Especially for Texas Employers
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TEXAS WORKFORCE COMMISSION
101 E. 15TH STREET, ROOM 630
AUSTIN, TEXAS 78778-0001
512-463-2800 800-832-9394
Dear Texas Employer,
Welcome to our Texas Conference for Employers! On November 7, 2023, I was appointed by Governor Abbott to the Texas Workforce Commission (TWC) as the Commissioner Representing Employers. I take great pride in our agency serving as a first line of resources for Texas employers, and I believe the Texas Guidebook for Employers is a vital resource. Within this guidebook, you will find valuable information on a variety of workplace issues, including important state and federal laws, key employer contact information, unemployment and tax information, and samples of resource materials as well. In addition, the guidebook has been recently updated with Covid-19 related topics and guidance.
I know times have been tough, but so are our Texas employers. During the pandemic, running a business presented many challenges and required many of you to adapt and overcome obstacles in order to serve your customers in a safe and efficient manner. Our team remains committed to helping prepare your businesses for today's workforce challenges, and I value the role TWC plays in providing Texas employers information regarding state and federal employment laws. Together, our agency will work as your partner so that Texas businesses can continue contributing to the economic success of our great state.
Our state's elected leadership have put a lot of effort into ensuring that Texas businesses can successfully start, steadily nurture, and ultimately expand - right here at home. And the "secret to our success" is simple, really: in Texas, we have worked very hard to be known as a state that welcomes businesses - large and small - with open arms. As a result, Texas continues to enjoy a level of economic success that other states are hard-pressed to match.
As the Commissioner Representing Employers, I am looking forward to working with the more than 666,000 Texas employers and 2.6 million small businesses across our great state. Together, let's keep working to ensure that Texas remains the best state in the nation for business!
Sincerely,
Joe Esparza
Commissioner Representing Employers
P.S. If you would like to subscribe to our free e-mail monthly newsletter, Texas Business Today, to receive relevant updates and information, simply enter your information at https://www.twc.texas.gov/data-reports/publications. On that same page, you can download prior issues going back to January, 2022. If you would like to learn more about the services of the Texas Workforce Commission, please see our website at https://twc.texas.gov/.
Go to the Employer Commissioner's Page
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Texas Guidebook for Employers
Important disclaimers: This book, Texas Guidebook for Employers, is published as a service and a form of assistance to the employers of Texas by the office of the Commissioner representing employers on the Texas Workforce Commission, under the authority of Texas Labor Code Section 301.002(a)(2). The information and views expressed in this book are those of the author only and do not constitute in any way an official position, policy, or pronouncement of the Texas Workforce Commission. The book is not intended, and may not be relied upon, as legal or binding authority and does not create any rights, substantive or procedural, enforceable at law by any party in any matter, whether civil or criminal. It places no limitations on the lawful prerogatives of TWC or any other unit of government, and has no regulatory effect, confers no remedies, and does not have the force of law or a ruling of any administrative agency, court, or governmental subdivision. Nothing in this book is intended as an advertisement of, or an offer to provide, any commercial goods or services by any person for any individual or entity.
The author has taken great care to provide in this book the most current and accurate information available concerning federal and Texas laws on a wide variety of employment law subjects. However, the information found herein is not intended as legal advice and is not a substitute for individual consultation with a labor and employment law attorney. Interpretation of the various laws, regulations, and case precedents mentioned herein is not uniform throughout the agencies and courts enforcing the laws; indeed, even agency employees and courts sometimes disagree among themselves on both major and minor points under these laws. The information appearing in this book represents the prevailing viewpoints of a majority of legal authorities. In some instances, other viewpoints will be noted. Because interpretation of laws and precedent cases is not uniform, and because each case must be decided on an individual basis, it is not always safe to assume that a particular case will result in a particular outcome. There is no substitute for individual consultation with an employment law expert. Any employer wishing detailed legal advice relating to a specific situation should regard this book as a way of conducting initial research into various topics of employment law and preparing for an individual consultation with an attorney who specializes in employment law. Using the book in this way should enable an employer to make the most efficient and cost-effective use of his or her attorney's time through awareness of important issues and what questions to ask. In those cases where an attorney is not hired, the employer should at the very least speak with the government agency involved in enforcement of the laws in question. Good general information can be obtained by contacting the TWC Employer Commissioner's legal staff about a particular situation: 1-800-832-9394, (512) 463-2826, or via e-mail at employerinfo@twc.texas.gov.
The sample policies and forms available in the book are only examples and are furnished merely as illustrations of their categories. They are not official forms or policies and are not meant to be adopted and used without consultation with a licensed employment law attorney. Any employer in need of a policy or form for a particular situation should keep in mind that any sample policy or form such as the ones available in the book would need to be reviewed, and possibly modified, by an employment law attorney in order to ensure that it fits a particular situation and complies with the laws of Texas and/or other states of operation. Downloading, printing, distributing, reproducing, or using any policy or form in this book in any manner constitutes your agreement that you understand these disclaimers; that you will not use the policy or form for your company or individual situation without first having it approved and, if necessary, modified by an employment law attorney of your choice; and that if you use it without such consultation, you assume any risks associated with its use.
Return to Top of PageThis online version of Texas Guidebook for Employers is designed to be as easy as possible to use. It is like an electronic book. The book follows the format of the printed version as closely as possible, but it can be a lot easier to get around in the online version than in the book, due to the many ways a user can navigate from topic to topic. Note: the book is organized by articles and topics. Each topic represents a logical subpart of an article. Some topics are very short, while others are not so short. Some might cover two or more pages in the printed version, but most are much shorter than that. You can think of a topic as a "page", but there is not an exact correspondence. Scroll up or down in the usual method for your device and operating system.
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Go to the Employer Commissioner's Page
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This edition of Texas Guidebook for Employers has been extensively redesigned for compatibility with mobile devices and features more updated topics and full-length articles than are practical to list here. The best way to find topics of interest is to use the Contents and Index buttons at the top of every page. Two completely new topics appear below:
Straight Talk About TWC Claims and Appeals
Wage Advance / Loan Repayment Agreement
Go to the Employer Commissioner's Page
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Answered by the Legal Team of the Commissioner Representing Employers
Disclaimer: The information below does not constitute either legal advice or an official pronouncement or position of the Texas Workforce Commission, but rather is only the personal opinion of the sender. The attorneys in the Commissioner's office do not give legal advice or make official rulings on agency matters, should not be cited as authorities in any matter before the agency or when dealing with agency staff about a case, and must minimize their involvement with administrative processes. They also do not give legal advice on any other matter, and any information they give should not be used as a basis for taking any employment-related action. Before taking any employment action that could adversely affect an employee, or before using any sample form or policy you may obtain from this office, you should consult a licensed private-sector employment law attorney of your choice.
Skip to the FAQ Table of Contents
To view the recorded 90-minute sessions from the Lunchtime Live! employment law webinars in 2020 and other events, click a link below:
Speaker presentations from many of the webinars listed above are available and may be downloaded using the links below:
Clicking on a link in the Table of Contents below will take you to the section where those questions are answered. Each section has a listing of the questions that are asked and answered - just click on a question to see the answer.
Introduction and Essential Links and Phone Numbers
Employment Law Topics:
Introduction and Essential Links and Phone Numbers
This document contains answers and links to other resources for the most frequently asked questions at our employer conferences and webinars. Consistent with the above disclaimer, it is not legal advice, is not an official statement of TWC positions, and is not a guarantee of any particular outcome in a claim or other kind of employment-related action. Following is a list of useful employment law-related websites featuring agency guidance:
1. Pay / Benefits / Wage and Hour / Child Labor / Privacy / Miscellaneous
2. Overtime for weekend or on-call work
3. Contractual obligation deducted from final pay
4. EFMLA and IRS rules for children's age limits
6. Work-at-home employee - termination and recovery of company property
7. Age limit for working in a mobile vet clinic or ambulance
8. COBRA cancellation due to non-payment during the pandemic
9. Wage rules for salaried exempt employees during the pandemic
10. Different health insurance coverage for managers and non-managers
11. Undocumented workers and tax IDs
12. Pay deduction for a disciplinary warning
13. Overtime pay with bonuses and incentive pay
14. Tax credits for FFCRA sick leave and expanded FMLA leave pay
15. Paying wages with online payment services
16. H-1B transfers / extensions and H-4 EAD approval
17. Financial assistance for providing remote employees with technology
18. Best way to incorporate a cleaning business
19. Hazard / hazardous duty pay
20. Carry-over of unemployment taxes paid by a predecessor to a successor company
21. Year-end Covid-19 tax reporting, extensions, and payments
22. Tracking and verifying online training time
23. Is Texas still an hour-worked / hour-paid state?
24. Federal posters for virtual offices / remote workers
50. 2021 tax rate notices - when will they be mailed?
51. UI tax discounts for self-employed employers
52. Availability of further federal UI benefit programs
1.
How many hours does an employee have to work before taking lunch?
Since lunch breaks are optional under Texas law, the lunch break schedule
would be determined by the company.
2.
Currently, we pay overtime if our field technicians work more than 40
hours a week, regardless if it's a short week. We've implemented weekend on-call rotations. If the
employee does not work 40 hours and it is his turn to be on call on the
weekend, should we be paying overtime on the weekend?
Overtime pay does not depend upon when the work occurs, unless extra pay
for working at night, or on weekends, or on holidays is part of the wage
agreement. Overtime pay is owed only on time actually worked in excess of
40 hours in a seven-day workweek.
3.
We had a physician employee under a two-year contract and as part of
the terms for the contract, when it ended, he was supposed to have
purchased liability tail coverage and he did not. Would it have been
possible for us to have withheld the cost of tail coverage from his
final pay since it was required per the contract or would that have to
be specifically stated, that it would be withheld from final pay?
A deduction from pay like that would have to be specifically authorized by
the employee to be valid under the Texas Payday Law. The contractual duty
to purchase such coverage would help in a contract-based lawsuit in court,
but for the money to be deducted from the employee's pay, specific written
authorization for a pay deduction for that purpose and in that amount would
be necessary.
4.
The interplay between DOL EFMLA and IRS rules is confusing, regarding
children under 18 v. IRS children under 14. Any help you can give would
be great. Thank you.
The DOL definition of "son or daughter" under the EFMLA is explained in the
DOL FFCRA FAQ file at
https://www.dol.gov/agencies/whd/pandemic/ffcra-questions#40. For IRS purposes, see
https://www.irs.gov/newsroom/covid-19-related-tax-credits-determining-the-amount-of-the-tax-credit-for-qualified-family-leave-wages-faqs, which explains that the tax credits associated with FFCRA payments are governed by DOL's rules under the FFCRA.
5.
What are the payroll tax cuts for COVID? Are those optional to
implement?
The temporary extension of due dates for Social Security taxes is a very
complex issue that an employer should discuss with the IRS or a tax
professional, such as a CPA or a tax attorney. The official IRS guidance is
at
https://www.irs.gov/pub/irs-drop/n-20-65.pdf; the index of local IRS offices and their contact information is at
https://apps.irs.gov/app/officeLocator/index.jsp.
6.
How do I terminate a work-at-home employee and recover company
property?
Exactly how your company may terminate the employee of a work-at-home
employee is up to the company, but would generally involve using a
documentable way to give effective notice to the employee that his or her
services are no longer needed after a specified date. Recovering company
property would necessitate a mutual agreement, preferably worked out before
the need arises, signed by the employee and by a company representative.
See
https://twc.texas.gov/news/efte/iii_work_separation_issues.html and
https://twc.texas.gov/news/efte/iii_work_separation_issues.html in our online book for further information.
7.
Can a minor (16 - 17-year-old) work on a mobile vet unit or ambulance?
Yes, as long as the minor does not drive the vehicle or become exposed to
radiation or hazardous substances. For a complete list of prohibited
hazardous duty occupations, see
https://twc.texas.gov/files/businesses/child-labor-law-poster-twc.pdf.
8.
What are the laws regarding COBRA cancellation due to non-payment
during the pandemic?
The special extension of COBRA premium payment deadlines is explained in
Section III(A)(3) of the official IRS, Treasury Department, and DOL Joint
Notice document ("Extension of Certain Timeframes for Employee Benefit
Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak")
at
https://www.federalregister.gov/documents/2020/05/04/2020-09399/extension-of-certain-timeframes-for-employee-benefit-plans-participants-and-beneficiaries-affected.
9.
What are the wage rules for salary employees - do you have to pay them their full weekly wage if they work at any time during the week?
Generally, no, if an employee misses work due to personal business or
illness, but specific reasons matter. For a complete list of legal
deductions from the salaries of exempt salaried employees, see
https://twc.texas.gov/news/efte/salary_test_for_exempt_employees.html.
10.
Can we offer different levels of employee benefits for different
positions? For example, pay 100% medical coverage for management staff
and pay 50% medical coverage for general staff?
While many types of benefits may be different for different categories of
employees, special rules apply to health and retirement benefits. For
health benefits, insurance laws and regulations allow insurance carriers to
set standards for group plans regarding coverage, premiums, employer
contributions, and so on. See
https://twc.texas.gov/news/efte/salary_and_benefits.html
and
https://twc.texas.gov/news/efte/part_time_full_time.html.
11.
Is it possible for an undocumented worker to get a number from the IRS
to file taxes? How do I handle that as an employer if they have a tax
number, but not a SSN?
If an undocumented worker cannot satisfy I-9 requirements, your company
would not be able to legally employ them. That is a question under federal
immigration and tax laws. The IRS will not issue a tax ID without at least
some documentation. See
https://www.irs.gov/individuals/international-taxpayers/individual-taxpayer-identification-number-itin-reminders-for-tax-professionals
and
https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin for official IRS guidance.
12.
If an employee was given a warning letter of non-compliance, can the
employer deduct a percentage of the hourly rate if it is stated in that
letter for a second non-compliance?
The Texas Payday Law would require specific written authorization, signed
by the employee, for a deduction from wages for a reason like that. In
addition, such a deduction cannot take an employee's pay below minimum
wage.
13.
How can I offer bonuses or other incentives to non-exempt employees
without making my overtime calculations a nightmare?
There is no way to avoid an overtime pay calculation with non-discretionary
bonuses, i.e., bonuses that are promised or provided for in the wage
agreement, or commissions for employees who are not exempt from overtime
pay. Discretionary bonuses do not have to be considered when paying
overtime. See
https://twc.texas.gov/news/efte/k_bonuses_exclusions.html.
14.
Do you know how the money we've spent on payroll (not just payroll taxes) for COVID-19 quarantine hours (up to 80 hours) and for the extended family coverage (up to 10
weeks additional at 2/3 pay) will be paid back to the employers?
Tax credits for FFCRA sick leave pay and expanded FMLA leave are explained
on the IRS website - see the commentary and links at
https://www.irs.gov/coronavirus/new-employer-tax-credits.
15.
If your business is too small to do direct deposit for employees, is it
"bad" to pay them via Paypal, Venmo, or Zelle, if they do not want a
paper check?
Paying wages with online payment services is not a bad thing. However, like
any other wage payment method, the employer must do it in a way that is
documentable and verifiable. The employer should also obtain the employee's
written authorization to pay wages that way. Since online payment services
would involve an electronic transfer of wages, the employer should follow
the rules outlined at
https://twc.texas.gov/news/efte/electronic_fund_transfer_wages.html.
16.
H-1B transfers / extensions and H-4 EAD approval is taking longer than
usual. Any specific reasons? Please advise.
Immigration law is purely a federal matter, and many immigration-related
employment decisions are influenced by political and economic issues in the
nation's capital. You can find basic information on those visa topics at
https://www.immi-usa.com/h1b-visa/h1b-visa-transfer/ (H-1B) and at
https://www.stilt.com/blog/2020/05/h4-visa-extension-for-ead/ (H-4).
17.
Is there assistance available to employers to provide computer
equipment for remote workers, or for employees that want to work, but
don't have the appropriate technology (computer, whether desktop with
double screens, mouse, CPU and keyboard, or even a laptop with
headset)?
The U.S. Small Business Administration may be able to help with loans (
https://www.sba.gov/funding-programs/loans/lender-match) and grants (
https://www.sba.gov/funding-programs/grants/grants-programs-eligibility). In addition, try contacting a business services representative with the
local Workforce Solutions office (the statewide directory is at
https://twc.texas.gov/directory-workforce-solutions-offices-services.
