Texas Contract Labor 101
Understanding Contract Labor Laws in Texas
Texas contract labor laws exist because many employers treat contract labor differently than their regular employees, but they must treat them fairly. Companies that hire contract workers usually treat them as people they do not supervise directly and provide them with less training. They may also think of them simply as interchangeable employees, basically a convenient source of labor for whatever job is available.
Texas has passed laws that require some considerations to be given to contract workers, so it is important for employers to know how these laws apply to their situation. It is also important for any contract worker to know what the laws are that apply to them . No matter what position a person holds, it is important that he or she is treated fairly, as long as the treatment is equitable. Texas requires contract laborers to have the same protections that regular employees receive.
There are many benefits for Texas businesses if they take the time to become familiar with the regulations that apply to their use of companies such as Manpower. These benefits truly apply to the function of any business that uses the services of companies such as Kelly Services. The added security for contract laborers is also a benefit because it helps assure their rights to fair treatment. It is important to note that it is not enough for Texas contractors to be familiar with the law, they also must comply with the regulations imposed.
Contractor Vs Employee: Major Differences
Employees and contract workers are treated very differently under the law, and this is perhaps most pronounced in the realm of employee benefits and tax implications. Employees have rights, benefits, and protections that do not extend to contract workers. The most practical differences include:
-Tax Withholding – Due to the nature of employee-employer relationships, employees pay income and employment taxes throughout the year while also having certain benefits such as health insurance and other benefits that are granted through their employer. These all come at a price, and contract workers assume the full cost of their own benefits, taxes, and their contracted services.
-Paid Time Off – Employees get paid time off (PTO) in the form of sick days, vacation days, and personal days. PTO allows employees to take vacation, sick, and other leave without a reduction in their income. Contract workers rely on their clients or customers to make their payments. If the client creates delay in making payments, or simply cannot pay in a timely manner, the contractor receives nothing.
-Legal Benefits – In many cases, employees can sue for misconduct in the workplace where employees do not have the option of suing their employer in the same manner. Without the legal benefits of an employee, contract workers have fewer avenues to pursue justice in cases of employment issues.
-Workers’ Compensation – Employees can file workers’ compensation claims under workers’ compensation laws when injured on the job. If the employee does not have benefits under workers’ compensation, they may possibly have a personal injury claim against their employer. Contract workers, if injured, do not have any such options available. They are considered business owners in the scope of the law.
Employing Contract Laborers in Texas
The second step in hiring contract workers is determining the contract to be used. Although many people simply complete a quick Google search and copy the first page of text, it is not always possible for the terms of employment to be captured in some boiler plate form downloaded off the internet. Prior to drafting an agreement, the essential questions that must be answered are: What is the relationship between the parties? Are the services being provided to customers as part of the business entity’s normal practice? If so, how frequently will the services be performed? How billing will occur? Each contractual agreement should be tailored to the specific facts in question and take into consideration what the agreement is intended to accomplish.
Some other important issues when hiring contract workers are properly classifying employees and tracking your business’s tax compliance obligations. The IRS will reclassify a contract worker as an employee if it is determined that the worker is an employee under the common-law rules, under which you must consider evidence of the degree of control and degree of independence. There are also state and federal tax obligations; such as sales tax and employee withholding.
The Rights Of Contract Workers
The rights of contract workers differ from those of employees, particularly because contract workers do not have an employer in the same sense that employees do. However, many of the protections that cover employees are also extended to contract workers, in addition to some that apply only to contract workers.
Contract workers:
• Cannot be subject to a medically-unfit worker policy and should be entitled to benefits if injured on the job.
• Must be paid according to the terms of the contract. If the contract states that the salary will be higher than it actually is, the contract worker may have a case against the hiring company.
• Have the right to be provided with workplace safety equipment. It is illegal for companies to charge contract workers for their own safety equipment.
• Are entitled to unemployment benefits under Texas law if unemployment results from an injury on the job.
• May be able to participate in a 401(k) or other retirement plan and can file suit against a company if the retirement plan does not allow contract workers to participate.
