Texas 2021 Labor Laws: Proposed New Independent Contractor Rules

2020 has certainly been a year of upheaval for business owners, but there is some status quo, especially when it comes to Texas labor laws where there are no new significant changes planned on the state level for 2021.

That means the major components we highlighted for labor laws for Texas in 2020 will still hold true next year, including a minimum wage of $7.25 hour, and compliance by businesses with the Texas Payday Law, which requires exempt employees be paid at least once a month and non-exempt employees receive a minimum of two paychecks per month.

Texas, however, leaves a lot of the workplace rulemaking to the federal government with no state laws that apply to such labor issues as meals and breaks, overtime or severance pay, and vacation, holiday, and sick leave benefits.

And it is on the federal level where Texas businesses could see changes in 2021 labor laws, including a proposed new independent contractor rule that was introduced last month and is being fast-tracked for final approval in January 2021.

Independent Contractor Rule Fast-Tracked for January 2021 Approval

The U.S. Department of Labor announced on Sept. 22, 2020 a proposed new rule that will help clarify the definition between an employee and independent contractor under the Fair Labor Standards Act (FLSA).

“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” said Secretary of Labor Eugene Scalia in a press release. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

The National Law Review reported that the rulemaking was being fast-tracked for final regulations by January 2021 and that, “the rule change would significantly relax the parameters for defining independence.”

“The rule we proposed today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers,” said Department of Labor Wage and Hour Division Administrator Cheryl Stanton. “The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”

A New Relaxed Independent Contractor Test

The distinction between an independent contractor and employee is an important one for businesses. Employees have their income tax, Social Security and Medicare withheld by employers in their paychecks, while independent contractors handle their own taxes, Social Security and Medicare payments.

Employees are subject to all relevant federal and state employment and labor laws, while independent contractors are not, unless targeted by specific state laws such as California’s AB5 aimed at independent contractors and the gig economy.

The federal government rule proposes a new relaxed test to determine the status of an independent contractor, based on the following key components:

• “Economic Reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee)
• Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself
• Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production
• Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

Contact Employer Flexible today for help in identifying applicable Texas labor laws that affect your business or if you need any assistance managing your company's HR.