18.
What is the best way to incorporate a cleaning business?
Start with the Governor's Small Business Handbook at
https://gov.texas.gov/uploads/files/business/Governors_Small_Business_Handbook.pdf, then check out
https://gov.texas.gov/business/page/start-a-business
for information on starting your business. For information on permits, see
that office's guide for business permits at
https://gov.texas.gov/business/page/business-permits-office. For organizing and registering your business with the state, see the
resources of the Secretary of State's Office at
https://www.sos.texas.gov/corp/formationfaqs.shtml. Your city may have an office where you can register locally - consult your city government's website for further information.
19.
Are employers required to pay a hazard pay to employees, especially
those in the medical field? If so, how is that calculated?
Hazard pay is not required under federal or Texas laws for the vast
majority of Texas employees. However, some employers choose to give extra
pay for hours spent performing hazardous duties. There is no specific
formula for such optional pay. As with any kind of wage agreement, hazard
pay should be clearly defined in a written wage agreement signed by each
affected employee.
20. When a company merges with another company and starts a new company with new tax ID, does the up to $9,000 paid for each employee carry over? Or does the new company pay in for those again?
Unless your company is a licensed PEO covered by Section 91.044(a-1) of the Labor Code, there is no carry-over of unemployment taxes paid by a predecessor company to the successor entity. The new company would begin paying UI taxes on the first $9,000 of wages paid to the acquired employees, as soon as it acquires the predecessor entity.
21.
How can we prepare for year-end reporting and tax filing? Any
suggestions or recommendations? Especially with COVID, there are so
many different credit adjustments and forms to look out for. Can we get
a simplified easy-to-reference FAQ?
The best source of information for federal tax filings, extensions, and
payments is on the IRS website at
https://www.irs.gov/coronavirus/coronavirus-tax-relief-for-businesses-and-tax-exempt-entities. As always, consult your favorite CPA or tax attorney regarding any
complex situations.
22. What is the best way to pay employees for online training, hourly or per training, ensuring they are actually doing the training for the amount of time that they say?
Since federal wage and hour law requires employers to track the exact hours each non-exempt employee works, an hourly training pay rate is probably the easiest way to go. Search for online training vendors with systems that help employers track and verify employees' participation, and use written policies to ensure that employees know that their participation in the full training will be tracked and verified, and that anything less than full participation will be treated as a policy violation and dealt with accordingly.
23.
Texas is an hour-worked / hour-paid state - does it still apply during
the pandemic?
Yes - see
https://twc.texas.gov/news/efte/hours_worked_nx_ees.html
for topics relating to federal regulations for hours worked.
24. How do employers handle federal postings for work at home employees?
See the "Required Posters" topic at https://twc.texas.gov/news/efte/required_posters.html, item 5.
50. When are 2021 TX SUI tax rate notices being mailed to employers? When are 2020 chargeback discrepancies being resolved?
TWC will be mailing 2021 tax rate notices to employers in mid-February, 2021. The agency's Unemployment Insurance Division is working on resolving disputed chargebacks as quickly as agency resources and appeal processes allow.
51. Since we are self-employed, can we get some discount on taxes?
The law does not provide for any distinction on tax rates between businesses that are sole proprietorships and those that are partnerships or have a corporate organization. All employers' tax rates are based on their unemployment claim experience. Detailed tax rate calculation information is online at https://twc.texas.gov/businesses/unemployment-insurance-tax-rates.
52. If there is another shutdown, will there be a separate program other than TWC unemployment that employees can apply for?
That would depend upon whether the new administration in Washington, D.C. can agree with Congress that special federal unemployment programs are needed for 2021. Let your elected officials know how you stand on that issue.
Employee Policies / Leave-Related Laws
25. Use and abuse of vacation time
26. Call-in and absence notice policy
27. Vaccination requirement for employees
28. Permission to use employee information on social media
29. Refusal of job duty based on religious belief
30. Recommendation letter - mandatory? Time limits?
31. Does FFCRA leave apply to virtual / online classes? 500 or more employees?
32. Injured employee, medical leave, and health insurance
33. Absences of employee to take spouse to medical visits
34. Return to work for an employee who has been working remotely
53. How many times does FFCRA paid sick leave need to be paid?
54. Are even small businesses covered by the FFCRA?
25. What is the proper wording to make sure paid time off
(vacation) is used, but not abused? Meaning one person takes
advantage of being off to the detriment of the rest of the office
staff.
Texas employers have the authority to establish rules regarding how much
vacation time is available to employees, how requests for time off are
made, whether the request to use such time is granted, and consequences for
those who defy the employer's instructions. For more information:
https://twc.texas.gov/news/efte/vacation_sick_and_parental_leave_policies.html. Sample vacation leave policy language:
https://twc.texas.gov/news/efte/vacation_and_sick_leave.html.
26.
What is the rule regarding employees calling in for their shift? Right
now, we have a 2-hour call-in policy, but 2 hours is not enough time to
fill a shift. What can an employer require of staff calling in for
their shift?
Texas employers may determine what the absenteeism/tardiness/call-in policy
requirements are for their business. However, employers should ensure that
their call-in policies are reasonable and reasonably enforced. For
information on attendance policies, see
https://twc.texas.gov/news/efte/attendance_and_leave_policies.html
and
https://twc.texas.gov/news/efte/attendance_policy.html.
27.
If a Covid-19 vaccine is approved, can employers require his/her
employee get the vaccine?
Mandating employee vaccinations is not recommended, since it could violate
an employee's sincerely-held religious beliefs under Title VII, or could
pose a danger for those with medical contraindications. For more
information, see:
https://www.eeoc.gov/laws/guidance/what-you-should-know-workplace-religious-accommodation). Please also see:
https://twc.texas.gov/files/businesses/texas-business-today-1st-quarter-2018-twc.pdf.
28.
Most businesses have a heavy social media presence. Must an employer
obtain permission to use his/her employee's name in a post?
While not technically required, it is a best practice for employers to
obtain written permission from employees before using their name in an
online post. The exception would be an online company directory or roster,
such as a "Contact Us" page.
29.
Can a staffer request not to do a job based on religious belief?
Title VII of the Civil Rights Act of 1964 prohibits employment
discrimination based on religion. Employers are required to reasonably
accommodate an employee for his or her religious beliefs, unless doing so
would pose an undue hardship to the business:
https://www.eeoc.gov/laws/guidance/what-you-should-know-workplace-religious-accommodation.
30.
Is the employer obligated to provide recommendation letters to former
employees? Is there a time period after they leave the facility? How to
decline without them retaliating on social media?
There is no law that requires employers to provide recommendation letters
to former employees. Since there is no obligation to reply, there is also
no time limit. Regarding how to decline to furnish a recommendation letter,
there is no one-size-fits-all answer, as individuals may react differently
to an employer's refusal to provide a recommendation letter. As a best
practice, many employers prefer to keep any responses short, succinct, and
professional.
31.
Is the COVID FMLA for staying home with children to attend virtual
school? Does this pertain to employers with more than 500 employees?
The expanded FMLA under the FFCRA applies to virtual school situations
where the physical school is closed, but classes are held online. See
question 70 in the DOL's FAQ document at
https://www.dol.gov/agencies/whd/pandemic/ffcra-questions#70. The FFCRA does not apply to employers with more than 500 or more employees.
32.
We have an hourly employee who has been with us less than a year and
recently had a back injury. She is a cleaner for our new construction
projects, a physical job. She is unable to work and doesn't qualify for FMLA based on time on the job. At this point, we are
unsure how long she will be out. She does great work, so assuming she
gets released from a doctor in the future, we would want to keep her
on. What can we do in the interim? Is there a medical leave we can
offer where she can pay for her medical, etc., similar to FMLA?
Medical leave is a matter of company policy and reasonable accommodation
under the ADA, if her injury is such that it counts as a disability; see
https://www.eeoc.gov/disability-discrimination
for EEOC guidance on the ADA. If your company has a group health plan that
covers that employee, she would presumably qualify for COBRA benefit
continuation under Texas and/or federal laws. See
https://twc.texas.gov/news/efte/cobra.html
in our book online for basic information on the COBRA laws.
33.
If an employee is continuously absent because he provides
transportation for his sick wife who has to have dialysis a couple
times a week, takes her to doctor's visits, etc., would we be able to terminate him without breaking any
laws? Due to COVID, we have a skeleton crew and it has become more
difficult to be flexible with him. This is causing a burden on our
business and other employees. How do you recommend that we proceed?
The ADA does not require reasonable accommodation for the illnesses of
others, but the FMLA may provide the employee the right to take
intermittent leave to tend to the serious health condition of his wife. See
https://www.eeoc.gov/disability-discrimination
and
https://www.dol.gov/agencies/whd/fmla for official guidance from the EEOC and the DOL.
34.
If an employer previously approved an ADA accommodation for an employee
to work from home due to being in a high-risk category for contracting
COVID-19, but we now want to make alternate arrangements so that the
employee may return to working onsite (e.g., isolated office space
available), what is the recommended process?
Ensure that the work environment meets all recommended CDC, OSHA, and local
health authority standards and Covid-19 precautions, and document the work
offer given to the employee. If the employee has filed an unemployment
claim, a work refusal may be reported via
https://apps.twc.texas.gov/EBS_REF/ewrd/employeeWorkRefusalDoc
for investigation by TWC.
53.
Once an employee is granted FFCRA, can they only obtain it once? Can
the employee be granted another 2-weeks' pay if exposed again at some later point?
The FFCRA only requires a one-time payment of up to 80 hours of leave. Once
the 80 hours have been paid out by the employer, the employer has met its
obligation under the law, and it does not reset.
54.
We are small business less than 20 staff. Am I supposed to pay any
compensation to my worker who tested positive for COVID 19, even though
we don't have any benefits?
The Families First Coronavirus Response Act (FFRCA) requires employers to
pay employees up to 80 hours of leave at 100% of the employee's regular
rate of pay, if one of six conditions are triggered. One of those
conditions is that the employee has been advised by a healthcare provider
to self-quarantine related to COVID-19. More information here:
https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave.
Independent Contractors / Taxes
35. W-2 and 1099 for the same worker
36. Support for child care centers / chargebacks and tax rates
37. Regular layoff, followed by disaster-related layoff - tax rate increase?
38. Tax rate increases for 2021?
39. State UI tax on employer's children who are employees
35.
Can an employee be on payroll (W-2 employee), and also have a 1099
distributed for a completely different role?
This may be possible depending on the circumstances. The IRS has some
information on this topic that you can find by visiting the following
webpage:
https://www.irs.gov/government-entities/federal-state-local-governments/when-would-i-provide-a-form-w-2-and-a-form-1099-to-the-same-person. Businesses can also contact the IRS directly for help and can find
contact information at the following page:
https://www.irs.gov/help/telephone-assistance. In addition, other agencies with their own interpretations of independent
contractor guidelines should be consulted, such as the U.S. Department of
Labor (see
https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship) and TWC (see
https://twc.texas.gov/news/efte/ics_contract_labor.html). The latter link leads to an article with details about all of the major
tests used for determining employment status under various laws.
36.
Will there be additional support for Child Care Centers? Will our
business be penalized with TWC for unemployment? I am asking if my
unemployment rate will go up?
The TWC has a webpage with resources for Child Care Programs which you can
visit at the following link:
https://twc.texas.gov/news/covid-19-resources-child-care. In addition, FAQs related to child care can be found at the following
link:
https://twc.texas.gov/news/frequently-asked-questions-about-unemployment-insurance-benefits-related-covid-19#childCare. Concerning unemployment claims, each claim is handled on a case-by-case
basis. If a claim determination results in a chargeback to the employer,
the employer's unemployment tax rate could go up. For more information on
employer unemployment benefit chargebacks, please visit:
https://twc.texas.gov/businesses/employer-unemployment-benefit-chargebacks.
37.
Will an employer's rate be affected due to a regular layoff that happened between
January thru mid-March and then the Presidentially-Declared Disaster
came into effect - will my rate still be affected?
Each unemployment claim is handled on a case-by-case basis. If a claim
determination results in a chargeback to the employer, the employer's
unemployment tax rate could go up. Information on unemployment benefits
basics, including information on types of job separations, can be found at
the following link:
https://twc.texas.gov/businesses/unemployment-benefits-basics-employers.
38.
Any projection on increased experience ratings for 2021?
Information on unemployment insurance tax rates can be found at the
following webpage:
https://twc.texas.gov/businesses/unemployment-insurance-tax-rates. For specific questions about unemployment tax rates, employers can
contact the TWC tax department directly using the tax contact information
found at the following link:
https://twc.texas.gov/unemployment-tax-contact-information.
39.
Do we need to file SUTA tax if employees are children of business
owners and pay is not subject to FUTA tax?
For this question, please contact the TWC tax department directly using the
tax contact information found at the following link:
https://twc.texas.gov/unemployment-tax-contact-information.
Unemployment Claims and Appeals
40. Unemployment benefits during unpaid FMLA
41. Unemployment benefits for self-employed individuals
42. Effect of unemployment claims on employers
43. Does everyone who files a claim qualify?
44. Why does it take so long for benefits to start?
45. Can you work part-time and still qualify for benefits?
46. Two-week notice of resignation and unemployment claims
47. Employee quits and files a disaster claim
48. Will TWC keep the Employer Work Refusal Documentation portal?
49. Exceptions to claim response and appeal deadlines
55. CARES Act relief for reimbursing employers
40.
Can a claimant receive unemployment benefits when out on unpaid FMLA?
If an employee stops performing services for pay, the employee is generally
considered unemployed and would be able to file an unemployment claim.
Whether or not the employee receives benefits depends first on reason the
employee stopped working. The employee must be out of work through no fault
of employee. The employee must also meet the eligibility requirements, such
as being medically able to work fulltime and being available to accept an
offer of fulltime work. See
https://twc.texas.gov/jobseekers/ongoing-eligibility-requirements-receiving-unemployment-benefits. Employees on FMLA are usually found ineligible to receive benefits
because the events that qualify them for FMLA leave preclude them from
being medically able and/or available for fulltime work.
41.
Do self-employed qualify for unemployment?
If you are self-employed, a contract worker or previously worked in a
position that did not report wages, you may qualify for unemployment and
can apply. See
https://twc.texas.gov/news/self-employed-texans-and-cares-act#selfemployedindependentContractorsDoIQualify.
42.
How do unemployment claims affect the employer during the pandemic?
In most cases, for non-Covid-related job separations, the employer will be
financially liable (through either chargeback or reimbursement liability)
if an employee is out of work through no fault of the employee. See
https://twc.texas.gov/businesses/employer-unemployment-benefit-chargebacks. For job separations resulting from the Covid-19 natural disaster, taxed
employers are eligible for chargeback protection. While reimbursing
employers do not have the same protection, they do have some relief under
the CARES Act.
43.
Does everyone qualify for unemployment?
Not everyone who applies for unemployment benefits will qualify for
unemployment benefits. Each case is considered individually on its own
merits.
44.
Why is it taking so long for employees to receive UI or Shared Work
payments?
Any delay is likely related to the unprecedented number of claims that were
submitted as a result of the pandemic.
45.
Can you work part-time and still receive UI?
Yes, a person can work part-time and receive unemployment benefits. If an
employee has experienced a reduction in hours from fulltime to part-time,
depending on the wages received on a weekly basis, the employee may be
considered partially unemployment and be entitled to unemployment benefits.
See
https://twc.texas.gov/news/efte/ui_law_the_claim_and_appeal_process.html#partialui2.
Employees who participate in an approved Shared Work program can also work part-time and receive unemployment benefits. See https://twc.texas.gov/businesses/shared-work.
46.
If a staff member gives two weeks' notice of resignation, can the employer ask that staff not to come to
work prior to the resignation date, and does the employer have to pay
until that resignation date?
As long as the employee is an at-will employee, if an employee gives two
weeks' (or less) notice of resignation, the employer can accept the
resignation before the end of the two-week notice period without obligation
to pay the employee through the end of the two-week period. In other words,
the employer is responsible to pay the employee through the last day
worked, not through the last day of the two weeks' notice. See
https://twc.texas.gov/news/efte/types_of_work_separations.html#2-weeknotice.