While a valid contract may waive some rights, contract workers are still protected by law against contracts which waive Texas’ child labor laws or OSHA safety rules.
Texas Labor Law Responsibilities
The primary state agency charged with enforcing contract labor laws is the Texas Workforce Commission (TWC). The act requires all contract labor employers to register with the TWC and report certain information each quarter. The TWC adopts rules and regulations to carry out the purposes of the Contract Labor Act. 40 TAC §830.1 et seq. Additionally, the TWC has promulgated a significant amount of administrative guidance. See Compliance with Chapter 91 of the Texas Labor Code, 33 Tex. Admin. Code §821. (TWC Rule 821). The following information is required to be reported on or before the last day of the month following the end of a calendar quarter:
As previously mentioned, in addition to reporting requirements, there are certain registration requirements. Section 91.008 provides:
In order to maintain the registration required by [Section 91 . 009] of the Act, the person registering must:
(1) establish a complete, accurate, and current list of:
(A) each person who contracts to perform labor; and
(B) each employee of the person performing labor; and
(2) maintain for inspection during regular business hours, a copy of each relevant person’s payroll records and timecard records, including:
(A) each employee’s name;
(B) each employee’s residential address;
(C) the employment classification number of each employee;
(D) the per diem of each employee, if applicable; and
(E) the name, address, and telephone number of a person who maintains the necessary records.
All the information reported to the TWC is confidential. 40 TAC §830.31(a); Texas Labor Code §91.095. However, the data may not be used in legal proceedings for judicial purposes. No cause of action can be based on any data supplied to, or obtained from, the TWC. Texas Labor Code §91.095(b).
Consequences For Contract Labor Misclassification
Employers who misclassify workers as contract laborers may face a range of penalties and legal consequences. As mentioned, the IRS has aggressive, nationwide enforcement efforts to stem the growing misclassification crisis. Indeed, if the IRS determines that a worker was misclassified, it can not only require that the employer pay the applicable payroll taxes on the misclassified worker, but it can also pursue the employer for interest and penalties. Likewise, state tax agencies may impose similar enforcement measures. Additionally, to the extent that the misclassified worker was not entitled to overtime and/or minimum wage protections under the FLSA, the employer will be on the hook for those wage violations, as well as any associated liquidated damages, attorneys’ fees and costs.
Perhaps more significantly, a misclassified contract laborer may be entitled to bring a claim for employment discrimination. Texas employers (with more than 15 employees) must follow various federal and state laws that prohibit employment discrimination. If the misclassified worker feels that he or she was treated differently because of his or her protected status (age, race, disability, national origin, religion, gender, etc.) the worker may have a claim for employment discrimination. In such a case, the worker can elect to pursue a discrimination lawsuit rather than an unpaid wage recovery lawsuit, and attorney’s fees, costs and potential liquidated damages may be even greater than the amounts available for unpaid wages. Of course, wage violations and employment discrimination claims are a difficult combination for any employer to overcome in litigation.
Situations exist where the misclassification of an employee as a contract laborer is specifically calculated to deprive the worker of critical protections and benefits available under the FLSA or state discrimination laws. For example, an employee previously terminated because of his or her transgender status may be classified as a contract employee, rather than as a regular employee, to avoid incurring additional expenses related to that individual. Moreover, an individual who has previously filed claims related to nonpayment of wages or harassment for his or her gender, age, race, etc., may be classified as a contract laborer in such a way to avoid enhancing the damages available should the employee file subsequent complaints.
Clearly, Texas employers must manage the risk of misclassifying employees as contract workers. The legal and financial consequences of a finding of improper classification can be severe.
New Developments In TX Labor Law
In 2015, the Texas Legislature passed several significant laws that impact both contract workers and employers. One of these laws requires a labor contracting entity to obtain a license if it provides staffing for onshore oil and gas exploration and production activity. Another law limits pay deductions for government contractors that contract for public work and criminalizes refusal to pay wages owed under certain conditions. Also, a recent change to Texas’s Minimum Wage Act impacts the the status of employees who are classified as exempt from minimum wage and overtime requirements.
