| Independent Contractor vs. Employee |
| Kenneth P. Kosut |
Evans Kosut Davidson, PLLC
616 FM 1960 West, Suite 530
Houston, Texas 77090 |
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Independent Contractor v. Employee
An independent contractor, in the employment context, is someone who provides services to another, but, for legal and tax purposes, is not considered an employee. A worker’s status as an independent contractor, rather than an employee, can have significant, and potentially beneficial, impact on the business using the worker’s services. These potential benefits principally have to do with liability for the employee’s torts (acts causing personal injury or property damage) and elimination of the employer’s employment payroll tax obligations.
In matters of tort liability, as a general proposition, employers are liable for the torts committed by an employee while in the course and scope of employment. However, except in the context of agency relationships as noted below, such “vicarious” liability of the employer for the employee’s acts does not extend to the acts of independent contractors.
In matters of tax liability, employers with employees must pay the employer’s portion of FICA (Federal Insurance Contribution Act) and unemployment compensation for the employee, as well as withhold and make payment of the employee’s portion of FICA, income tax, social security, and medicare tax payments. With independent contractors, these payments are the obligation of the independent contractor rather than the business utilizing their services.
Determinative Factors
What distinguishes an independent contractor from an employee? Texas courts have defined an independent contractor to be a worker who, in the pursuit of an independent business, undertakes to do a specific piece of work for another person or entity, using the worker’s own means and methods, without submitting to the control of anyone else in the details of that work. Applying this definition, Texas courts view the key issue as to whether an individual is an independent contractor or an employee, to be the determination of who has the right to control the details of the individual’s work. If the person or entity utilizing the services has the right to control the details of the individual’s work, then he is an employee. In determining whether the employer, or the individual, retains the right to control the details of work (and it is the right to control, not the exercise of control which generally is determinative) Texas courts most often apply the following tests:
1. Whether the individual maintains an independent business;
2. Whether the individual is obligated to furnish the tools, supplies, and materials necessary to perform the job in question;
3. The individual’s right to control the progress of the work except as to final results;
4. The length of time for which the individual’s services are engaged; and
5. The method of payment for those services, whether by the time or by the job.
There is no single controlling factor or uniform set of criteria for determining the “right to control.” Each situation and case must be analyzed and considered based on its own facts and circumstances. Even if a contract between the parties provides that the individual is an independent contractor, Texas courts will look at the parties’ true working relationship to determine the status of the worker.
Any analysis of a worker’s status should also include consideration of the principal/agent relationship, which may impact the employer’s vicarious liability to third parties for the acts of an independent contractor who is also an agent. Worker’s compensation insurance coverage issues should also be considered, since independent contractors are typically not covered by this insurance. However, it should be noted that the Texas Supreme Court, on April 3, 2009, affirmed its 2007 ruling that, under the appropriate circumstances, a premises owner can be a “general contractor” and procure workmen’s compensation insurance to cover the employees of its contractors. In such instance the premises owner’s liability for injuries to the contractor’s employees incurred on the premises would be limited to the exclusive remedy of the worker’s compensation insurance.
Evans & Kosut, P.C. has represented employers and independent contractors for many years, including representation concerning issues regarding employee/independent contractor status. If we can be of assistance to you with respect to consideration and analysis of employee and independent contractor status, or with respect to any other commercial or business legal matter, please feel free to contact me.
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