LEGISLATIVE

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Employee or Independent Contractor

New Texas Law Addresses Misclassification Issue

Misclassification of employees as independent contractors is reportedly widespread in the construction industry in Texas. When employees are not properly classified, a significant amount of tax revenue is lost as a result of unpaid state unemployment insurance taxes and federal employment taxes. 

Why is misclassification of employees a problem?

Employers who misclassify their workers create a competitive advantage when bidding on work and in turn divert work from employers who do pay taxes, workers compensation and overtime to their craftsmen.

During the 83^rd Texas Legislative a new law was passed to address the misclassification of employees. HB 2015 amends the Texas Labor Code to require that employers awarded a contract for public works must ensure that any individual performing services under the contract for that employer is properly classified as an employee or independent contractor. The new law also requires the subcontractor employer, under the specific contract for public work, to classify properly an individual as an employee or independent contractor.

What is the consequence for breaking this new law?

An employer who participates in the misclassification of workers is subject to a fine for each individual that is misclassified.

Members of the Texas Legislature made it clear that the new law was passed as a starting point to address the misclassification issue. Broader worker classification bills, providing stringent enforcement with tougher penalties, are expected in future legislative sessions.  These bills will impact many industries, of which include some specific trades within the construction industry, who continue to participate in the misclassification of employees.