47.
Are you paying UI to those individuals who quit and report "disaster"
when filing a claim?
Depending on an employee's reason for quitting, the employee may qualify
for unemployment benefits. Each case is considered individually on its own
merits.
48.
Will the Employer Work Refusal Documentation process continue past the
disaster declaration?
If an employee is requesting unemployment benefits, the employee may be
disqualified from the receipt of benefits if the employee refuses, without
good cause, an offer of suitable work. This requirement was in effect
before the pandemic and will be in effect after the pandemic. It is likely
that TWC will continue to use the Employer Work Refusal Documentation
Portal at
https://apps.twc.texas.gov/EBS_REF/ewrd/employeeWorkRefusalDoc
after the pandemic as a means for employers to report individuals who
refuse offers of work.
49.
In light of the Public Health Emergency due to COVID-19 and impact of
Hurricane Laura, were there any timeline deadline consideration given
to employers for submitting unemployment claim responses? If so, were
TWC employees informed of this change? We were overwhelmed by the
number of unemployment claims that were submitted to our agency. The
circumstances in which we have had to function in the healthcare
industry has been mind-boggling, to say the least. We have received
responses indicating that our rights to claims has been relinquished
due to a one-day late response. After all we in the healthcare industry
are dealing with, you would think some consideration would be given to
the employers who are struggling through events to maintain these
frontline "heroes".
As a general matter, TWC does not have discretion or authority to waive or
extend the claim response or appeal deadlines that are in the law. Those
deadlines were imposed by the Texas Legislature, based upon the federal
laws enacted by the U.S. Congress, and so any changes would have to be
enacted by elected officials. That having been said, TWC, based on court
decisions and federal regulations, has recognized some exceptions to the
deadlines in cases where independent and credible evidence shows that a
late response or appeal was due to factors outside of the claimant's or
employer's control, such as misdelivery or non-delivery of mail, TWC error
in addressing correspondence, use of wrong information in describing a
party to a claim, unavailability of phone, fax, or online systems due to
system failure or overload, or similar problems. Each such case will be
investigated and considered on the basis of its individual facts, and the
appealing party should be as specific as possible in describing the
problem, both when appealing and when testifying during an appeal hearing.
See, in general, Commission Rule 815.32 at
https://texreg.sos.state.tx.us/public/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=40&pt=20&ch=815&rl=32.
55.
We are a non-profit organization that does not pay quarterly unemployment taxes - instead, we pay reimbursements whenever one of our former employees receives UI benefits. Does the CARES Act afford any relief from the cost of reimbursements?
Under the CARES Act, reimbursing employers are entitled to a 50% rebate or refund of reimbursements they pay on all unemployment claims from March 15, 2020 through December 26, 2020, not just the ones resulting from the pandemic. The general procedures is that TWC bills the reimbursing employer, the employer pays 100% of the reimbursements that are billed, TWC reports that to the U.S. Department of Labor, DOL sends TWC a payment out of federal CARES Act funds for 50% of the reimbursements paid, and TWC then refunds / credits that amount to the reimbursing employer. Billing payment deadlines for all quarters in 2020 have been extended through March 1, 2021 due to the CARES Act and the pandemic.
Contact Commissioner Esparza's office:
E-mail: employerinfo@twc.texas.gov –– Phone: 800-832-9394 / 512-463-2826
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Hire for fit - train for skills - promote, transfer, discipline, or fire for documented cause.
Do yourself a favor - do not try to avoid payroll taxes, new hire paperwork, or unemployment claims by classifying temporary workers as "contract labor". That will only be a tax audit waiting to happen. Instead, consider hiring such workers through temporary staffing firms - that way, those firms get the unemployment claims.
Get as many company documents and required forms signed by employees at the time of hire as you can (it only gets harder after that), and report all new hires and rehires to the Attorney General's New Hire Reporting office within 20 days of hiring.
Maintain a safe and healthy workplace in compliance with OSHA rules, and whether hiring, evaluating, promoting, transferring, disciplining, or discharging an employee, keep everything as fair, job-related, and consistent as possible, and never retaliate against an employee for reporting safety hazards, workplace discrimination, or other potential employment law compliance issues.
Have specific, written wage agreements with each employee, and get specific written authorization for any wage deductions that are not ordered by a court or required or specifically authorized by a law.
Unless an employee is clearly, absolutely, and undoubtedly in an overtime exemption category, do not pay on a salary basis, but rather pay an hourly or performance-based rate.
Never loan or advance money to an employee without getting a signed, written receipt and repayment agreement from the employee.
Give as much advance written notice as possible of pay and benefit changes.
In order to minimize the shock and disappointment factor that so often leads to unnecessary claims and lawsuits, treat employees fairly and consistently according to known, job-related rules and standards, follow stated policies as closely as possible, and avoid exceptions whenever possible.
In handling unemployment claims, file timely claim responses and appeals, present testimony from firsthand witnesses, and present clear documentation of warnings, policies, and other relevant facts.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Especially for Texas Employers
TABLE OF CONTENTS
I. HIRING ISSUES
Outline of Employment Law Issues
Thresholds for Coverage Under Employment-Related Laws
Hiring Issues in Unemployment Claims
Independent Contractors / Contract Labor
Appendix A - Consultants - Comparison List
Appendix B - Tax Audits and Rule 13 Hearings
Appendix C - Independent Contractor Case Studies
Appendix D - IRS Independent Contractor Test
Appendix E - TWC Independent Contractor Test
Job References and Background Checks
V. EMPLOYMENT LAW-RELATED WEBSITES
THE A TO Z OF PERSONNEL POLICIES
Go to the Employer Commissioner's Page
Go to the TWC Home Page
OUTLINE OF EMPLOYMENT LAW ISSUES
Major Laws Impacting the Hiring Process
References and Background Checks
Pre-Employment Tests and Examinations
Deciding on the Best Candidate for the Job
Offers of Employment and Compensation Agreements
Alternatives to Hiring Employees Directly
Minimizing Unemployment Tax Problems
Go to the Employer Commissioner's Page
Go to the TWC Home Page
The main thrust of all employment discrimination laws is to make it illegal for employers to treat employees or applicants adversely on the basis of something about themselves that they cannot change, or should not be expected to change. Such factors are called "immutable characteristics". For example, one cannot change one's race or color, gender, age, or national origin, cannot readily change one's disability status, and should not be expected to change one's religion, as a condition of getting or keeping a job. Below is a listing of the most important federal and Texas statutes relating to employment discrimination (see the note below*, as well as the article titled "Thresholds for Coverage Under Employment-Related Laws" in this part of the book for detailed information regarding employee counts).
Federal
Civil Rights Act of 1964, Title VII - covers employers with at least 15 employees - protects against discrimination based upon race, color, gender, national origin, and religion - this law also started the EEOC
Pregnancy Discrimination Act of 1978 (PDA) - incorporated by amendment into the Title VII statute noted above, the PDA clarifies that pregnancy and related conditions are considered to be a subset of "gender" for discrimination law purposes; the law prohibits employers from treating women with pregnancy or related conditions any less favorably than other employees who have medical conditions that place a similar limitation on their ability to, or availability for, work
Age Discrimination in Employment Act of 1967 (ADEA) - covers employers with at least 20 employees - protects against discrimination based upon age against people who are age 40 or older
Americans with Disabilities Act of 1990 (ADA) - covers employers with at least 15 employees - protects against discrimination based upon disabilities, the perception of disabilities, or association with people with disabilities
Genetic Information Non-discrimination Act of 2009 (GINA) - covers employers with at least 15 employees - prohibits discrimination on the basis of genetic information, as well as the use, gathering, and disclosure of genetic information in the context of employment relationships
Immigration Reform and Control Act of 1986 (IRCA) - discrimination protection provisions cover employers with at least 4 employees - protects against discrimination based upon national origin or citizenship - this law also started the I-9 process
U.S. Bankruptcy Code, Section 525 - covers any employer - prohibits discrimination based upon bankruptcy history or bankruptcy claim filing status
Civil Rights Act of 1866 (42 U.S.C. §1981) - covers all employers with at least one (1) employee or anyone who hires another person to perform any kind of work or services for pay (thus, it covers even independent contractor situations) - protects against discrimination based upon race or color (additional cautionary note: some national origin discrimination claims can be turned into race or color discrimination claims, depending upon the circumstances)
State
Every state in the United States has one or more laws prohibiting the forms of discrimination covered in the federal laws noted above. Some states add additional protected classifications such as sexual orientation, veteran status, history of filing certain types of claims, and so on. For example, Texas has the following anti-discrimination statutes:
Texas Labor Code, Chapter 21 (formerly known as the Texas Commission on Human Rights Act) - covers employers with at least 15 employees - protects against discrimination based upon race, color, gender, national origin, religion, age, and disability
Texas Workers' Compensation Act - anti-discrimination provisions cover all employers - protects against discrimination based upon workers' compensation claim history - although the Texas Supreme Court has ruled that this statute applies only to employees, not to applicants, discriminating against applicants based upon workers' compensation claim history will generally be viewed by the EEOC as a violation of disability discrimination laws
* Unless the statute that creates the employee limit also expressly states that the limit is jurisdictional, an employer with an employee count under the limit could still face liability in a claim or lawsuit unless it affirmatively shows that the limit precludes coverage in that situation - see the discussion of the Arbaugh v. Y & H Corporation case in "Other Types of Employment-Related Litigation" in the outline of employment law issues in part IV of this book.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
A person's status is generally not a legal basis for action - do not act based upon applicants' or employees' status or who they are, but rather based upon what they can do, what they cannot do, or what they should do, but fail to do.
The hiring process should be free of any indication that the hiring decision will be based in any way upon race, color, religion, gender, national origin, age, or disability.
Throw a wide net for applicants - it will impress the EEOC and give you a better chance of getting a great employee; advertise the jobs with TWC (WorkInTexas.com) and local Workforce Solutions centers.
You only have to take applications if you have vacancies.
Base hiring decisions only on job-related criteria.
Be consistent and judge applicants on qualifications, not assumptions or stereotypes.
Verify references, employment history, and background information and document your efforts.
Get I-9 information on all new hires within 3 business days of hiring.
Careful with job and salary offers - do not promise more than you are willing to deliver.
Consider alternative staffing methods in lieu of direct hiring of employees.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
PDF files require Adobe Acrobat Reader for viewing.
No specific law obligates private employers to post jobs in any particular way.
Advertise job vacancies in media that are likely to be seen or heard by minority applicants.
A company's job posting system should result in a wide range of applicants.
Try to list job openings with the state's public employment service, as administered by local Workforce Solutions centers and the Texas Workforce Commission (WorkInTexas.com), since the EEOC and the TWC Civil Rights Division consider that to be evidence of an open and fair hiring process
A large applicant pool increases the chance of finding a really good new hire.
Although Executive Order 14173 has substantially limited the requirements for federal contractors and grantees to have affirmative action plans, practicing simple affirmative action/equal employment opportunity guidelines can make it easier to defend against a discrimination claim.
It is common to see "XYZ Company is an equal opportunity employer" in job postings and help-wanted ads.
Avoid gender-specific job titles in job postings/help-wanted ads - while there is no Texas or federal law specifically requiring employers to avoid gender-specific job titles in job postings, it is generally recommended that employers try to use gender-neutral job titles and position descriptions whenever possible, unless there is a bona fide occupational qualification (BFOQ) that the position be filled by a man or a woman. Thus, "seamstress" could be replaced with "sewing machine operator", "tailor assistant", "clothing alterations specialist", or something similar that fits the specific duties of the position, while "busboy" could be replaced with something like "busser", "porter", "table cleaner", "waitstaff assistant", "kitchen associate", or the like. The potential problem with using gender-specific titles where there is no need to do so is that in a hiring practices claim before the EEOC or TWC's Civil Rights Division, it might give the investigator one additional thing to ask about that could needlessly complicate the case.
Other things to keep out of job postings, unless the company is prepared to prove that such criteria are justified by business necessity, would be anything that the EEOC might consider to have a direct or indirect impact on minorities, such as "must be currently employed", "recent graduate", "no criminal record", or "must live within city limits".
Personnel search firms ("head-hunting" firms) are covered by the same anti-discrimination laws that apply to their clients - one could hurt the other, and vice-versa, by unwise hiring practices that violate laws - both clients and their personnel search firms must work together to avoid job discrimination claims.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
PDF files require Adobe Acrobat Reader for viewing.
No law requires employers to accept resumes or applications if there are no openings, but an employer should either keep all unsolicited applications, or throw them all away - "cherry-picking" can easily lead to disparate treatment claims with the EEOC or a state human rights agency.
Job applications should solicit only job-related information.
If a potential question for the application will not help determine who is the best-qualified applicant, do not ask it.
Be sure to ask about hours and days of availability for work; let applicants know that if they indicate availability times that do not match the job posting or the job description, they may not be further considered for the position in question.
It is permissible to ask about: identifying information, including contact information; prior work-related experience; prior employers, dates of employment, and rates of pay; whether the applicant is at least 18 (if the concern is to avoid child labor problems), or a minimum age such as 21 (if the concern is to determine insurability as a driver of company vehicles or operator of certain equipment); work-related certificates and licenses, including dates of issuance; work-related education and training, including dates; job reference information; job-related criminal history; and availability or restrictions as to type of work, work schedules, and work locations.
It is permissible to ask for an applicant's birth date, SSN, and driver's license number in order to facilitate a job-related background check. However, a company should consider obtaining such information as late in the application process as possible, in order to minimize the amount of confidential information it obtains, and the risk is that it might be compromised in some way.
Unless there is a bona-fide occupational qualification or statutory or regulatory requirement involved, do not ask about an applicant's race, color, religion, gender, age, national origin or citizenship, disability, or genetic information.
Examples of permissible questions:
Are you at least 18?
Do you have a current, valid driver's license? (for driving-related positions)
Have you ever been involuntarily terminated from a position of employment? If so, please explain. (This question does not apply to a layoff or reduction in force for economic reasons.)
During the past _____ years, have you been convicted of, or have you pleaded guilty or no contest to, a felony offense? If yes, please explain. (See "References and Background Checks", item 8, for a discussion of the importance of a job-relatedness determination when using criminal history as a criterion for hiring.)
Examples of impermissible questions:
Do you have children? (This would be permissible if the job duties directly require the employee to be a parent.)
Are you a U.S. citizen? (Ask a different question, such as "Are you authorized to work in the United States?")
Are you a ______________ (member of a specific type of religion)? (This is permitted only if the job is with that specific type of church, and the duties relate to carrying out the mission of that particular church or faith.)
Are you married?
What are your family plans?
Do you have any handicaps or disabilities?
Do you own a car?
Do you own a house?
Have you ever been arrested?
At the end of the application, let applicants know that by signing and submitting the application, they give their consent for various things:
the employer may verify any information given on the form;
any wrong or incomplete information can result in the applicant not being hired or, if the problem comes to light after hire, it can result in immediate dismissal from employment;
the applicant agrees to submit to any job-related medical exams or drug tests that might be required; and
the applicant understands and agrees that if hired, employment will be at will.
An example of such a statement might be something like this: "I certify that I have fully and accurately answered all questions and have given all information requested in this application for employment, and I understand that any wrong or incomplete information on the form may disqualify me for further consideration for employment or, if discovered after I am hired, may be grounds for my immediate dismissal. I understand that all such information is subject to verification by the Company, and hereby give my consent to the Company to investigate my background and qualifications using any means, sources, and outside investigators at its disposal. I agree to undergo any type of drug and/or alcohol testing that the Company may require at any time. Finally, I understand that submission of this application does not necessarily mean that I will be hired, and that if I am hired, my employment will be at will, and either I or the Company may terminate my employment at any time, with or without notice or reason."
The EEOC requires employers to keep solicited job applications for at least one year - it is best to keep them at least 4 years, in order to exhaust all possible statutes of limitations for various employment law causes of action, and the application for the successful candidate for at least 7 years; if EEOC investigates and finds that applications have not been kept, that is not only a recordkeeping violation, but also potential evidence of intent to discriminate.
