
When you work, what you get paid is usually the most important thing. What many people miss is that it’s just as important to consider how you get paid.
Generally, every Texan who works does so as one of two types of worker: employee or independent contractor. You might also hear people say “W-2” or “1099” workers, based on the tax forms these workers get for tax time every year. Employees get a W-2, and independent contractors only get a 1099. This is a distinction with a very big difference for every Texas worker.
Independent contractors are not covered by many of the protections that regular employees have under federal and Texas law, including freedom from discrimination or retaliation, protected medical leave, minimum wage, overtime, and unemployment benefits. But one of the biggest issues is how much you pay in taxes and when you pay them. If you have ever been an employee and seen your paystubs or your W-2, you may know that your employer withholds a few types of taxes from your paycheck and reports the total for the year on your W-2. Aside from income tax, you might have seen Medicare and Social Security taxes. Those two taxes are half of what are referred to as “FICA” taxes, after the Federal Insurance Contributions Act. Who pays the other half? The employer!
But what happens if you’re an independent contractor? If someone pays you as an independent contractor and gives you a 1099, they don’t pay a cent in extra FICA taxes—you do. You’re considered self-employed and pay the self-employment tax, or “SECA” taxes, after the Self-Employed Contributions Act. This tax is the same as both halves of FICA taxes. And instead of having your taxes withheld every paycheck, independent contractors have to pay all of their taxes out of their own pockets, usually every quarter as estimated taxes. If your employer is treating you like an employee but paying you like an independent contractor, you might be paying their taxes for them!
How do you know if you’re supposed to be an employee or independent contractor? Texas uses a common law test often referred to as the “right to control” test. What matters for Texas workers is whether your employer has the right to control when you work, how you work, what you work on, and more. For example, the Texas Workforce Commission uses the common law test with 20 different factors. The IRS uses a similar test.
Does your employer say you’re an independent contractor? Do you get a 1099 at tax time? Take a look at these factors and count how many you say yes to:
- Does the employer give you instructions?
- Do you get training?
- Is your work part of the employer’s business operations?
- Do you do your work personally?
- If you have helpers, does the employer pay them?
- Do you continue working for the employer month after month?
- Does the employer set your hours of work or your schedule?
- Does your employer make you work full-time?
- Does the employer control where you work?
- Does the employer control how you work?
- Do you have to submit progress reports?
- Are you paid regularly, like by the hour or by the week?
- Does the employer reimburse your expenses?
- Does the employer give you tools and equipment to get the job done?
- Do you have little or no investment in the employer’s business?
- Do you only get paid for your work, and not get profit or loss from the business?
- Do you work for one employer at a time? Even more, does your employer stop you from working with a competitor?
- Do you only make your services available to the public through the employer?
- Can the employer fire you at any time?
- Can you quit at any time?
If you count a lot of “yes,” but your employer says you’re an independent contractor, you might be misclassified! This can affect your rights and protections under federal and Texas law, as well as how much you pay in taxes and when.
Austin employees who are concerned about being misclassified should contact my office, Austin Employment Lawyers, P.C. The attorneys at Austin Employment Lawyers, P.C., represent employees in Austin and across Texas who have been misclassified by their employers as independent contractors. We also represent Austin employees and Texas employees who face issues that misclassification makes harder, like discrimination, retaliation, unpaid wages, and unpaid overtime.
For more information or to schedule a consultation, please visit our website or call us at (512) 271-5527.