An Employer Guide to Correctly Classifying Workers

 Posted on December 11, 2024 in Business and Commercial Law

One of the most important tasks of any employer is ensuring that workers are properly classified as either employees or independent contractors. The distinction can have a significant impact on an employer’s obligations under Texas and federal law. Failing to properly classify employees can also result in significant financial and reputational penalties. An experienced Hood County employment attorney can advise employers on the proper classification of workers and defend allegations of improper classification.

Why Does It Matter if I Classify a Worker as an Employee or Independent Contractor?

Your workers’ rights and entitlements under the law will vary widely depending on whether they are classified as employees or independent contractors, as employees receive many more benefits. When hiring employees, employers generally are required to withhold income taxes and pay Social Security, Medicare, and unemployment taxes. Employers must also pay employees minimum wage and overtime, and provide workers’ compensation coverage and certain protections against discrimination.

How to Properly Classify a Worker

Whether a worker is an employee or an independent contractor largely depends on the level of control over the work that you have as an employer. There are three main factors that help determine if someone should be classified as an employee or independent contractor:

• Behavior: Do you have the right to control what the worker does and how they do their job?

• Finances: To what extent do you control the worker’s business expenses? For example, how many of their facilities or tools do you provide? To what extent does the worker pay their own expenses?

• Relationship: What is the relationship between the parties? Are there written agreements detailing benefits such as pension plans, vacation plans, or insurance? Is the relationship capped to a period of time?

What Happens if I Do Not Properly Classify a Worker?

There are serious penalties for misclassifying workers. These include, but are not limited to: 

• Exposure to class action lawsuits from workers claiming they were misclassified

• A $200 statutory penalty for each person who has been misclassified 

• Liability for payment of back wages and employment taxes

• Damages for violations

• Criminal liability in certain cases if the misclassification was intentionally done to avoid taxation

Contact a Hill County, TX Employer Attorney

Employers must comply with state and federal requirements to classify workers as either employees or independent contractors. At Cain & Kiel Law, we have experience advising employers on worker classification requirements. Our experienced Hood County, TX employment attorneys advise employers on their rights and responsibilities to make sure they remain compliant and avoid disputes over worker classification. Contact our offices at 817-645-1717 for a confidential consultation today.