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Misclassification Awareness Spreads in Texas

Cyndi Mergele, Senior Manager at Padgett, Stratemann & Co., L.L.P. in San Antonio, wrote an interesting article for the Construction News, a newspaper focusing on the construction industry in Texas.  Titled Misclassifying workers may prove costly for contractors, the article talks about the growing trend of both federal and state agencies to step up enforcement of misclassification laws to retrieve owed taxes and wages as well as penalties which can be doubled if the employer is found to have purposefully committed misclassification of employees as independent contractors.

Until recently, there has been less focus on misclassification in Texas than in other parts of the country, but that seems to be changing as more research is emerging.  Mergele cited the Workers Defense Project study which found that 38% of construction workers in Austin are misclassified, costing the state more than $8 million in taxes and unemployment contributions.

According to the article, the IRS describes an independent contractor as follows:

“The general rule is that an individual is an independent contractor if the person for whom services are performed has the right to control or direct only the result of the work and not the means and
methods of accomplishing the result.”

Any employer or worker who is unsure of whether to classify an individual as an employee or as an independent contractor may file Form SS-8 with the IRS, who will make a determination as to the worker’s status.  This process takes several months, so should be set in motion as early as possible for cases in question.

Mergele recommends that before any work begins, contractors and subcontractors may clarify their relationship by signing a “consulting agreement” which states the agreed upon service to be performed and the compensation to be paid as well as affirming that the subcontractor is not under the control of the contractor.

You can download the January issue of the Austin Construction News and read the full article on page 6.

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