To classify workers correctly in Texas, businesses must focus on whether they retain the right to control not just the outcome of the work, but also the means and details of how the work is performed. Texas courts, statutes, and agencies consistently apply a “right to control” standard, often operationalized through multi-factor tests, such as the Texas Workforce Commission’s 20-factor guideline, and supplemented by statutory definitions in certain contexts.
The classification process is highly fact-specific and no single factor is determinative; instead, businesses must weigh all relevant circumstances, including the nature of the work, the method of payment, provision of tools, the worker’s independence, and the existence of written agreements. Federal law (such as the Fair Labor Standards Act and IRS rules) may impose additional or different tests, so businesses should ensure compliance with both state and federal requirements to avoid misclassification risks.
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The Right to Control Test
This “right to control” test is the common-law standard and is applied across a wide range of legal contexts, including wage claims, workers’ compensation, tort liability, and unemployment insurance.
Courts have articulated several non-exclusive factors to help assess the right to control, including:
- The independent nature of the worker’s business.
- The worker’s obligation to furnish necessary tools, supplies, and materials.
- The worker’s right to control the progress of the work except as to final results.
- The time for which the worker is employed.
- The method of payment (by time or by the job).
These factors are not exhaustive, and no single factor is determinative; the totality of the circumstances must be considered.
Texas Workforce Commission Factors
The Texas Workforce Commission (TWC), which administers unemployment insurance and wage claims, applies a 20-factor “right to control” test, closely modeled on the IRS’s common-law factors. These factors are codified in TWC rules (40 Tex. Admin. Code §§ 815.134, 821.5) and include considerations such as:
- Instructions and training provided by the business.
- Integration of the worker’s services into the business.
- Personal performance requirements.
- Hiring, supervising, and paying assistants.
- Set hours of work.
- Full-time work requirements.
- Work performed on the business’s premises.
- Sequence of work.
- Reporting obligations.
- Method of payment.
- Provision of tools and materials.
- Realization of profit or loss.
- Working for multiple firms.
- Making services available to the public.
- Right to discharge or terminate.
No single factor is controlling; the overall relationship and the degree of control are determinative.
Federal Economic Reality Test
For federal wage-and-hour law (Fair Labor Standards Act, FLSA), the U.S. Department of Labor applies an “economic reality” test, which as of March 2024 consists of six non-exhaustive, equally weighted factors:
- Degree of control over the work.
- Worker’s opportunity for profit or loss.
- Worker’s investment in equipment or materials.
- Special skills required.
- Permanency and duration of the relationship.
- Whether the work is integral to the business.
This test is distinct from, but often overlaps with, the Texas common-law control test.
Conclusion
Classifying workers correctly as either independent contractors or employees is very important for a business because it affects legal rights, tax obligations, and financial risks for both the business and the worker. It’s important for businesses to carefully review how they work with each person and follow the law when deciding if someone is an employee or an independent contractor. Given the large number of factors in the relevant tests and the ever-evolving landscape of employment law, legal advise from a qualified attorney on how to classify workers is essential for many businesses.
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