The State of Texas has an official employment application form (PDF) that illustrates the kinds of things that a job application should include.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Under EEOC rules for the Americans with Disabilities Act, what an employer puts in a job description is considered the primary determinant of what the essential functions of that position are. That, in turn, helps the employer deal with any ADA claims that might come about in the future, in case the question is whether an applicant or employee is able to perform the essential functions of the job with or without reasonable accommodation.
A good job description makes it much easier to deal with an unemployment claim if the work separation occurred because of a claimant's refusal or failure to perform the functions of the position. In a quit case, if the employee was aware of what the job involved prior to taking it, and later quits rather than do the agreed-upon job, the claimant would not have a good argument at all for claiming that he or she had good work-connected cause for quitting. In a discharge case, failing to do one's job can lead to a judgment of various forms of misconduct, including insubordination, avoidable negligence, failing to follow instructions, failing to do one's best, and so on.
A good job description makes it much easier to measure an employee's performance and hold him or her to known standards, which is important for promotions, job transfers, raise reviews, and corrective action.
Any good job description will be specific enough to accurately describe the job in question, yet flexible enough to include other duties as assigned. The company should make it clear to all employees that when the needs of the company or its customers dictate, their jobs will entail whatever needs to be done that is assigned by a supervisor and is within the employee's capacity to deliver.
Be sure to include the requirement that part of each employee's job is to work the assigned schedule and comply with the company's timekeeping policy.
For some assistance with developing job descriptions, visit the following websites:
https://texascareercheck.com/ExploreCareer/OccupationInfo, and
https://dol.georgia.gov/job-description-tools.
The sites linked there will help an employer get started, but most of the detail in a particular job description will be supplied by the supervisor of the position in question and by the experienced employees who are already performing that job.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
The average telephone reference call will not yield much usable information - employers are concerned about being sued for giving unfavorable references.
Note: under Texas law, it is legal for a person to record a conversation without the knowledge or consent of others, as long as the person doing the recording is participating in the conversation.
All applicants should sign a waiver and release of liability form clearly authorizing prior employers to release any requested information to your company and relieving both the prior employers and your company of all liability in connection with the release and use of the information - see sample form for release of job information.
Whatever information an employer releases in connection with a job reference should be factual, in good faith, and non-inflammatory! Under Section 52.031(d) of the Texas Labor Code, a truthful written job reference cannot be the basis for a defamation lawsuit.
Similarly, it would be a good idea to restrict the release of information to whatever was requested - unless there is a compelling need to do so, try not to volunteer additional things that are not connected to the information requested by the prospective new employer.
Texas law (Texas Labor Code, Chapter 103) gives employers important protections against defamation lawsuits based upon job references, as long as the employer does not knowingly report false information; still, employers should try to report only what can be documented.
Employers have the right to do criminal background checks themselves using government-maintained databases, but most employers hire a service to do that - be careful, since the Fair Credit Reporting Act requires an employer to give written notice that a credit or background check will be done and to get written authorization from an applicant to do the check if an outside private-sector agency or search engine will be used (the notice and the authorization can be on the same form) - in addition, if the applicant is turned down, the employer must tell the applicant why, give the applicant a copy of the report, and let them know the name and address of the service that furnished the information.
In-home service and residential delivery companies must perform a complete criminal history background check through DPS or a private vendor on any employees or associates sent by the companies into customers' homes (including attached garages or construction areas next to homes), or else confirm that the persons sent into customers' homes are licensed by an occupational licensing agency that conducted such a criminal history check before issuing the license. The records must show that during the past 20 years for a felony, and the past 10 years for a class A or B misdemeanor, the person has not been convicted of, or sentenced to deferred adjudication for, an offense against a person or a family, an offense against property, or public indecency. A check done in compliance with these requirements entitles the person's employer to a rebuttable presumption that the employer did not act negligently in hiring the person. See the Texas Civil Practice and Remedies Code, Sections 145.002-145.004. Recommended: do such checks on anyone who will be going into a person's home, garage, yards, driveways, or any other areas where the employee could come into contact with people at their homes.
With respect to applicants younger than 18, secure written permission from the child's parent or guardian to conduct background or drug tests.
Unless a law requires such a question, do not ask about arrests, since the EEOC and the courts consider that to have a disparate impact on minorities - a company can ask about convictions and pleas of guilty or no contest. If an EEOC claim is filed, the employer must be prepared to show how the criminal record was relevant to the job in question, i.e., the employer must be able to explain the job-relatedness of the offense - see https://www.eeoc.gov/arrestandconviction and https://www.eeoc.gov/laws/guidance/enforcement-guidance-consideration-arrest-and-conviction-records-employment-decisions for EEOC's position on this.
In Texas, asking only about "convictions" will not turn up some forms of alternative sentencing - for example, under the law of deferred adjudication, if the person given such a sentence satisfies the terms of probation, no final conviction is entered on their record, and the person can legally claim never to have been "convicted" of that offense - however, they would have pled guilty or no contest to the charge (such a plea is necessary in order to qualify for deferred adjudication), so if it is necessary (job-related) to know about about convictions and guilty or no contest pleas, the question would have to be rephrased - see the discussion directly above about the job-relatedness of an offense. In the case of Kellum v. TWC and Danone Waters of North America, Inc., 188 S.W.3d 411 (Tex.App.-Dallas 2006), the appeals court ruled that a claimant did not commit disqualifying misconduct by indicating that he had not been convicted of a crime, where the application asked only about convictions, and he had been given deferred adjudication.
Sample question about criminal history: "During the past (fill in the number) years, have you been convicted of, or have you pled guilty or no contest to, a felony offense? If yes, please explain in the space below. (Answering "yes" to this question will not automatically bar you from employment unless applicable law requires such action.)"
Try to consider only criminal history that is recent enough to be relevant, given the nature of a particular offense, the nature of the job, and the corresponding level of risk of harm - the remoteness of an offense is a factor in the job-relatedness determination noted above
To minimize the risk of an EEOC claim, and to be as fair as possible, try to keep the following in mind:
If an exclusion based on criminal conduct would have a disparate impact on minorities, EEOC expects the employer to develop a "targeted screen" that takes into account the nature and gravity of the crime, how much time has passed since the crime occurred, and the specific functions of the job in question. Any person excluded by such criteria would then have an opportunity for an individualized assessment to determine whether the criteria as applied are job-related and consistent with business necessity. The individualized assessment would involve notice to the individual that the criminal record may result in him or her not being hired, an opportunity for the applicant to explain why the exclusion should not be applied under his or her particular circumstances, and consideration by the employer of whether the individual's new information justifies an exception to the exclusion and shows that the policy is not job-related and consistent with business necessity in the applicant's specific situation. Detailed commentary on the EEOC standards for criminal history information is available at https://www.eeoc.gov/arrestandconviction.
Be cautious concerning offenses that occurred too far in the past - EEOC's policy statement issued on April 25, 2012 on the use of conviction records in employment decision cites a 1977 court case as authority for requiring employers to take into account "the nature and gravity of the offense or offenses, the time that has passed since the conviction and/or completion of sentence, and the nature of the job for which the applicant has applied." Green v. Missouri Pacific Railroad Company, 549 F.2d 1158, 1160 (8th Cir. 1977).
Never ask an applicant to take a polygraph exam, unless your organization is statutorily required to do so - that would be a violation of the Employee Polygraph Protection Act of 1988, a federal law.
An employer may require an applicant to be responsible for submission of official records, transcripts, certificates, and licenses.
Very important: in order to position your company as well as possible against potential "negligent hiring" claims, document your efforts to verify the work history and other background information given by the applicant (see comment 7(a) above).
Flip side: "negligent referral" - do not ever give a false or misleading reference, even if you think you are insulating yourself from a defamation claim or doing the ex-employee a favor - a Texas employer got hit with a large damage award after giving a false reference on a former employee who had been fired for misconduct.
If you have knowledge that an ex-employee has violent tendencies, it is best to be truthful and factual in job references - report only what you can document or prove with firsthand witnesses. Above all, do not falsely report that an employee who is known to have been violent or threatening was a "good" employee who followed all of the rules.
"Ban the box" - effective December 20, 2021, federal agencies and their civilian or defense contractors will be subject to "ban the box" restrictions under Senate Bill 387 (see https://www.congress.gov/bill/116th-congress/senate-bill/387/text) under which federal agencies and federal contractors will be unable to inquire about an applicant's criminal history information prior to making a conditional offer of employment, unless a law requires an earlier inquiry, or the job involves national security or classified information.
As of 2021, Texas has no such statute. Some other states, and some individual cities such as Austin, Texas, have enacted "ban the box" legislation or ordinances similar to the new federal law noted above, but Labor Code Section 1.005 essentially nullified those ordinances effective September 1, 2023.
HR best practice: if possible, do not ask about criminal history until the tentative offer of employment has been made - that will lower the risk of discrimination based on criminal history for the majority of unsuccessful applicants. Consult with qualified employment law counsel regarding the latest requirements in your company's area or areas of operation.
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When interviewing applicants, apply the same standard that is applied to job applications - ask only about things that are directly related to the job requirements for the position under consideration.
Watch out for tape-recording - the applicant might be tape-recording the interview without an employer's knowledge, and a video- or tape-recording of an interview would be discoverable in a discrimination claim or lawsuit.
Tell the managers who conduct interviews to be extremely careful about note-taking during interviews - anything like that can be discovered in a claim or lawsuit - many discrimination cases have been lost due to careless and/or embarrassing comments written by interviewers.
Test for whether something should be written down: would you feel comfortable explaining it in front of a judge and jury?
"Working interviews" are not the same as pre-hire interviews at which an interviewee might demonstrate how he or she would carry out a sample task - an "interview" during which the worker performs actual work and receives what most companies would call "on the job" training or orientation to the company is work time - a company must pay at least minimum wage for such training time, satisfy all of the usual new-hire paperwork requirements (W-4, I-9, new hire report, and so on), and report the wages to TWC and IRS.
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Pre-employment tests or examinations must be job-related and non-discriminatory, i.e., required of all applicants in that job category at a particular stage of the hiring process. EEOC test validation standards are outlined in "Employment Tests and Selection Procedures" at https://www.eeoc.gov/laws/guidance/employment-tests-and-selection-procedures.
Job-related skills tests are permissible if administered consistently and are the best way to confirm whether an applicant's claims of expertise in a certain type of work are true, untrue, or perhaps merely a bit "inflated". Due to expense and time constraints, most companies conduct skills testing only on the final candidates for a position.
Be careful with inflated or unrealistic self-assessments by applicants - it is common to overestimate one's own skills - that does not prove misconduct or dishonesty, but does demonstrate the need for employers to verify claims of a particular level of skill.
The ADA prohibits medical inquiries prior to making a tentative offer of employment - of course, the ADA applies only if a company has at least 15 employees - to be sure, consult legal counsel!
If medical inquiries are made following a tentative offer of employment, the same inquiries must be made of all final candidates for such a position, not just the ones who look like they may have medical problems.
Medical inquiries should relate directly to the essential functions of the job - the "essential functions" are the main reasons for the job to exist, and should be consistent with the job description for the position.
Requests made lawfully under the ADA for medical information must include the following genetic information notice, as per EEOC regulations pertaining to the Genetic Information Nondiscrimination Act: "The Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits employers and other entities covered by GINA Title II from requesting or requiring genetic information of employees or their family members. In order to comply with this law, we are asking that you not provide any genetic information when responding to this request for medical information. 'Genetic information,' as defined by GINA, includes an individual's family medical history, the results of an individual's or family member's genetic tests, the fact that an individual or an individual's family member sought or received genetic services, and genetic information of a fetus carried by an individual or an individual's family member or an embryo lawfully held by an individual or family member receiving assistive reproductive services." The notice may use alternative language, as long as individuals and health care providers are advised that genetic information should not be provided.
The ADA requires employers to maintain any and all medical information in a separate and confidential medical records file.
The employer must be prepared to offer a reasonable accommodation to any otherwise qualified applicant who turns out to have a protected disability.
A "reasonable accommodation" is a change in procedures, a device, a change in duties, a shifting of personnel, or a change in the work environment that the employer could make without "undue hardship" to its business and which would enable the applicant to perform the essential functions of the job.
"Undue hardship" can vary according to the size of the company and the nature of the proposed accommodation.
Drug tests are not included within the definition of "medical examinations" under the ADA and may be given at any time.
Of course, confidentiality rules apply - no one should ever learn of the test results except people with a legitimate need to know.
If a drug test somehow reveals a disability, ADA issues arise.
"Physical agility tests", often used by police and fire departments when screening applicants, are not considered medical examinations under the ADA, but they must be administered to all applicants in that job category at a particular stage of the hiring process (in most cases, only final candidates will be asked to undergo physical agility tests), and if they tend to screen out individuals with disabilities, the employer must be able to demonstrate that the tests are job-related and consistent with business necessity, and further, that no reasonable accommodation is possible that would enable people with certain disabilities to meet the requirements of the test.
Great basic handbook for understanding the ADA: https://adata.org/guide/ada-national-network-disability-law-handbook.
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Notwithstanding discrimination laws, employers may always hire the best-qualified candidate for the job.
The important thing is to be able to explain how the one who was hired really had the best qualifications and was the best "fit" for the position in terms of legitimate, job-related factors.
That, of course, requires a very close and careful look at the job applications and other information about applicants and a meticulous consideration of all factors that are relevant to the job, such as minimum qualifications, prior experience, availability, and work ethic (job reference checks can be helpful there).
A hiring standard that results in exclusion of an applicant on the basis of race, color, religion, age, gender, national origin, disability, or genetic information is suspect and presents a risk of an EEO claim or lawsuit unless there is a bona fide occupational qualification (BFOQ) dictating that one type of person be favored over other types of people for a position; thus, leave minority status out of the hiring decision to the greatest extent possible. The burden of proving that a BFOQ exists is on the employer.
In general, employers do not have to explain why they are not hiring a particular applicant (exception: applicants turned down due to an adverse background or credit check covered by the FCRA - see the discussion on the FCRA in the topic "References and Background Checks" for more details).
It is usually best to restrict any explanations to short and factual, non-inflammatory statements such as "you seem to have some good qualifications. However, the one we hired better fit the requirements we had at this time. Please check back with us about any openings we might have in the future. Thank you."
Try to avoid ever using the term "overqualified" to explain why a person is not suitable for hire - the EEOC and the TWC Civil Rights Division consider that to be potential evidence of age discrimination.
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Any written job offer should point out that employment is "at will" - for a sample, see "Job Offer Letter" in this book under "The A to Z of Personnel Policies".
A good job offer letter should note that hiring is contingent upon the new hire completing all of the new hire paperwork
An oral job offer should be matter-of-fact and to the point - skip the usual "feel-good" comments that sometimes get a company in trouble, such as "don't worry, if you work hard and follow all the rules, you'll always have a job with us" - even though the Texas Supreme Court has ruled that such comments do not by themselves destroy the presumption that employment is at will, it is possible to do just that with the wrong mix of circumstances.
In an employment at will situation, the employer should express the compensation in terms of a weekly or biweekly pay period - annual salary offers have been held in certain cases to constitute a promise of at least one year's employment.
The more unusual a pay method is, the more important it is to put it into writing - also, the pay agreement should be as clear as possible, since any claims under the Texas Payday Law will be based upon whatever the pay agreement says or seems to say.
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The best time to obtain employees' agreement to something, or to get them to sign required government documents, is before they are hired, or at the very start of employment. A good way to handle this is to have an appropriate staff member, such as the office manager or a human resources department employee, meet with the new employee before any work begins and have the new hire fill out the various forms. The following is a list of the required and optional documents that companies most commonly include in the new hire packet.
