Texas H.B. 1925/S.B. 676
Status: House: Committee Report, April 2013; Senate: Left Pending in Committee, April 2013
This bill would create a rebuttable presumption that an individual providing construction services is an employee for purposes of the Texas Unemployment Compensation Act (“TUCA”) unless the individual meets the definition of independent contractor by satisfying a multi-factor test. Construction services performed by an individual who satisfies the definition of independent contractor by passing the multi-factor test would not be considered employment subject to TUCA.
Definitions
“Construction” means work related to the erection, improvement, alteration, repair, renovation, maintenance, or remodeling of a building, structure, appurtenance, road, highway, bridge, dam, levee, canal, jetty, or other improvement to or on real property, including moving, demolishing, dredging, shoring, scaffolding, drilling, blasting, and excavating real property.
“Independent contractor” means an individual who satisfies at least five of the following:
- The individual performs a service under a written contract with the person for whom the service is performed that states that the relationship of the individual to the person for whom the service is performed is that of an independent contractor and not an employee;
- The individual represents that the individual is an independent contractor and not an employee;
- The individual is required to submit to the person for whom a service is performed an Internal Revenue Service Form W-9 or a similar form providing the same information;
- The individual operates a business entity in which the individual shares in the profits or losses of the entity;
- The individual is not prohibited from hiring employees and acting as the employer of any employee of the individual by paying wages, directing activities, and performing other similar functions characteristic of an employer-employee relationship;
- The individual has substantially invested in, and is required to furnish, necessary tools, supplies, or materials to perform a service;
- The individual obtains and pays for any occupational license required by this state to perform a service;
- The individual is free to perform services for any other person; or
- The individual submits to the person for whom a service is performed evidence of any insurance coverage required by law to perform a construction service.
Facts That May Not Be Sole Determining Factors
An individual may not be considered an employee based solely on the fact that the person for whom the individual is providing a service requires that any employee hired by the individual must:
- Submit to a criminal background check or pre-employment drug screening; or
- Possess a certain license or certification relating to the work the employee will perform.
Limitations on Reporting Requirements
A person for whom an individual is providing construction services is not required to report to the Texas Workforce Commission (“the Commission”) that the individual is an employee of the person if the person:
- Shows that the individual is an independent contractor, as defined above;
- Provides to the individual an Internal Revenue Service Form 1099, or a similar form issued by, or that meets the compliance guidelines of, the Internal Revenue Service, on which the person reports the amount paid to the individual in accordance with Internal Revenue Service requirements; and
- Files the Form 1099, or similar form, with the Internal Revenue Service in accordance with Internal Revenue Service requirements.
Classification by Contractor
A contractor shall properly classify each person providing construction services as either an employee or an independent contractor.
“Contractor” means a person who contracts to perform construction.
“Employee” means an individual who performs services for another under an express or implied contract of hire.
Penalties for Violation
The Commission may impose an administrative penalty on a contractor who misclassifies an employee as an independent contractor. The amount of the penalty may not exceed:
- $100 for each individual who is not properly classified; and
- $1,000 for each individual who is not properly classified for each subsequent violation that occurs after the imposition of a penalty for a prior violation.
Any penalty also applies to a successor business entity that:
- Has one or more owners who jointly control at least fifty percent (50%) of the:
- Original employer; and
- Successor business entity; and
- Is engaged in the same or similar business activity.
Reporting Violations
The Commission is required to provide on its website information regarding the procedure for the public to report violations.
Notification of Violation to Governmental Entities
If the Commission determines that a contractor has committed a violation, the Commission shall provide notice of the violation to each governmental entity that the commission reasonably believes has received construction services provided by the contractor. The notice must identify the contractor and, for each violation, specify the type of service provided and the location at which the service was provided, if known to the commission.
“Governmental entity” means the State of Texas or a political subdivision of the State and includes a municipality.
Commission’s Annual Report
The Commission shall issue an annual report regarding compliance and enforcement. The report must include:
- The number of complaints received from the public;
- The number of investigated complaints and any resulting findings; and
- The amount of unemployment taxes, interest, administrative penalties, and fines actually collected as a result of:
- Violations of the classification rules; or
- The exclusion of construction performed by an individual from the application of TUCA, unless the construction services are excluded because they were performed by an independent contractor as defined above.
Changes Apply Only to Claims Filed After Effective Date
The changes made by this bill would apply only to a claim for unemployment compensation benefits filed after the effective date of this bill. A claim filed before the effective date would still be governed by the law in effect on the date the claim is filed.
