Independent Contractor
A person or entity engaged to perform services but not as an employee. Indicators include the worker's control over the manner and means of performance, services offered to multiple clients, economic risk borne by the worker, and freedom from direct supervision. No single factor decides. Classification has substantial tax, employment-law, and benefits consequences.
An independent contractor is a person or entity engaged to perform services for another, but not as an employee. Typical indicators are the worker's control over the manner and means of performance, services offered to multiple clients, economic risk, and freedom from supervision in the manner of an employee, though no single factor is required. The independent-contractor classification has substantial tax, employment-law, and benefits consequences.
Federal common-law factors
The IRS evaluates the right to control the manner and means of work, considering: behavioral control (instructions, training, supervision); financial control (investment in equipment, opportunity for profit/loss, payment method); and the relationship between the parties (written contracts, employee benefits, permanency, regularity).
FLSA economic realities test
Under FLSA, the economic realities of the working relationship, not the parties' label, control. Factors include: opportunity for profit or loss; investment by the worker; permanence of the relationship; degree of control by the employer; whether the work is integral to the employer's business; and the worker's skill and initiative.
Texas classification (TWC)
For unemployment tax, the starting point is Tex. Lab. Code § 201.041: service for wages is employment unless the worker is shown to be free from control or direction under the contract and in fact. TWC applies the twenty-factor guideline (Form C-8) adopted in 40 Tex. Admin. Code § 821.5 and made applicable by § 815.134, which also excludes qualifying marketplace contractors. Misclassification under Texas law triggers unemployment insurance liability and penalties.
Consequences of misclassification
Misclassification of an employee as an independent contractor may result in: (1) unpaid employer-side payroll taxes (Social Security, Medicare, FUTA); (2) unpaid overtime under FLSA; (3) liability for unprovided benefits (health insurance, retirement contributions); (4) workers' compensation coverage gaps; (5) penalties under federal and state law.
Independent-contractor classification is one of the most consequential employment-law decisions a Texas business makes. The classification affects tax liability, regulatory exposure, benefits costs, and litigation risk. Because the federal and Texas tests differ, the same worker can be classified differently under each. Agencies and courts look at how the relationship operates in fact, so a written agreement or label does not control by itself.