Employment Law Basics
February 2015
Texas RioGrande Legal
Aid
Legal Assistance to
Microenterprise Project
(L.A.M.P.)
The following information is intended to assist in
spotting legal issues relevant to small businesses in
the State of Texas. There are many factors to be
considered in determining which actions and
decisions would be most appropriate to any specific
situation. This presentation only discusses some of
the more important factors. It is not intended to
substitute for legal advice. You should decide which
course of action is best after discussing it thoroughly
with an attorney.
Independent Contractors v.
Employees
What is an Employee?
• Employees are
subject to the
employer’s control
• Employer must
withhold and pay
employment taxes
on employees.
• Employer must
comply with labor
laws.
What is an Independent
Contractor?
• Independent contractors are people
who perform services for others but who
do not have the legal status as
employees.
• Independent contractors are not subject
to the employers control
• Employer must file form 1099-MISC if
paid more than $600 to an independent
contractor
a rose by any other name…
• Federal and state labor laws apply only
to employees, not independent
contractors.
• Employment taxes and withholding
apply only to employees, not
independent contractors
• A business must not call an
employee an independent contractor
to avoid compliance with these laws.
Knowing the Difference
• It is very important that a business
properly identify a person as an
employee or independent contractor.
• The burden is on the employer to prove
the worker is NOT and employee.
BE CAREFUL….
• Classify your workers correctly, if you
classify an employee as an independent
contractor, you can end up having to
pay the employment taxes with interest
and penalties!
• If in doubt, check with an attorney or
with the IRS!!
Question?
• What is the test to
determine whether a
worker is an
employee or an
independent
contactor?
Answer:
• There is NO sure test.
• Under the Fair Labor Standards Act, the
employer-employee relationship is
determined by “economic reality” rather than
“technical concepts”.
• Other laws, such as state workers
compensation and unemployment
compensation, IRS, and National Labor
Relations Board use different factors.
Which factors indicate a worker is an
independent contractor?
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The employer controls the details of the work.
The work is done without supervision.
The worker is skilled.
The worker provides equipment or tools.
The worker is located at the employer’s site.
The worker is paid by the project.
The employer did not intend to create an employee relationship.
The worker has the opportunity to make a profit or incur a loss.
IRS Guidelines
– Behavior Control (tasks, results, training)
– Financial Control (reimbursements, how
paid,extent of worker’s investment,
opportunity for profit and loss)
– Type of Relationship (written contract,
benefits, permanency, integral to regular
business)
IRS Form SS-8
• If you are not sure whether a worker is
an employee or independent contractor,
get IRS Form SS-8 and Publication 15A.
• Two defining factors:
– Right to control
– Contractor is an entrepreneur
Reasonable Mistake
• Section 530 of the IRS code protects an
employer from liability for failure to
withhold taxes if the employer had a
reasonable basis for not treating the
worker as an employee.
Safe Harbor
• Reasonable Basis includes:
– court rulings, IRS letter ruling to the
employer, technical advice
– past IRS audit that did not consider
substantially similar positions to be
employees
– long-standing practice of a segment of the
industry
– legal advice from a qualified attorney who
is properly advised of the facts and
circumstances
Best Practices Tip
• If you have a question whether a person is an
employee or independent contractor, ask an
attorney.
At Will Employment
• Can terminate employment at any time for any
reason or no reason, so long as it is not an illegal
reason.
• If enter into an employment contract with employee,
terms of contract will control.
• If want to maintain ‘at will’ employment relationship,
have employee sign acknowledgment stating that:
employment is at will and that an employment
contract will not be valid unless in writing and signed
by owner/CEO of business.
HIRING
Recruiting
• Prepare a written job description, identifying
minimum qualifications including: necessary
education, skills, experience and essential job
functions.
• Prepare a job advertisement and distribute
the ad to a variety of distributors, widely seen
media, list with the TWC.
• Develop a standard application form that
includes important information and avoids
questions that raise discriminatory issues.
Job Application Form
• Inform the applicant
about the basic
terms/conditions of the
job, and that
employment is ‘at will’
• Obtain the applicant’s
written consent to have
you conduct a
background check,
reference check, and/or
drug test
• Have the applicant
acknowledge that
untrue or incomplete
information can result in
not getting the job
• Ask:
– Name, address, phone
number
– Is applicant legally
entitled to work in U.S.?
– If hired, when available to
start?
– Education and
employment history
– Special training and
achievements
– Convictions and guilty
pleas
– names and contact
information for persons to
be notified in case of
emergency
Interviewing
• Review applications for minimum
qualifications.
• Schedule interviews for best candidates
• Prepare interview questions to ask of all
candidates.
• Use a panel to conduct interviews.
• Obtain an information release.
• Check references.
• Make clear that employment is at-will.
Interview Questions
• What year did you graduate from high
school?
• Have you ever been arrested?
• Have you ever filed for bankruptcy?
• Have you ever filed a workers’ compensation
claim?
• Can you make child care arrangements?
• Where did you get your accent?
• Are you married?
