keep in mind:

 

  1. Control is the most obvious factor. If a contractor is required to perform the job at a certain place, within a certain timeframe (during business hours, for instance), in a certain way, and/or using certain equipment, that’s a red flag. Even providing a laptop or cell phone to an independent contractor can signify an employer-employee relationship.
  2. The amount of time the contractor devotes to you matters. This often-overlooked factor is increasingly the “gotcha” for otherwise legitimate contracts. The contractor should have other clients (or, in other words, should be working with other businesses besides yours). If you’re an individual’s only contract, the TWC and the IRS will likely determine they’re better classified as your employee.
  3. Temp workers are not exempt. Treating seasonal and temporary workers as independent contractors can cut down on administration headaches, but it likely will not be a winning strategy. These types of employees often fail every other factor of the 20-point test. For more on classifying temp or seasonal workers, read our previous post.
  4. You may qualify for tax relief if the IRS does find that you’ve misclassified employees. There is also a new Voluntary Classification Settlement Program (VCSP) option that allows certain businesses to reclassify employees with partial relief from back taxes. While the price tag on those unpaid employment taxes may not amount to much, the additional employment costs (Social Security taxes, Affordable Care Act insurance, etc.) could be significant.

With the TWC on the hunt, it’s more important than ever to be sure your workers are classified appropriately. You may even need to go so far as to question your contractors about their business structures (Is the LLC they’re using not only  registered with the State, but also in good standing?). And to ask them how they view their relationship with you (Are you their only contract? How much does your business affect their bottom line income?). And, as always, feel free to contact us if you have concerns.

Image Copyright:  pressmaster / 123RF Stock Photo


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