Contract labor laws in Texas come under the control of the Texas Workforce Commission (TWC). The commission has defined policies on whether it classes a worker as an employee or a contractor, which can affect the worker's rights under unemployment compensation rules. The taxation status of the employee remains under Internal Revenue Service (IRS) control.
Texas Unemployment Compensation Act
The most important aspect of whether a worker is classified as an employee or a contractor comes with unemployment compensation. Texas law means that an employee who loses a job other than through their own fault is eligible for temporary compensation payments from the employer. This can apply if the employee quits the job for specific reasons such as needing to look after an ill child or quitting to avoid contact with somebody with a communicable disease. This compensation is not available to a contractor.
Definition of Independent Contractor
Texas law does not specifically define an independent contractor, but rather uses the broad definition, "'employment' means a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire." This is only normally overridden if the TWC believes the worker carries out this service without employer direction, either in the letter of their contract or the way in which they actually work.
Testing the Status
The TWC operates a 20-point checklist to give a clearer indication where there is dispute about a worker's status. This is adapted from the original Internal Revenue Service checklist. The IRS now uses a simplified 11-point list, which will still apply in federal tax situations. The TWC check-list includes points such as a contractor being able to have somebody else carry out the work on their behalf, carry out the contracted tasks in any order so long as they achieve the final result, being paid by the job rather than receiving a wage or salary and being able to work for more than one company at a time without restriction.
Texas law holds that the terms a company and a worker use to describe their relationship do not override the true legal situation. An agreement that says the worker is engaged in "contract labor" does not change the status of a worker who meets the criteria to be classified as an employee.