Reviewing Applications
• Respect privacy rights; make sure you have written
consent to do background checks, reference checks,
etc.
• If you are going to drug test, make sure you have
written consent and a ‘drug-free workplace’ written
policy that employees have agreed (in writing) to
abide by.
• Fair Credit Reporting Act: requires that if you do not
hire based on result of credit report, disclose report
and reporting agency to applicant.
• Interviewing: ask only about things that are directly
related to job requirements, do not ask about
protected information, like ethnic origin, marital
status, gender, age, etc.
Criminal History
• A conviction, by itself, cannot be an
absolute bar to employment.
• However, an employer may consider
the relationship between a conviction
and the applicant’s fitness for a
particular job.
Factors to Consider
• The nature, gravity, and number of the
applicant’s criminal acts;
• The length of time since the convictions;
• The nature of the job sought.
Regulated Industries
and
Licensing Issues
Child Care Facilities
• Background check
required for all applicants
in licensed day care
facilities or registered
family homes.
• Includes civil and criminal
proceedings involving
assault, lewdness,
endangerment of a child.
• Applicants with some
types of conduct are
barred from employment.
Other State Laws
• Nursing homes-no employees with
convictions such as homicide, arson or
robbery.
• Apartments, hotels, or other similar facilitiesmay request an applicant to disclose his or
her criminal history at any time.
• Driving record or professional license-no
restrictions on inquiry. Employers should
verify if necessary for the position.
Hiring Decision
• Base hiring decision only on job-related
criteria, let applicants know your decision.
• “You appear to have some good
qualifications, but we feel we have hired the
most qualified applicant for this position.”
• Verify authorization to work within 3 days,
complete I-9 and keep copies of
documentation in employee’s file.
• All employers are required to report certain
information on new hires to Texas Employer
New Hire Reporting Operations Center.
State and Federal
Discrimination Laws
Discrimination prohibited by
state, federal and local laws.
• Discrimination on basis of race, color,
gender, religious beliefs, national origin,
disability, age all prohibited.
Title VII of the Civil
Rights Act
• Applies to employers with 15 or more
employees.
• Prohibits discrimination in employment
based on race, color, sex, national
origin, or religion; prohibits sexual
harassment.
Harassment
Question?
• True or False?
• An business is not
liable for sexual
harassment of an
employee
committed by a
client of the
company.
Question?
• True or False?
• If the employee
does not complain
about the behavior,
it is probably
welcome and not
harassment.
Question?
• True or False?
• A person cannot
make a claim of
sexual harassment
against a person of
the same gender.
Question?
• True or False?
• A person cannot
make a claim for
sexual harassment
against a manager if
the employee was in
a consensual
relationship with the
manager before.
Harassment
• Harassment, retaliation, and sexual harassment
will get you sued.
• Your business can be held liable if you or a
supervisor knows or should know sexual
harassment is being committed by employees or
clients or vendors on premises.
• You are under a legal duty to take the necessary
steps to prevent sexual harassment. Start by
adopting a formal policy that it will not be tolerated,
and let your employees know who they should talk
to if it happens.
Sexual Harassment
• Unwelcome sexual advances, requests for sexual
favors where submission to the conduct becomes a
term or condition of employment
• Unwelcome sexual conduct that creates a hostile
work environment
• Express or implied demands for sexual favors
• Verbal or physical conduct of a sexual nature
creating a hostile or abusive work environment
HOSTILE ENVIRONMENT
Unwelcome discriminatory conduct
or sexual conduct that unreasonably
interferes with an individual’s job
performance
Establishing an AntiDiscrimination Program
• Adopt and communicate a policy of no
tolerance
• Train supervisory and non-supervisory
employees
• Adopt grievance procedures
• Investigate complaints promptly and
confidentially
• Monitor compliance with policies
Costs of Prevention v. Litigation and
Damages
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Prevention
Creating policies
and grievance
procedures
Training
Investigation
Monitoring
Insurance or
Attorney fees?
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Litigation
Attorney fees
Actual damages?
Punitive damages?
Loss of clients/
business due to bad
publicity
Age Discrimination Act
• Applies to employers with 20 or more
employees.
• Prohibits discrimination against those
40 years or older.
Americans With Disabilities Act
• Applies to employers with 15 or more
employees.
• Prohibits discrimination against qualified
individuals with disabilities; requires
reasonable accommodation unless it
creates an undue hardship on
employer.
Texas Commission on Human Rights
• Applies to employers with 15 or more
employees.
• Prohibits discrimination based on race,
color, gender, religion, national origin,
age, or disability.
Family and Medical Leave Act
• Applies to employers with 50 or more
employees.
• Provides that employers must provide
up to 12 weeks unpaid leave for birth or
adoption of child or serious health
condition of child, spouse or parent.
Pregnancy Discrimination Act
• Applies to employers with 15 or more
employees.
• Provides that employers must treat
pregnancy, childbirth, and related
conditions the same as other temporary
disabilities.
Equal Pay Act
• Applies to employers engaged in
interstate commerce (which is broadly
interpreted).
• Requires equal pay for men and women
who perform substantially the same
work in the same business
establishment.