Required:
W-4 form - this form is for obtaining basic payroll tax information from an employee and enables the company to know how many exemptions to use when computing withholding tax for IRS purposes (download the form here)
I-9 form - this is needed for all new hires in order to document that they are authorized to work in the United States (download the form here)
DOL notice re Health Insurance Marketplace (https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/notice-of-coverage-options)
notice of workers' compensation coverage - whether the company carries workers' compensation insurance or not, it must notify new hires one way or the other (download either the notice of coverage (English, Spanish, or Vietnamese) or the notice of non-coverage (English, Spanish, or Vietnamese)
consent for background checks, if not already obtained - the best time to obtain this is prior to hiring someone, so that the check can be done before making the hiring decision, but better late than never, since prior notice of background checks and consent are required under the Fair Credit Reporting Act, if the check is done by an outside, for-profit service (an alternative form is here)
Optional, but recommended:
acknowledgement of receipt of policy handbook (an alternative form, combined with consents to searches and video surveillance, is here)
consent for drug testing / consent to search policy, if the company does such things
consent for video surveillance, if the company conducts such surveillance
agreements regarding pay, wage deductions, benefits, schedule, work location, and so on (with employment-at-will disclaimers (see the topic on pay agreements for an example))
documents needed to claim potential benefits associated with hiring applicants from certain targeted groups (see https://www.twc.texas.gov/programs/work-opportunity-tax-credit/employers)
In addition to the paperwork, other steps that the employer needs to take at the time or right after an employee starts work are:
Enter the employee into the payroll system. For employee ID purposes, try to use an alpha-numeric identifier other than a Social Security number - both government agencies and private-sector experts advise employers to minimize the use and publication of SSNs for anything other than wage reporting and payroll tax purposes.
Make the new hire report within 20 days of hire - it can be done online at https://employer.oag.texas.gov/employerportal/s/.
Sign the employee up for any insurance or other benefits the company may offer.
Issue the employee any ID or access cards needed to access company facilities.
Issue company equipment, uniforms, and other items - consider using a property return security deposit agreement to minimize the risk of damage or non-return of such property.
Remember that new hire orientation periods will involve compensable time worked.
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Do not waste time getting I-9 information on all applicants - this is only required for people who are actually hired.
The law requires employers to verify the I-9 information by the end of the third day of an employee's employment.
Do not ask about U.S. citizenship unless required to do so by statute or regulation - ask whether the applicant is authorized to work in the U.S.
Employers are not required to keep copies of the documents a new hire presents for the I-9 form, but keeping copies will help a company show that it tried in good faith to verify the identity and work authorization of the employee.
I-9 records must be kept for three years following the date of hire, or for one year after the employee leaves, whichever is later. Recommended: keep this and all employment records for at least 7 years after the employee leaves in order to exhaust all the statutes of limitation.
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Temporary Employees
Professional Employer Organizations
Payrolling
Hybrid Situations
Best Practices for Temporary Staffing Firms and Professional Employer Organizations
Co-employment or joint employment; "single employer"
Independent contractors
Temporary employees Top of Page
Temporary employees hired directly by a company are the company's employees for all intents and purposes and can file unemployment claims when the job runs out. However, if a student fills a summer job and goes back to school when the next school term starts, TWC precedent cases hold that such a student would be disqualified from unemployment benefits as a "voluntary quit" (see TWC's Appeals Policy and Precedent Manual, VL 495.00, Appeal No. 983-CAC-72, for one example).
Alternative: hire temporary employees through a temporary help service.
In such a case, the temporary service is the employer and will deal with any unemployment claims from such employees.
Hourly labor cost is higher, but at least there will be no unemployment claims to worry about.
Temporary employees can be considered employees of both the client company and the staffing firm for purposes of wage and hour statutes and other laws under joint employment rules - cover this issue in any staffing agreement that you sign.
"1000-hour rule" - this is a requirement under the federal pension and benefits protection law known as ERISA - it requires that if an employee works at least 1000 hours in a 12-month period, and if the company has some kind of pension or retirement benefit plan, the company must give that employee the chance to participate in the plan - that rule does not apply to other types of benefits, though (see ERISA section).
Professional Employer Organizations Top of Page
In Texas, professional employer organizations (PEOs) are considered the "employers" of workers assigned to various clients, as long as the PEOs are properly licensed and certified under applicable statutes (Chapter 91 of the Texas Labor Code).
Under Section 91.032(a)(2) of the Labor Code, a PEO is liable for unpaid wages, even if it has not been paid by the client company, but it is liable for other types of compensation that the client company may have promised to pay the employees only if it has contracted to assume such liability (see Section 91.032(c)).
In an unemployment claim situation, a former employee of a PEO is subject to potential disqualification for voluntarily leaving work if he or she was subject to a policy requiring the employee to contact the PEO after a work separation, but such a disqualification requires the PEO to prove that the employee was given written notice of such a requirement at the time of the work separation by either the client company or the PEO (see Section 207.045(i) of the Texas Labor Code).
"Payrolling" Top of Page
With payrolling, a client company sometimes attempts to escape the unemployment tax obligations of an employer by assigning its employees to an outside entity known as a payrolling company for payroll purposes only - the payrolling company, though, does not act as an employer in any other way.
Texas considers such workers to be employed by the clients, not by the payrolling entity.
This is also the rule with "common paymaster" situations, in which separate, related companies establish an entity solely for the purpose of handling personnel and payroll matters for the members of that group, or else allow one of the members of the group to handle payroll matters for the rest of the group's members, either for an administrative fee or as a matter of convenience. The definition of "employing unit" is key to understanding the concept of payrolling; it is defined in Section 201.011(11) of the Act as "a person who ... has employed an individual to perform services for the person in this state." A "person" would be an individual, a partnership, or a corporation. Section 201.046 of the Act provides that the employer is the employing unit that receives the benefit of the work performed, regardless of whether the employees are hired and paid by the employing unit or its agent. In a payrolling situation involving a common paymaster, each separate employing unit receives the benefit of the services provided by the employees working at each location. Employing units with separate identities, i.e., separate corporate charters and the like, are separate business entities and thus separate employing units. TWC's position in this area of the law is explained in Tax Letter No. 7-80, as well as in Rule 13 decisions, including TD-98-066-0998 (January 5, 1999), TD-05-053-0505 (September 29, 2005), TD-08-024-0108 (August 26, 2008), and TD-09-013-0109 (May 27, 2009), holding that "payrolling companies" are not single employing units for the purposes of reporting wages and paying state UI tax.
The only exceptions to that general rule are for clients of licensed PEOs (see above) and, pursuant to 26 U.S.C. § 3306(p) of the federal law and Section 201.011(11) of the Texas Labor Code, any employees who are concurrently employed by two or more related corporations, one of which is acting as the common paymaster for the other(s).
Payrolling should not be confused with the single and joint employer concepts that may apply in other employment law situations.
For online tips from the IRS on how to use third-party payroll service providers, see https://www.irs.gov/government-entities/third-party-payer-arrangements-payroll-service-providers-and-reporting-agents.
Hybrid Situations Top of Page
It sometimes happens that an employer reports its workforce under its own account number, either with or without the assistance of a payroll service, and at the same time sources other staff through a PEO or temporary help firm. In the case of staff sourced from other firms (a PEO or a temporary help firm), the PEO or temporary help firm is the primary employer of the workers supplied to the client company (the employer using a staffing provider), and the staffing firm handles the wage reports and UI tax payments under its own TWC tax account number.
In general, TWC will not disregard such an arrangement, as long as the PEO is properly licensed by TDLR, and the staffing company’s documentation verifies the employment relationship with the supplied workers.
TWC and the involved employers stay happy as long as wages are properly reported and taxes fully paid by the responsible employers. TWC and the employees stay happy as long as each employer pays the agreed-upon wages as promised. In the event of non-payment of wages for the PEO or temporary help firm employees, any wage claim would involve the staffing firm as the primary employer obligated to pay wages, and in the event of failure or default by the staffing firm in paying the wages, TWC would then hold the client company responsible, since the client company would have been a joint employer of the staffing firm workers.
Each case is handled individually according to the unique facts of each situation. Still, as long as wage reports are timely, UI taxes are paid on time, and employees get their wages as promised, there is no real reason for any such staffing arrangements to come into question.
Best Practices for Temporary Staffing Firms and Professional Employer Organizations Top of Page
To minimize risk that TWC will conclude that a staffing relationship is merely payrolling, the temporary staffing firm or PEO needs to act like the real employer:
Reserve the right in the client service agreement to exercise as many of the prerogatives of an employer, at least on paper, as possible, i.e., hiring, firing, reassignment, training, pay, benefits, and so on.
Have employees fill out employment applications.
Run all new temps/leased employees through the I-9 process.
Do at least minimal background/reference checks.
Get W-4s filled out.
Give workers' comp coverage notices (Notice 5 for non-coverage, Notice 6 for coverage).
Give them company policy handbooks.
Have them sign clear acknowledgement of receipt forms listing the temporary help firm or the PEO as the employer.
Any benefits should be given in the name of the temporary help firm or the PEO.
Pay stubs should identify the temporary help firm or the PEO as the employer.
Do not let client firms include assigned employees in the client firm's internal employee e-mail distribution groups, employee rosters, or mailing lists
Give all statutorily-required notices for UI purposes (Section 207.045(h) for temporary help firms and 207.045(i) for PEOs).
Report wages and pay UI and other payroll taxes to TWC and IRS.
Upon commencement of health plan coverage, termination of the employment relationship, and other qualifying events, give COBRA notices to the ex-employee and affected beneficiaries when applicable.
Give reminders of who the employer is throughout the employment relationship and at the conclusion of the assignment, along with clear written instructions on how to recontact the employer for reassignment.
Co-employment or joint employment; "single employer" Top of Page
Especially in the case of temporary help firms and PEOs, but also with other companies, the possibility of joint employment exists - if two independent entities jointly exercise enough of the attributes of an employer with respect to certain workers, it may be possible that the two entities will be considered "joint employers" of those workers for purposes of various employment laws.
A similar concept is that of the "single employer", which occurs when two nominally separate companies are so closely interrelated that they form a single employing unit for purposes of various employment laws affecting workplace rights. From a 1965 Supreme Court case called Radio Union v. Broadcast Service (380 U.S. 255, 257), the four criteria for determining whether two companies are really a single employer for employment law purposes are: (1) interrelation of operations; (2) centralized control of labor relations; (3) common management; and (4) common ownership or financial control. According to the Fifth Circuit Court of Appeals (the federal appeals court responsible for interpretation of federal law for Texas, Louisiana, and Mississippi), the most important criterion is the second one, i.e., centralized control of labor relations (see Schweitzer v. Advanced Telemarketing Corp., 104 F.3d 761, 764 (5th Cir.1997)). If one person or department does essentially all of the hiring, personnel administration, payroll, and firing for both companies, then there is a high probability that a court or agency will find that a single employer situation exists.
On the important issue of centralized control of labor relations, a useful case under the FLSA is In re Enterprise Rent-A-Car, 683 F.3d 462, 471 (3d Cir. 2012), which listed the following relevant factors: "1) the alleged employer's authority to hire and fire the relevant employees; 2) the alleged employer's authority to promulgate work rules and assignments and to set the employees' conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; 3) the alleged employer's involvement in day-to-day employee supervision, including employee discipline; and 4) the alleged employer's actual control of employee records, such as payroll, insurance, or taxes.".
Franchise-based employers: to minimize co-employment liability, franchisors should separate themselves as much as possible from the personnel decisions of their franchisees, including recruiting, hiring, training, paying, scheduling, corrective actions, and work separations.
Caution: this concept is unrelated to the situation of payrolling. Simply because two or more companies may be so closely related that they qualify as single or joint employers for purposes of discrimination, wage and hour, and other employment laws affecting workplace rights does not mean that the related companies may engage in the practice of payrolling for state unemployment tax purposes. In Texas, each employing unit should have its own unemployment tax account and report the wages of its own employees to TWC. For more information, see the topic on payrolling.
Independent contractors Top of Page
Independent contractors are self-employed - they are independent business entities in a position to make a profit or loss based upon how they manage their own independent enterprise - an "employer" of such an individual is merely one of the clients of that contractor.
Most states and IRS use similar tests to determine whether given workers are employees or independent contractors.
Whether the test applied is the common-law direction and control test, the ABC test, the economic realities test, or the IRS eleven-factor test, the issues are basically the same - all the tests boil down to whether the employer exercises direction and control over the performance of the services of the worker.
All the laws presume that a worker performing services for pay is an employee - if an employer thinks otherwise, it has the burden of proof in almost any possible legal situation.
TWC takes the position that if a member of a limited liability company performs services for the company and is paid wages for that work, they are employed by the LLC, and the LLC would need to report their wages to TWC and pay unemployment tax on such wages. TWC bases that position on the rule in a federal appeals court case. Under the rule in Texas Carbonate v. Phinney, 307 F.2d 289 (5th Cir. 1962), cert. denied, 371 U.S. 940 (1962), a corporate officer is employed by his or her own corporate entity. The same rule applies to members of LLCs who receive wages in return for personal services rendered to their firms. If a member performs work for the firm and is paid any form of compensation, including hourly pay, a salary, a commission, a bonus, or "draws", in return for such work, the pay would be considered "wages" that are reportable to TWC and subject to the state unemployment tax.
A variation of that situation occurs when the member is an employee, but receives payments that are not considered "wages" under the Texas Labor Code. If an LLC member is paid a distribution of profits for her work managing the company, she would be an "employee" of the company under the Phinney rule. However, the distribution of profits would not be "wages" subject to reporting and unemployment taxes, as long as the profit distributions are made according to a plan or procedures provided in a member agreement or other type of founding document for the company.
TWC's Tax Manual, Section 1.5.3, deals with these issues – that section is online at https://www.twc.texas.gov/sites/default/files/ui/docs/tax-dept-law-manual-twc.pdf#page=28 (starting with the bottom of that page).
Keep these characteristics of independent contractor arrangements in mind:
TWC tax examiners look for certain "red flags":
In an audit situation, an employer should try to show:
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Report wages and pay all taxes on time - deadlines can be extended for good cause shown (Rules 815.107(b)(3) and 815.109(f)) - set up a payment plan if necessary - timely payment of taxes enables the wages to be used to compute the tax rate, which serves to keep the tax rate lower.
Section 204.083 - that law provides for mandatory transfer of compensation experience in case of shared ownership or management between the predecessor and successor - always take this potential cost into account when negotiating the sale or purchase of another business.
Sections 204.084, 204.085, and 204.0851 - a partial transfer of compensation experience is possible (two-year deadline - Rule 815.111).
Section 204.086 - a successor entity is liable for the unemployment tax debt of its predecessor - this is another potential cost to take into account when negotiating the sale or purchase of another business.
Section 205.002 - the election to be a reimbursing employer must be timely and is effective for two years.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Not all employers are covered by all of the various Texas and federal employment laws that exist. It is important to know which laws apply to which company or organization, because coverage involves the imposition of important duties for employers to satisfy. Here are the most important employment-related statutes, along with the definition of "employer", the number of employees required for coverage*, and the definition of "employee" for each law (details follow below the chart - click on the linked names of the laws to go to those details):
| # of Employees | Employer | Statute | Protection |
|---|---|---|---|
| 1 employee or contractor | Any | Civil Rights Act of 1866 | Race/color discrimination |
| 1 employee | Any employer with any employee involved in commerce | Employee Retirement Income and Security Act | Employee benefit rights |
| 1 employee | Any employer with any employee involved in commerce, or an individual who acts in the interest of an employer toward an employee | Fair Labor Standards Act | Minimum wage/overtime/gender-based pay discrimination |
| 1 employee | Any employer with any employee involved in commerce | Occupational Safety and Health Act | Occupational safety and health |
| 1 employee | Any employer with any employee | Texas and federal new hire reporting laws | New hire reporting within first 20 days after hire |
| 1 employee | Any private-sector employer | Texas Payday Law | Anything relating to employee pay |
| 1 employee | Any employer or individual who acts in the interest of an employer toward an employee | Chapter 21 (Texas Labor Code) | Sexual harassment |
| 1 employee | For-profit/government | Federal Unemployment Tax Act and Texas Unemployment Compensation Act | Unemployment compensation |
| 2 - 50 employees | Any | Small Employer Health Insurance Availability Act (Texas COBRA) |
Health benefit continuation - state law |
| 4 employees | Any | Immigration Reform and Control Act | National origin/U.S. citizenship |
| 4 employees | Non-profit | Texas Unemployment Compensation Act | Unemployment compensation |
| 15 employees | Any | Title VII, ADA, GINA, Chapter 21 (Texas Labor Code) | Race, color, gender, religion, national origin, disability, age (state law), genetic information |
| 20 employees | Any | ADEA | Age discrimination (federal) |
| 20 employees | Any, except for church and governmental** health plans | COBRA | Health benefit continuation - federal law |
| 50 employees | Any | FMLA | Family and medical leave |
| 100 employees | Any | WARN | Advance notice of plant closings and mass layoffs |
| 100 employees | Private sector | EEO-1 Report | Statistical survey of employees |
Note: Many of the definitions of "employee" and "employer" in the above laws have minor exceptions that are relevant only to extremely narrow segments of the workforce. Such exceptions are not discussed here, but may be found by following the links to the statutes involved.