Effective September 1, 2015, the Staffing Certification Act (V.T.C.A., Section 91.061-68) requires a labor contracting entity (an entity that provides another entity with a person to perform labor) to apply for and maintain with the Texas Department of Licensing and Regulation a license to provide workers to a company engaged in "onshore oil and gas exploration and production activities," which would include exploration, development, testing, drilling, completing, or reworking of wells, or any other operation supporting or involving onshore production. The act is intended to establish accountability for the labor contracting agency and to ensure that employers are not circumventing statutory obligations to their employees (such as wage payment obligations) by engaging firms that subcontract with other firms to provide workers to perform labor in order to avoid or evade their responsibilities to those workers. This law is not limited to employers in the oil and gas agency, but generally applies to any employer that provides contract workers to another company and that fails to pay the wages owed to those workers.
Effective September 1, 2015, Section 61.052, Texas Labor Code, declaims that "a contractor may not deduct an amount from the wages or compensation of a worker who performs public work under a contract that is awarded by a political subdivision of this state" unless a collective bargaining agreement specifically permits deductions, the worker receives a benefit or service and knowingly accepts the deduction from wages or compensation, or the worker expressly authorizes the deduction in writing. Further, Section 61.053 now criminalizes a contractor’s refusal to pay wages to workers who performed public work under contract with a governmental entity. This law was enacted to address issues arising under federal Davis-Bacon Act, which has been held under certain circumstances to permit contractors to evade their duty to pay minimum wages to contract workers by refusing to pay wages owed to those workers for performing work on federally funded projects. This law essentially places the same obligations on contractors in Texas who are providing public work.
Finally, effective January 1, 2016, Section 62.051 of the Texas Labor Code expands the exceptions to "white collar" exemptions under the state minimum wage law and becomes the same or more restrictive than its federal counterpart. To qualify for an administrative exemption, an employee will have to spend at least 50% of their time performing executive, administrative, or professional duties that come within the scope of a regulation issued by the Texas Workforce Commission. Prior to the passage of this law, commission regulations only required that an employee spend a majority of their time performing exempt work, but did not require that such duties be "primary." Further, an exempt professional will fall under the professional exemption regardless of how they are compensated or what their job title is if their duties meet the regulatory test, except that licensed or registered professionals must be compensated as required under the FLSA. Finally, the law adds two more exemptions to situations where the mere payment of a salary does not in and of itself create an exempt relationship. The first exemption states that time-based, hourly, or piece-rate methods that results in a fixed presumptive salary do not create an exempt relationship. The second is a catch-all exception excluding any time or payroll practice that does not guarantee the employee a predetermined amount of compensation for a set period of time.
Based on the law’s similarity to federal regulations, this new law should have little impact on most Texas employers. More importantly, it is essential that Texas employers who classify employees as exempt from state and federal minimum wage and overtime requirements remain mindful that regulations applicable to the state law differ from federal compensation laws and must comply with both applicable regulations.
When You Should Call An Attorney
There is a lot of misinformation floating around about how independent contract workers are classified. While this is understandable, as the difference between contract workers and employees is extremely thin and in many cases periods of time are spent by contract workers and companies examining the areas of law that will determine if contractual obligations will be enforced or regulated by the laws governing employment. The key here is that if you are an employer or a contract worker facing these types of legal issues then you should seek legal help so that you know whether there are other legal areas that are in contention with the contract that might impact the contract. It’s not sufficient to simply talk to an attorney who specializes in contract law when the contract is interfacing with laborer laws , away from the contracting area. More often than not, a lone expert in one area is not going to be able to see all the potential implications in playing contract law against governing employment law. Only a team of interdisciplinary lawyers can provide clear and accurate interpretation of how one area of the law- like contract labor law- actually interfaces with another area or establishes legal rights. This is why it is very important not to simply ask "Can I sue?", Rather ask "What kind of lawsuits are available, and which are better?" If you can get past one question, then the next level is "What other issues are there?" If the attorney who’s interested in your case doesn’t address those latter two questions, or get a specialist to address them, then he’s probably not the right specialist for you, even if he is the best in his field.