Vietnam Veteran’s Readjustment Act
• Applies to employers with federal
government contracts in excess of
$10,000.
• Requires contractors to take affirmative
action to employ and promote qualified
disabled and Vietnam era veterans.
Uniformed Services Employment and
Reemployment Rights Act
• Applies to all employers.
• Requires rehire of members of
uniformed services upon completion of
active duty military service.
Texas Child Labor Law
• Generally prohibits employment of
children under 14
• Children 14-15 may be employed in
non-hazardous jobs and hours are
restricted
• 16-17 year olds have restrictions on
type of work
Managing Employees
Training
• Employee handbooks are a good
starting point if there is
disagreement with employee.
• Manual can include:
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Employment is ‘at will’
Overtime policy
Anti-discrimination policy
Drug abuse policy
Probationary period/raises
Leave, payday, work hours
Safety & training
Discipline & grievances
Termination
Receipt and acknowledgment
• Have policies and
procedures in place so
employees know what you
want them to do and how
you want them to do the
job.
• Be consistent in applying
policy to avoid
discrimination claims.
• All training time/hours count
as time worked and must be
paid.
Documentation
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Document job performance
Periodic evaluations
Employee feedback/complaints
Retaliation (termination, demotion)
Paying Employees
Minimum Wage
• Currently $7.25 an hour
• Some exceptions; ex. Tipped
employees – but must make sure you
meet all requirements for exception and
for compliance with the exception.
Fair Labor Standards Act
• Non-exempt employees must be paid
overtime for each hour worked in
excess of 40 hours in a workweek.
• Make sure your employees fill out time
sheets, clock in and out, or otherwise
account for their time!
Exempt Employees
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Executive
Professional
Administrator
Outside Salesperson
“Off the Clock Hours”
• There is no such thing as “voluntary
work” that does not have to be paid.
• Even unauthorized work must be paid.
• Travel (after arriving at work) and
waiting time must be paid.
Leaves of Absence
Types of Leave
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Jury duty
Time off to vote
Responding to subpoenas
Military duty
Personal leave
Pregnancy leave
Family and medical leave
Disability leave
Workers’ compensation leave
Workplace Safety
Occupational Safety and Health
Act
• Applies to employers with more than 10
employees
• Standards of workplace safety include:
– Providing protective equipment
– Reducing hazards
– Establishing safety programs
– Posting notices and labeling materials
– Reporting accidents
Modifying Risk: Safety
• Anticipate risk of injuries
• Plan for accidents
• Train for emergencies
Modifying Risk: Safety
• Simple Safety Tips
– Post safety signs
– Post emergency numbers
– Stock first-aid kits
– Keep fire alarms and extinguishers working
– Train employees on emergency actions
– Encourage employees to make
recommendations
Worker’s Compensation
Insurance
• Optional in most cases for Texas employers
• Will provide lost wages and medical benefits
to your employees if they are injured on the
job
• In most cases will limit liability if the employee
sues your business for his injuries
• Employee notifications, TDI notifications
Employment Taxes
Federal Employment Taxes
• Must withhold income taxes, employee
share of social security and medicare
taxes from employee paychecks.
• Employer pays employer share of social
security and medicare taxes.
• Federal unemployment tax paid
quarterly.
• Must periodically deposit withheld
monies; may be worth hiring a payroll
service.
Texas Workforce Commission
Unemployment Tax
• Applies if pay
• Must post required
$1,500 in wages in a
posters at work site.
quarter or have an
Posters are
employee for 20
provided by TWC.
weeks.
• Depending on
• Employer must
number of
register with TWC
employees, may be
within 10 days.
required to put up
other posters as
well.
What you need to know about
health care reform
• Businesses with fewer than 50 full time
equivalent employees are exempt from penalties;
however, you may qualify for employer health care
tax credits.
• If you're self-employed with no employees, you're not
considered an employer.
• If your business has even one employee (other than
yourself, a spouse, family member, or owner), you
may be able to use the SHOP Marketplace for small
businesses to offer coverage to your employees.
Termination
Termination
• Have an employee
handbook stating your
policies. It is a good
starting point if you
have a disagreement
with your employee.
• Document what
employee did wrong
and why terminated.
• Be consistent in
applying your policy to
avoid discrimination
claims
• Unemployment
compensation:
employees who are ‘laid
off’ are generally
entitled to
unemployment.
Employees who ‘quit’ or
are fired for cause are
generally not entitled to
unemployment. Balance
the cost of fighting a
questionable claim!
All the Wrong Reasons to Fire
an Employee
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Refuses to take a lie detector test
Is subject to court-ordered garnishment
Is pregnant
Is black, a woman, from a foreign country, or Jewish
Has AIDS
Filed a discrimination complaint
Joined a union
Is a veteran
Complained about safety rules
Refused to commit an illegal act
Best Practices Tip
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Be fair and consistent with all employees
Confine comments to job-related criteria
Let the employee respond
Document performance
Follow policies and procedures
END
Texas C-BAR/Legal Assistance to
Microenterprises Project
512-374-2712