* Unless the statute that creates the employee limit also expressly states that the limit is jurisdictional, an employer with an employee count under the limit could still face liability in a claim or lawsuit unless it affirmatively shows that the limit precludes coverage in that situation - see the discussion of the Arbaugh v. Y & H Corporation case in "Other Types of Employment-Related Litigation" in the outline of employment law issues in part IV of this book. The test for whether an employer "has" an employee on a certain day is whether the employee is on the payroll, rather than whether the employee works on or is paid for that day. That test is called the "payroll method", as explained in Walters v. Metropolitan Educational Enterprises, Inc., 519 U.S. 202, 117 S.Ct. 660 (1997).
** Regarding health benefit continuation rights for public employees, state and local government health plans maintained by public employers with 20 or more employees are covered under the Public Health Safety Act - see 42 U.S.C.A. § 300bb-1 et seq.. In Texas, state and local government health plans maintained by public employers with 2 to 19 employees would be covered by the Texas COBRA law.
Federal Statutes
Civil Rights Act of 1866 (amended in 1871) (race and color discrimination) - 42 U.S.C. § 1981(a): Top of Page
"All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts ..." This law applies to all contracts made within the jurisdiction of the United States, including contracts for personal services, and thus applies even to independent contractors. There is no minimum number of employees or contractors involved for the law to apply, so even one worker of any kind makes the employer liable under this statute.
Employee Retirement Income and Security Act (ERISA) - 29 U.S.C. § 1002(5, 6): Top of Page
"(5) The term 'employer' means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. (6) The term 'employee' means any individual employed by an employer." Under 29 U.S.C. § 1052(a)(3)(A), the retirement benefit rights apply to any employee who works at least 1,000 hours in a 12-month period.
Fair Labor Standards Act (FLSA) - 29 U.S.C. § 203(d): Top of Page
"'Employer' includes any person acting directly or indirectly in the interest of an employer in relation to an employee ..." This broad definition includes managers and anyone else directly involved with pay decisions, since they act "in the interest of an employer" toward the employees under their charge. Under § 203(e), "the term 'employee' means any individual employed by an employer." The common law test used for determining employment status in FLSA cases is called the "economic realities test".
Occupational Safety and Health Act (OSHA) - 29 U.S.C. § 652(5, 6): Top of Page
29 U.S.C. § 652(5) provides that "'employer' means a person engaged in a business affecting commerce who has employees, but does not include the United States (not including the United States Postal Service) or any State or political subdivision of a State ..." Texas has not submitted a state plan to DOL for approval under 29 U.S.C. § 667. Thus, OSHA applies only to private-sector employers in Texas; it does not apply to state or local governments or government agencies. Under § 652(6), "the term 'employee' means an employee of an employer who is employed in a business of his employer which affects commerce." The common law test used for determining employment status in FLSA cases is applicable to OSHA as well. One employee is sufficient for coverage, since 29 U.S.C. § 654(a) provides that "[e]ach employer - (1) shall furnish to each of his employees employment and a place of employment which are free from recognized hazards ..." and "(2) shall comply with occupational safety and health standards promulgated under this chapter."
State Directory of New Hires; Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) - 42 U.S.C. § 653a: Top of Page
Under the federal law, "each employer" must report "each newly-hired employee" to the state directory of new hires. Both the state and federal new hire reporting laws have the same basic definitions: "The term 'employer' has the meaning given such term in section 3401(d) of the Internal Revenue Code of 1986 and includes any governmental entity and any labor organization." "The term 'employee' -- (i) means an individual who is an employee within the meaning of chapter 24 of the Internal Revenue Code of 1986; ... ." Thus, the IRS test for determining a worker's employment status would apply.
Federal Unemployment Tax Act (FUTA) - 26 U.S.C. § 3306: Top of Page
The definitions here are almost identical to those in the Texas unemployment compensation statutes. In § 3306(a)(1), "[t]he term 'employer' means, with respect to any calendar year, any person who -- (A) during any calendar quarter in the calendar year or the preceding calendar year paid wages of $1,500 or more, or (B) on each of some 20 days during the calendar year or during the preceding calendar year, each day being in a different calendar week, employed at least one individual in employment for some portion of the day." In subsection (a)(3), an employer of a domestic service employee is liable if it pays $1,000 or more in wages in a calendar quarter. In subsection (i), the FUTA statute actually gives the term "employee" the same meaning that it has for Social Security (FICA) tax purposes: "... the term 'employee' has the meaning assigned to such term by section 3121(d), ..." Section 3121(d) in turn provides that "... the term 'employee' means -- (1) any officer of a corporation; or (2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; ... ." Thus, it is apparent that both the FUTA and FICA tax statutes use the same common law test (commonly referred to in FICA and FLSA cases as the "economic realities test").
Immigration Reform and Control Act of 1986 (IRCA) (national origin and U.S. citizenship discrimination) - 8 U.S.C. § 1324b(a)(2)(A): Top of Page
The prohibition on citizenship and national origin discrimination does not apply to "a person or other entity that employs three or fewer employees". Thus, the discrimination provision in this law applies to any employer with four or more employees. There is no distinction between full- and part-time employees, and no distinction based upon how long the employees have worked for the company. The term "employee" is not specifically defined in this statute (however, the regulation 8 C.F.R. § 274a.1(f) defines "employee" - see that regulation below). With regard to the hiring of unauthorized workers in § 1324a, it is clear from subsection (a)(4) that the prohibition on hiring an "unauthorized alien" applies to "contracts for labor", and thus the law prohibiting employment of unauthorized aliens applies to the hiring of independent contractors, similar to the way that the Civil Rights Act of 1866 applies to independent contractors as well as employees. Concerning the I-9 process, obtaining I-9 documentation from independent contractors is not necessary, according to U.S. Customs and Immigration Services guidance in the I-9 Handbook for Employers, Publication M-274, in question 6 on page 31 of the PDF version of the handbook (see https://www.uscis.gov/i-9-central/form-i-9-resources/handbook-for-employers-m-274). The USCIS regulation regarding § 1324a offers more guidance on the relevant definitions:
8 C.F.R. § 274a.1:
Title VII of the Civil Rights Act of 1964 (race, color, religion, national origin, and gender discrimination, including pregnancy and sexual harassment) - 42 U.S.C. § 2000e: Top of Page
"The term 'employer' means a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year ..." Thus, one would mark on a calendar for the current or preceding calendar year all days on which the company employed 15 or more employees, and then mark each week that had each working day so marked, and if the number of weeks so marked is at least 20, Title VII applies. "Employee" means "an individual employed by an employer". That would include owners and officers of corporations who perform work for pay for their corporations. Private-sector employers with 100 or more employees (50 or more if the employer has a federal contract, subcontract, or purchase order worth $50,000 or more) must file the EEO-1 report annually.
Americans with Disabilities Act (ADA) (disability discrimination) - 42 U.S.C. § 12111(5)(A): Top of Page
"The term 'employer' means a person engaged in an industry affecting commerce who has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year ..." This test is the same as for Title VII. The definition of "employee" is the same as in Title VII.
Genetic Information Non-discrimination Act (GINA) (genetic information discrimination) - 42 U.S.C. § 2000ff: Top of Page
§§ 2000ff(2)(A)(i) and 2000ff(2)(B)(i) of GINA state that the definitions of "employer" and "employee" are the same as found in Title VII. Thus, employers with 15 or more employees are covered by GINA.
Age Discrimination in Employment Act (ADEA) (age discrimination) - 29 U.S.C. § 630(b): Top of Page
"The term 'employer' means a person engaged in an industry affecting commerce who has twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year ..." This test is the same as for Title VII, except that the number of employees is 20, instead of 15. The definition of "employee" is basically the same as in Title VII.
COBRA (federal law on health benefit continuation for 18 months in most cases) - 26 U.S.C. §4980B(d) and 29 U.S.C. §1161(b): Top of Page
COBRA applies to health insurance plans of non-governmental, non-church employers with 20 or more employees (governmental employer health insurance plans are covered by the PHSA, as noted above). Covered plans are defined in the Internal Revenue Code (Title 26) as follows: "This section shall not apply to (1) any failure of a group health plan to meet the requirements of subsection (f) with respect to any qualified beneficiary if the qualifying event with respect to such beneficiary occurred during the calendar year immediately following a calendar year during which all employers maintaining such plan normally employed fewer than 20 employees on a typical business day, (2) any governmental plan (within the meaning of section 414 (d)), or (3) any church plan (within the meaning of section 414 (e))." Similarly, 29 U.S.C. § 1161(b) provides that continuation coverage under the federal law "shall not apply to any group health plan for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year." "Employee" is defined in subsection (f)(7) of §4980B, which refers to the definition of "employee" in 26 U.S.C. § 401(c) for ERISA pension plan purposes - that definition includes self-employed individuals who perform personal services for their entities, such as owners of proprietorships, partners of partnerships, and owners of corporate entities. For more on federal COBRA requirements, click here.
Family and Medical Leave Act (FMLA) - 29 U.S.C. § 2611(4)(A)(i): Top of Page
"The term 'employer' ... means any person engaged in commerce or in any industry or activity affecting commerce who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year ... " This test is the same as for Title VII, except that the number of employees is 50, instead of 15. The definition of "employee" is the same as in the Fair Labor Standards Act. However, employees must be "eligible employees" in order to take FMLA-protected leave. "Eligible employee" is defined in § 2611(2) as anyone who has worked for at least twelve months for the employer, has worked at least 1,250 hours during the twelve-month period preceding the leave, works at a facility where at least 50 employees are located within a 75-mile radius, and has a qualifying family or medical leave event, including military exigencies, as defined in § 2612(a). Due to the 1,250-hour requirement, this is one of the few statutes that potentially screen out some part-time employees from eligibility (see also ERISA and the WARN Act).
Worker Adjustment and Retraining Notification Act (advance notice of plant closings and mass layoffs) - 29 U.S.C. § 2101(a)(1): Top of Page
"[T]he term 'employer' means any business enterprise that employs (A) 100 or more employees, excluding part-time employees; or (B) 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime);" Although the statute does not specifically define "employee", the term "employs" invokes the common-law direction and control test for employment. For more on the WARN Act, click here.
Texas Statutes
State Directory of New Hires - Texas Family Code, § 234.101: Top of Page
Under § 234.102 of the Texas law, all employers must report "each newly-hired or rehired employee" to the state directory of new hires. As noted above, the new hire reporting laws on both the state and federal levels have the same basic definitions: "'Employer' has the meaning given that term by Section 3401(d) of the Internal Revenue Code of 1986 (26 U.S.C. Section 3401(d)) and includes a governmental entity and a labor organization, ..." "'Employee' means an individual who is an employee within the meaning of Chapter 24 of the Internal Revenue Code of 1986 (26 U.S.C. Section 3401(d))." Thus, the IRS test for determining a worker's employment status would apply.
Texas Payday Law - Texas Labor Code, Chapter 61 - § 61.001(4): Top of Page
"'Employer' means a person who: (A) employs one or more employees; or (B) acts directly or indirectly in the interests of an employer in relation to an employee." However, § 61.003 excludes public employers from coverage under that statute. Thus, the Texas Payday Law applies to even the smallest employers in the private sector. "'Employee' means an individual who is employed by an employer for compensation." The test for employment status is the same as the one used for unemployment compensation liability - see Appendix E in the article "Independent Contractors / Contract Labor" for the twenty-factor test used by TWC.
Texas Unemployment Compensation Act (TUCA) - Texas Labor Code, Chapter 201, §§ 201.021(a) and 201.023: Top of Page
The definitions here are almost identical to the definitions for the federal unemployment compensation statutes. "In this subtitle, 'employer' means an employing unit that: (1) paid wages of $1,500 or more during a calendar quarter in the current or preceding calendar year; or (2) employed at least one individual in employment for a portion of at least one day during 20 or more different calendar weeks of the current or preceding calendar year.", or that "is a tax-exempt, non-profit organization under Sections 501(a) and 501(c)(3) of the Internal Revenue Code that employed at least four individuals in employment for a portion of at least one day during 20 or more different calendar weeks during the current year or during the preceding calendar year." In the case of a domestic service employee, the wage amount for liability is $1,000 paid in a calendar quarter (see § 201.027(a)). "Employing unit" is defined in § 201.011(11) as "a person who ... has employed an individual to perform services for the person in this state." "Employee" is not directly defined, but the term means anyone who is in "employment", which is defined in § 201.041 as "a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire, unless it is shown to the satisfaction of the commission that the individual's performance of the service has been and will continue to be free from control or direction under the contract and in fact." The test for employment status is the same as the one used by TWC for payday law coverage - see Appendix E in the article "Independent Contractors / Contract Labor" for the twenty-factor test in question. Thus, a for-profit employer becomes liable for unemployment compensation with even one employee. A non-profit employer needs at least four employees for liability.
Small Employer Health Insurance Availability Act (Texas law on health benefit continuation for nine months if not covered by the federal COBRA laws, and six months after federal COBRA coverage ends if covered by both Texas and federal COBRA laws) - Texas Insurance Code, Sections 1501.002(4, 14): Top of Page
"'Small employer' means a person who employed an average of at least two employees, but not more than 50 eligible employees on business days during the preceding calendar year and who employs at least two employees on the first day of the plan year. The term includes a governmental entity ..." "'Employee' means an individual employed by an employer.", meaning that the common-law direction and control test for employment applies in this statute. For employers with 20 to 50 employees, the six months of state health benefit continuation coverage begins after the federal COBRA period ends; see Texas Insurance Code § 1251.255(1). For more on Texas and federal COBRA requirements, click here.
Texas Labor Code, Chapter 21 (same discrimination categories covered by EEOC laws) - § 21.002(8)(A): Top of Page
"'Employer' means: (A) a person who is engaged in an industry affecting commerce and who has 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year ..." This test is the same as for Title VII on the federal side. The definition of "employee" is also the same as in Title VII.
See also § 21.141(1) for a special rule on sexual harassment: Top of Page
This special provision of Chapter 21 lowers the threshold for coverage for sexual harassment liability to one employee, and the coverage for an employer is similar to that found in the FLSA, i.e., a covered employer is "a person who: (A) employs one or more employees; or (B) acts directly in the interests of an employer in relation to an employee."
Employers should pay close attention to changes in Texas and federal laws, because the Legislature and Congress sometimes lower the number of employees needed for coverage under certain laws.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Job applications and interviews on the one hand, unemployment claims on the other - what could be further apart? One related to hiring, the other to firing - how could they be related? They are related, more closely than most employers realize! What an employer does during the hiring process very often affects what can happen in a subsequent unemployment claim.
Following is a list of the most common problems related to the hiring process that manifest themselves in unemployment claims. How such claims turn out definitely depends upon the individual circumstances. Consider the following situations explained in detail below:
Falsification: the claimant falsified the job application or lied during the interview
Concealment: the claimant concealed important information during the hiring process
Misrepresentation: the claimant misrepresented his or her qualifications during the hiring process
Drug test: the employer hired the claimant before the results of a pre-employment drug screen came in, then fired the claimant for a positive result
Background check: the employer hired the claimant before the results of a background check came in, then fired the claimant based upon an unfavorable credit or criminal history report
Reference check: the employer hired the claimant prior to checking references, then fired the claimant after receiving an unfavorable reference from a prior employer
Go to the Employer Commissioner's Page
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Falsification of a job application, or lying during an interview, is generally considered disqualifying misconduct. However, that does not apply very easily if the claimant lied in answering an illegal question, i.e., a question that the employer is not supposed to be asking. For instance, the Americans with Disabilities Act makes pre-employment medical inquiries almost impossible. If your job application has a question about prior back injuries, and the applicant lies about that, the lie may not be considered misconduct. The ruling may be that whatever misconduct the claimant committed was excused by the unconscionable act of the employer in asking such an illegal question. Here is a list of questions that are usually illegal:
Have you ever declared bankruptcy?
Do you have any disabilities or medical problems?
Have you ever filed a workers' compensation claim?
What is your hair and eye color?
What religious holidays do you observe?
Give your date of birth:
What was your maiden name?
How many children do you have?
What arrangements have you made for childcare?
Are you a U.S. citizen?
This is just a short list. There are dozens of ways to violate various job discrimination laws by asking the wrong questions on job applications. Basically, you will have trouble with any question that gives any kind of clue whatsoever to an applicant's race, color, religion, gender, age, national origin, or disability. A good general rule of thumb for an application or interview question is whether it will help you decide whether a certain applicant is the best qualified individual for the position. If it won't help you make that determination, leave it off the application, because it can put you at unnecessary risk of a claim or a lawsuit.
Claimants who are proven to have lied in order to get a job can be disqualified from benefits, but the burden is on the employer to show that the claimant lied, i.e., intentionally misrepresented the facts in order to deceive the company into hiring him or her. That can be difficult in a case involving someone who claimed to have certain skills, but turned out not to be as skilled as the employer thought the applicant was. The difficulty lies chiefly in proving that the problem was not a simple mismatch between what the claimant believed his skills to be and the employer's perception of what the claimant was saying about his skills. A common excuse used by a claimant in a case like this is that there was simply a "mismatch", i.e., in a previous similar job, she had similar duties and seemed to satisfy the company, but the new company did things a different way, and she felt lost by the new procedures. How a company interviews for such positions is, of course, up to the company, but a way of minimizing the incidence of mismatches could be to give the interviewees, especially those who claim a certain level of experience or skills, a sample file or task and ask them to demonstrate how they would do the work. Such work-related tests are allowable under EEOC guidelines as long as they are fairly and consistently administered, and it probably would not take very long to sort the candidates out into categories pertaining to their readiness, fitness for training, and suitability for hiring.
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Sometimes a job applicant fails to put down complete information in response to questions. Assuming you have screened your application to get rid of illegal or risky questions (see "Falsification"), it will generally be disqualifying misconduct for an applicant to have concealed information that should have been disclosed. Your chances of winning a UI claim in such a situation are improved if your application contained wording more or less like the following:
...I certify that all information I have supplied on this application is accurate and complete. I understand that any wrong or incomplete information on this application can lead to my not being hired or, if I am hired, to my termination from employment if discovered after hire...
If you hire someone and later find out there was more to their story than they told, confront them with the situation prior to termination and ask them to explain in their own words in writing what happened. Then, if termination is still appropriate, you will be able to use their written statement as valuable evidence when defending against an unemployment claim. If they do not want to give you a written statement, at least have a witness present who can testify as to any confessions the employee may give at or near the time of termination.
Go to the Employer Commissioner's Page
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Closely associated with falsification and concealment is the problem of misrepresentation. Employers who end up disappointed with new hires often end up feeling that the employees misrepresented their qualifications just to get hired. This can be a very difficult area for an employer, however. In order to prove misconduct in a "misrepresentation" case, an employer must show that the applicant actually had the intent to deceive the employer in some way as to qualifications or background for the job. Not every case in this area involves intent to deceive. Sometimes, an applicant misunderstands a question and answers what she thinks the employer is asking. That is not misconduct. Sometimes, an applicant claims to have expertise that the employer later determines is lacking. That may not always be misconduct. Job applicants are human, and most humans want to think the best about themselves. People sometimes delude themselves as to their true level of expertise. Scenario: the employer may want a secretary who is skilled enough with word processing software to help publish the firm's newsletter and product brochures. The applicant who is asked "do you feel comfortable with using a computer, and are you good with word processing?" may answer "yes" if they know how to do basic computer file management and compose letters on a word processor. Yet, the employer and the applicant have not connected on the question of expertise. Perhaps a better way to ask the question would be:
How long have you worked with the software we use?
How comfortable are you in learning new software?
Have you ever used graphics programs?
Have you ever designed original graphics?
Do you know how to merge a database with a form letter and produce a mass mailing?
Have you ever combined text and graphics to produce a newsletter or brochure?
Once the applicant has explained their qualifications, ask him or her to demonstrate how they would perform the kind of day-to-day task that is important for the job. Seeing the applicant in action will help confirm whether the applicant's expertise matches their words.
Go to the Employer Commissioner's Page
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This situation arises when a person is hired pending the results of a pre-employment drug screen, but later fired when the results come back positive. This is almost always a fairly easy case for an employer to win, but documentation is of vital importance! To have the best chance of winning a case like this, be sure to have words like the following on the job application:
...I certify that I do not have any detectable amounts of prohibited substances in my system at the time of taking my pre-employment drug screen. I understand that if my drug screen turns out positive for a prohibited substance, I will not be eligible for hire, or if I am hired pending the outcome of such a test, I will be subject to immediate termination...
In addition to that wording on the job application, be prepared to submit a copy of your company's drug-free workplace policy; a copy of the claimant's acknowledgment of the policy; a copy of the claimant's consent for testing; a copy of the specific drug test results showing what substances were found, in what concentrations or with what cutoff levels, and what tests were performed on the sample, including confirmatory testing by the GC/MS method; and finally, a copy of the chain of custody of the sample showing who handled the sample at all pertinent times.
Go to the Employer Commissioner's Page
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Employers can win or lose cases that arise when someone is fired on the basis of an unfavorable background check, depending upon the circumstances. Make sure to comply with the Fair Credit Reporting Act, which requires an employer to get an applicant's written authorization prior to having an outside for-profit entity conduct a background check, and further requires an employer to tell an unsuccessful applicant or a discharged employee that the unfavorable report is the reason for the adverse action and to inform the individual of the name and address of the entity furnishing the report. This should be easy to comply with, since an employer is allowed to insist on the applicant signing such an authorization as a condition of submitting an application for employment. If the background report reveals information that the applicant should have supplied on the application or during the interview, but failed to, the employer will probably be able to prove misconduct, assuming that the claimant is unable to furnish a compelling explanation that the report was wrong. If the report has information that the employer did not ask about, the result will probably be that the claimant will win benefits, since the background report will presumably be about past problems of the claimant, not about anything that could be considered misconduct connected with the work from which the claimant was terminated.
See also: Job References and Background Checks
Go to the Employer Commissioner's Page
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In general, employers should make every effort to verify employment history and other references prior to hiring someone. However, that is not always possible. If a person is hired, but later fired because a late reference finally came in, the unemployment claim will probably go in the claimant's favor, unless the claimant falsified or concealed that information or otherwise tried to mislead the employer about it. The reason the claimant will probably win is that the reference will usually be about something bad that happened in the past that is not connected with the claimant's last work. Remember, disqualification for someone who is discharged is only for misconduct connected with the last work, not for something that happened before the claimant was even hired. It is up to an employer to conduct a prompt and thorough check of all information supplied on the application, and to check everything possible prior to hiring a new employee.
See also: Job References and Background Checks
Go to the Employer Commissioner's Page
Go to the TWC Home Page
Appendix A - Consultants - Comparison List
Appendix B - Tax Audits and Rule 13 Hearings
Appendix C - Independent Contractor Case Studies
Appendix D - IRS Independent Contractor Test
Appendix E - TWC Independent Contractor Test
"Contract labor" may be the most widely used misnomer in business today. The issue is really whether a given worker is an employee or an independent contractor. In basic terms, an employee is someone over whose work an employer exercises direction or control and for whom there is extensive wage reporting and tax responsibility. An independent contractor is self-employed, bears responsibility for his or her own taxes and expenses, and is not subject to an employer's direction and control. The distinction depends upon much more than what the parties call themselves.
The Texas Unemployment Compensation Act does not directly define "independent contractor". Instead, it sets forth a broadly inclusive test, known as the "direction or control" or "common law" test, for who is an employee: "'employment' means a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire, unless it is shown to the satisfaction of the Commission that the individual's performance of the service has been and will continue to be free from control or direction under the contract and in fact". By implication, an "independent contractor" would be a person whose services do not meet the above test. To aid in application of the common-law test, TWC has adapted the old IRS twenty-factor test for use by the agency (see Appendix E to this article).
It is important to note that it does not matter that one or both parties may call their arrangement "contract labor". The above definition makes clear that the important consideration is the underlying nature of the work relationship. The law creates a presumption of employment and places the burden for proving otherwise on the employer. It sets forth the primary factor in an independent contractor relationship, namely, the absence of direction and control over the work.
In 2019, TWC adopted a regulation defining "marketplace contractors", a subset of workers who are regarded as non-employees for purposes of unemployment insurance wage reporting and taxes. The new regulation is 40 T.A.C. § 815.134(b), a clarification of how the existing 20-factor test (see Appendix E for this article) relates to "gig economy" workers / marketplace contractors. It applies to those who use digital apps to obtain projects, tasks, or assignments through a "digital network". If the digital network satisfies the three-part definition of a "marketplace platform", and the work relationship meets all nine criteria specified in subsection (b)(2), the worker can be considered an independent contractor with respect to the marketplace platform. The burden of proof is on a company wishing to assert that certain workers are not employees. PEOs and temporary help firms are excluded from the definition of marketplace platforms. The new rule applies only to UI claim and tax liability issues and does not affect definitions of employment for other laws, such as wage and hour, discrimination, and workplace safety statutes.
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No less an authority than the United States Supreme Court has established a widely-accepted five-part test, known as the "economic reality" test, that helps establish whether a person is an employee or an independent contractor. In United States v. Silk, 331 U.S. 704 (1947), a case dealing with whether an employer owed Social Security taxes on certain workers, the Supreme Court found the following factors important:
(quoted from Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042 (5th Cir. 1987)). Brock, one of the leading cases from the Fifth Circuit explaining independent contractor/employee issues, goes on to state that the "focus is whether the employees as a matter of economic reality are dependent upon the business to which they render service". The same case notes further that "it is dependence that indicates employee status...the final and determinative question must be whether the total of the testing establishes the personnel are so dependent upon the business with which they are connected" that they are employees.
This emphasis on dependence and economic reality demands nothing more than a common sense approach. An employee who has nothing to invest in an enterprise beyond the time he puts in and who sells his services to only one "customer", the employer, is economically dependent upon that work. An independent contractor, on the other hand, is not normally dependent upon only one customer, but rather, being in business for herself and with an investment in her own equipment and supplies, has an entire customer base upon which to fall back.
The economic reality test is used by the U.S. Department of Labor and the Social Security Administration and thus is very important for FLSA and Social Security tax purposes. In 2022, DOL issued a notice of proposed rulemaking indicating that it will revert to a six-factor test that is very similar to the one used up until 2017. The six factors in proposed regulation 29 C.F.R. § 795.110 include 1) opportunity for profit or loss depending on managerial skill, 2) investments by the worker and the employer, 3) degree of permanence of the work relationship, 4) nature and degree of control, 5) extent to which the work performed is an integral part of the employer’s business, and 6) skill and initiative. The proposed rule also notes that additional factors may be relevant, "if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the employer for work." Employers would be well-advised to visit www.dol.gov/whd/ often to stay up with developments in this area of the law.
A third way of approaching this problem is called the "ABC" test, which is used by almost two thirds of the states (not including Texas) in determining whether workers are employees or independent contractors for state unemployment tax purposes. In order to be considered an independent contractor, a worker must meet three separate criteria (some states require only that two criteria be met):
Under Section 401.012 of the Texas Workers' Compensation Act, "'employee' means each person in the service of another under a contract of hire, whether express or implied, or oral or written," and "includes: (1) an employee employed in the usual course and scope of the employer's business ... ." That term does not include "an independent contractor or ... a person whose employment is not in the usual course and scope of the employer's business." In section 406.121(2) of that law, an independent contractor is defined as "a person who contracts to perform work or provide a service for the benefit of another and who ordinarily:
Finally, the Internal Revenue Service uses a so-called "Eleven Factor" test for determining the coverage of various federal employment tax laws. The eleven factors are all based upon the common law, economic reality, and ABC tests and represent their various criteria either reorganized or broken down into more detail.
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The Texas Workforce Commission is charged with auditing businesses to ensure that employee wages are properly reported and appropriate taxes paid on such wages. If TWC rules that an employer has failed to properly report all wages and pay taxes, it will assess back taxes and interest. Non-payment of taxes leads TWC to inform the Internal Revenue Service that the non-paying employer is not entitled to the federal tax credit with respect to the wages in question, which in turn can lead to an IRS audit. Finally, since TWC conducts a cross-match of its wage reports with the new hire database of the Child Support Division of the Texas Attorney General's office, an employer that is found to have misclassified a new hire as a non-employee and failed to report the new hire may be liable for a $25 per employee penalty for violating the new hire reporting law (see "New Hire Reporting Laws" in this book for further details).
A TWC audit generally begins in one of four different ways. First, a former worker may file an unemployment claim. If no wages were reported for that claimant by the employer, the claim may be disallowed, in which case the claimant will probably appeal. The Tax Department will investigate, and such an audit has the highest priority. Second, a competitor or someone else may report that an employer is misclassifying its workers. The Tax Department will audit the employer's entire workforce and will hold the source of its information confidential. Third, TWC may perform a random audit of the employer as part of its goal of auditing 2% of all businesses every year. Fourth, TWC may decide to target a specific industry or geographical area. For instance, the hair salon industry was targeted in that way back in the late 1980s due to a high number of reports both from within the industry and from ex-workers.
For more detail on the subject of TWC tax audits, click here.
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Employers often confront these issues over short-term or as needed workers performing services for them. Any employer using what it considers to be "contract labor" should ask itself some questions up front:
Is the service provided by the individuals in question essential to, and an integral part of, the service the employer provides to the public? The less able an employer is to offer its primary service without the help of the people whose status is at issue, the more likely it is that they will be considered employees. Consider this: if certain services are so essential to a business that it will stand or fall based upon how well those services are performed, the business will naturally want to exercise enough direction and control over the services to ensure they are good. That amount of control can make a company an employer of such workers.
What opportunity for profit or risk of loss is there for the worker? What kind of investment, other than his or her time, does the worker have in the enterprise? An employee is paid for her time. She would not be expected to provide her own workplace, materials, tools, and supplies, or otherwise to invest her own money in the business. An employee who makes a costly mistake can be fired, but cannot legally be forced to work without pay. An independent contractor, on the other hand, is an independent businessperson with expenses of his or her own. He will be expected to provide or purchase everything he needs to do the job. If he fails to satisfy the customer, he would be required to redo the work for no additional compensation, or else face the risk of non-payment by the customer. These things create the opportunity for profit or loss.
What is the compensation arrangement? Is the compensation negotiated, or is it imposed by the employer? A true independent contractor's main concern is her own bottom line, not that of the employer. Since she is responsible for her own overhead, including the hiring of any helpers she may need, there is always an element of negotiation in any bona fide contract for services. Usually, but not always, an independent contractor is paid by the job. It is up to him to figure out how much he needs to finish the job at a profit. If he miscalculates, the loss is his.
Does the individual provide his services to the public at large? Does he advertise his services in newspapers, the Yellow Pages, or specialized journals? If a person holds herself out to the public as self-employed and available for work for any customer with whom she can negotiate an acceptable price, she is likely to be held an independent contractor. The more the worker advertises, the more it is apparent that she is in business for herself, since an independent business stands or falls based upon its business development efforts.
Is there a non-competition agreement? Generally, non-competition agreements and independent contractors do not go hand-in-hand. Such a provision in a contract is strongly indicative of an employment relationship, chiefly because it proves that the services in question are directly related to the primary service provided by the employer. If those services were not related, there would be no "competition" and thus nothing against which to guard. The power to keep a person from pursuing his or her own business interests and to force a person to sign such an agreement is typical of the power wielded by employers over employees.
Does the worker provide his services on a continuous basis? The more long-term, continuous, and exclusive the relationship is, the more likely it is to be employment. Independent contractors, on the other hand, generally perform their work one job at a time and are paid on the same basis.
Is the worker required to provide services under the employer's name? Does she represent herself to the public as being an employee of the employer? On whose behalf are the services performed? If the general public would perceive the person to be a representative of the employer because of business cards, uniforms, or other advertising, this would be more indicative of an employee than an independent contractor. An employee performs services on behalf of the employer for customers of the employer. An independent contractor performs services on her own behalf for her own customers.
Does the employer retain the right to dictate how the work should be done? Is the worker required to work a certain schedule, to notify the employer if he will not come to work, or to get the employer's approval for any helpers who are hired? When an employer contracts for outside services, it is normally interested only in the end result, not in the details of how the contractor performs the work. The employer should have no interest in how the independent contractor allocates either his time or that of his helpers. By the same token, the employer would have no interest in the contractor's right to hire his own helpers, beyond the right to contractually specify that anyone providing services on a project must be properly licensed under whatever laws apply to the work.
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The above points are all general factors, but there are many details that can be helpful in determining whether given workers are independent contractors or employees:
Cash flow - how the money gets from the customer or the client to the worker is important. If the client pays the employer in general, and the employer pays the worker either by the hour, by salary, or by commission, the worker looks more like an employee. If, on the other hand, the employer pays the contract price for work completed, the worker would appear to be an independent contractor. Alternatively, if the client pays the worker, and the worker remits an agreed-upon fee or percentage to the employer, that would look more like an independent contractor situation. If the worker merely collects the pay from the client, passes it along to the employer as an agent would, and receives a share of it back, he would appear more like an employee than an independent contractor.
"Rent" - closely related to the cash flow issue is that of the compensation the worker gives the employer for the use of its facilities or equipment. Keep in mind that the opportunity for profit or loss is an important hallmark of an independent contractor. An employer normally provides its employees with everything needed to do their work. A business contracting with an independent contractor normally expects the contractor to supply what is needed to accomplish the project. If the worker uses the employer's facilities and equipment at no cost, he looks like an employee. If the worker must pay some negotiated amount in rent or usage fees regardless of the contract price or of how much he takes in from customers, that looks very much like the kind of profit or loss opportunity any independent business that rents commercial space or equipment would have. It is important to note that this kind of compensation does not have to be separately invoiced or structured as "rent" in order to be a factor in the profit or loss equation. The price for the work in the underlying contract can simply be adjusted to reflect the reasonable value of the employer's assets used by the contractor in performing the work. Any such adjustments should be specifically noted in the contract.
Hours of work - clearly, any worker who is told to work certain hours does not have control over her own schedule, an essential component of the profit or loss equation. If the worker has a key to the facility and can work during hours outside the normal operating times of the employer, she will look more like an independent contractor. If an independent contractor wants to take time off, that should be up to her. If she can do that and still meet her contract obligations, that should not matter to the employer. That is not to say that the contract can not specify that the contractor will be available within certain guidelines for purposes of consultation or progress checks. However, the more control the employer exercises over the hours of the worker, the greater the risk is that the situation will be considered employment.
Assignments - closely related to the issue of hours of work is that of how the work comes to the workers. A worker receiving assignments from the employer as they come up is likely to be indistinguishable from a regular employee. An independent contractor, having been engaged to perform a specific job or project, derives his "assignments" from the terms of the contract and determines what his daily tasks will be in fulfillment thereof.
Insurance - if the employer provides liability insurance for the workers, the situation would likely be held to be employment, since the workers would not have ordinary business liability as a risk of doing business.
Advertising and listings - the employer should not be providing advertising for the workers. Independent businesspeople provide their own advertising, such as business cards, business stationery, commercial listings, brochures, and so on. In addition, workers who are independent contractors should have their own listings in the phone book, if not also separate numbers. If they are listed in ads and directories as being associated with a particular business, the risk is that they may be considered employees, rather than self-employed businesspeople.
Benefits - an employer who provides benefits such as vacation and sick leave, health insurance, bonuses, or severance pay will almost inevitably be considered the employer of the workers. The power to award benefits carries with it the power to deny them, and that kind of power is exercised by employers. Think about it: a business that contracts to have its roof fixed would not be telling the roofers whether they could or could not go on vacation. It would be up to the roofing contractor to decide whether workers could go on vacation and still have the roof fixed by the contract deadline. By the same token, the business would not be extending its employee health plan to the roofing company's workers. The same considerations apply to any industry.
Termination of the relationship - a business that has the right to fire a worker at will is generally considered the employer of that worker. An independent contractor will usually have some kind of contractual recourse if fired before completion of the work, and the contract will generally specify conditions that must be met if the contract is to be cancelled.
These are the main types of factors TWC will consider when determining whether certain workers are employees or independent contractors. TWC's official test is a variation of the old IRS twenty-factor test (see Appendix E of this article). No one factor will determine the entire case, and not every case will involve all the factors discussed herein. Each case is decided on an individual basis after weighing all of the factors present. The bottom line in any case in this area will be whether the facts show that the worker in question is in effect an independent business entity in a position to make a profit or loss based upon how he manages his own enterprise. Employers in doubt over any of their workers are encouraged to request a ruling on the status of such individuals from TWC's Tax Department and to call their local TWC tax office for further information.
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APPENDIX A
Significant Differences Between Employees and Independent Contractors
in Fields Relating to Consultation Services
Employer/Employee
Worker asserts he or she is an employee or seems unsure about such status
Worker has no DBA, does not own his or her own company, has no client base, and/or has no business cards or independent advertising
Worker performs services on an ongoing basis for the alleged employer
Worker's services are directly integrated into the primary service supplied by the employer
Pay is by hourly wage or salary, rather than by the job
Pay is unilaterally set by the alleged employer
Alleged employer supervises the worker in the details of the projects or assignments
Alleged employer provides the facilities, tools, equipment, and/or supplies for the work
Alleged employer provides office space and clerical help to the worker at no cost
Worker uses a company e-mail address
Worker requires training and periodic supervision
Worker is subject to routine quality control checks
Worker is required to furnish regular reports to the alleged employer
Worker has no right to engage assistants to help him or her perform the contract services, or if the worker hires assistants, the alleged employer pays their wages
Alleged employer reimburses the worker for expenses associated with the job
Worker is covered by all or part of the alleged employer's benefits plan and liability insurance
Worker does not determine the hours or the details of the work
Independent Contractor
Contractor asserts he or she is self-employed, has at least a DBA or some kind of corporate entity, and generally maintains his or her own client list or customer base
Contractor is usually hired locally where the alleged employer performs the overall project
Contractor performs a service the alleged employer is not qualified or able to supply
Work is generally performed at client's site and/or contractor's office/home
Tools and equipment are furnished by contractor or client
Supplies are furnished by contractor without reimbursement from alleged employer
Contractor is highly skilled and requires no training or supervision
Alleged employer and client are interested only in the outcome of the work, not in the details of how the work is done
Contractor has some voice in determining the hours of performing the work
Work is not on a continuous basis, but rather on a job-to-job basis
Pay is generally by the job and is negotiated with the contractor
Contractor invoices the alleged employer, which in turn pays the contractor's company or DBA
Contractor does not have an e-mail address under employer's e-mail domain name
Contractor has the right to hire assistants and to pay them out of his or her own pocket
Contractor is not reimbursed by the alleged employer for expenses
Contractor is not covered by the alleged employer's benefit plan
Contractor maintains his or her own errors and omissions liability insurance
Contractor is not required by the alleged employer to submit performance, cost, or progress reports other than invoices or perhaps work or progress reports verified and signed by the employer's clients
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APPENDIX B
TEXAS WORKFORCE COMMISSION TAX AUDITS AND RULE 13 HEARINGS
As a taxing authority, the Texas Workforce Commission must carry out several responsibilities with regard to the state unemployment tax imposed on employers of Texas employees. Among the more important of those responsibilities are keeping track of all wages paid, reports submitted, chargebacks from benefits paid to former employees, and taxes paid by each employer; using those data to calculate employers' individual tax rates; initiating the remittance of the taxes to the Texas unemployment insurance trust fund so that they can be used to pay unemployment benefits to eligible claimants; auditing selected employers' tax accounts to determine compliance with the wage reporting and unemployment tax laws; and collecting delinquent taxes and enforcing other aspects of the unemployment tax laws. With the compliance tools of the Texas Unemployment Compensation Act in mind (interest and penalties on unreported wages and unpaid taxes; notice of assessment; liens; bank freeze and levy; warrant hold; posting of a bond to continue employing workers in Texas; injunction; and even receivership), it is understandable that an employer might be concerned if it receives notice of an audit from the Tax Department. Fortunately, the most that ever happens with the vast majority of compliance problems is the imposition of a simple interest charge on unpaid taxes, or else a minor penalty for late submission of a wage report. This article explains the basics of the audit process.
A TWC tax audit generally begins in one of four different ways:
An employer receiving a notice that a tax audit will occur should try not to panic. The main purposes of an audit are to review an employer's payroll records and to try to discover misclassified wages that should have been reported and taxed. Many audits result in no finding of anything wrong and are finished within a few hours, depending upon how well the employer has been keeping records of workers and payments to workers. The process may take longer if large numbers of workers are involved, or if the employer's records are incomplete or inconsistent.
Certain records must be kept under TWC statutes and regulations. Business information required to be maintained by each employing unit includes:
Records that must be kept on individuals performing services include:
Tax auditors sometimes ask for several different kinds of documentation, depending upon the nature and purpose of the audit. More documentation might be required if one of the questions to be settled is the nature of the employing unit itself, since there are some differences in taxes between corporations and sole proprietorships and partnerships. There is no real alternative to supplying the documentation. If documentation needed for a decision is not available, then the tax examiner has the authority to base the decision on the best evidence that exists, which may or may not result in a decision you like.
Specific records that an auditor might search include:
Some employers reading an audit notice feel as if TWC is overreaching by calling for all of those records to be made available for review. The problem is that payments to workers show up in a huge variety of places other than normal payroll records, and many of the records listed above give clues as to the status and duties of people whose names appear in the documents. Some employers worry that if they allow the TWC field tax examiner to see confidential business records, their sensitive business information will be at risk of exposure, whether through misconduct, a Public Information Act request by a competitor or newspaper, or negligence. State law prescribes serious penalties for any state employee who intentionally releases such information to unauthorized parties, and further, any employee who did such a thing would be subject to discharge. The Public Information Act does not cover an employer's business records that are furnished in connection with unemployment tax or benefit laws, so such information could never be released under the open records law. Finally, several procedures are in place to discourage accidental or negligent release of an employer's confidential business information - for example, that is why an employer must furnish suitable proof of identity and authorization in order to receive information about its tax account. Negligent release of such information is extremely unlikely and, to this author's knowledge, has never occurred.
As a practical matter, a tax examiner will not ask to see all such records. Most audits are completed within a few hours; some last less than two hours. Audits are generally short if the employer has well-organized documentation and is prepared to give accurate answers to questions about records and those who performed services for the company.
Here are the main things to remember for a TWC tax audit:
If the tax audit results in a ruling that a claimant is entitled to additional wage credits from your company, and you disagree, you may appeal such a ruling to the Appeal Tribunal through the normal unemployment appeals process, since that kind of case has to do with an unemployment claim. If it is any other type of audit, and the ruling is unfavorable for your company, you may file a different kind of appeal under Commission Rule 13 (see below).
An audit may result in a finding that back taxes and interest are owed. In such a case, installment payment plans are available simply by asking the Tax Department.
Employers do not have to simply wait to be audited. It is usually better to find out sooner rather than later if something is wrong. Employers who are in doubt about the status of their workers may request a Form C-12 from their local TWC tax office. After the completed form is submitted, a tax examiner will review the matter and make a ruling one way or the other.
An employer who disagrees with the ruling in any way has the right to request an appeal hearing under Commission Rule 13 (40 T.A.C. § 815.113). Such appeals may be requested via mail, fax, hand-delivery, or e-mail. As long as the employer alleges some disagreement with a Tax Department action other than a tax rate calculation or something similar that is based solely on a mathematical calculation, the appeal will result in a full evidentiary hearing before a hearing officer. Such hearings are usually held over the phone via teleconference. The employer may present witnesses, documentation and other types of exhibits, affidavits, legal briefs, and other forms of evidence that are relevant to the issue in dispute. TWC may present an employee of the Tax Department as an expert witness. The hearing officer places witnesses under oath and records their testimony. Any exhibits offered by the employer should be sent in advance to the hearing officer so that everyone can view them as they are offered and discussed. Procedurally, a Rule 13 hearing is an informal administrative proceeding designed to encourage a full discussion of the issues. Since the format for the hearing does not substantially differ from the format used by TWC for appeals of unemployment and wage claims, the information under “During the Appeal Hearing” at https://www.twc.texas.gov/programs/unemployment-benefits/appeals-process-employers can be a useful basic reference, and many specific procedures relating to Rule 13 hearings are outlined at https://www.twc.texas.gov/programs/appeals/tax-liability-appeals-process. After concluding the hearing, the hearing officer forwards the evidence developed at the hearing to the Commissioners, along with a recommendation as to the outcome. The Commissioners then vote on the case at a regular docket meeting.
If an employer disagrees with a tax rate, or the amount of interest or penalty, but alleges nothing other than a general statement that the rate, interest, or penalty is excessive, it is likely that no hearing will be held. Rather, the Commission will issue an on-the-record decision explaining how the disputed amount was calculated and what statutes were involved.
With either type of Rule 13 decision, if the employer is still dissatisfied, it can file a motion for reconsideration with the Commission, the deadline for which is the thirtieth calendar day following the date of mailing of the first Commission decision (if the deadline falls on a weekend or a national or state holiday on which TWC offices are closed, the deadline is extended until the next business day following the deadline).
There are two ways the case can be appealed to a court. One is by not paying the tax owed and waiting for TWC to sue, which TWC must do within three years, or else the tax debt can no longer be collected. The other is by paying the amount in dispute, petitioning for a refund, having the petition denied, and then suing TWC for its failure to refund the money. Either way, the employer will have the chance to make its arguments in court for the proposition that certain workers were really independent contractors, or that whatever other determination the Tax Department made was erroneous in some way.
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APPENDIX C
INDEPENDENT CONTRACTOR CASE STUDIES FROM
TEXAS WORKFORCE COMMISSION APPEALS
TWC Case 1 - Facts:
The employer failed to report wages for a worker who had been hired to repair and otherwise maintain appliances sold by the employer's company. The claimant's initial claim was disallowed due to lack of wage credits, and the claimant successfully appealed to the Appeal Tribunal, which ruled that the claimant was an employee whose wages should have been reported to TWC. At the hearing, the employer testified that it based its belief that the claimant was an independent contractor on the facts that the claimant furnished some of the tools for the work, used his own truck, and paid for his gas. However, the evidence also showed that the claimant worked only on jobs secured by the employer, charged fees set by the employer, and that customer payments went not to the claimant, but to the employer. Also, the employer essentially paid for the claimant's work expenses. After losing at the Appeal Tribunal level, the employer appealed to the Commission, but lost again, all three Commissioners voting that the claimant was an employee, rather than an independent contractor.
Analysis: The evidence as a whole showed that the employer had sufficient control over the claimant to be considered his employer. In any case involving the issue of whether a given worker is an independent contractor or an employee, TWC looks for evidence that the worker is in effect an independent business entity in a position to make a profit or loss based upon how he manages his own enterprise. Several factors show that this claimant was not in such a position.
The employer either determined or was responsible for almost every factor in the profit or loss equation. The employer determined the claimant's pay rate and paid him on an hourly basis. A true independent contractor would negotiate his own compensation with his own customers and be paid on a per-job basis.
The claimant worked on jobs secured by the employer. An independent contractor would be responsible for securing his own customers.
The claimant supplied some of his tools, used his own truck, and paid for his gas, but the employer paid him an extra hourly amount to compensate for those expenses. A true independent contractor would pay his own costs of doing business. The employer supplied some tools and apparently all of the major equipment needed for the work, and it did not charge the claimant for the use of those items.
In addition, the materials used for the jobs on which the claimant worked were supplied by the employer. An independent contractor would be responsible for supplying all of the tools, equipment, materials, and supplies for the job.
The employer determined the fees paid by the customers. A true independent contractor would set the price to be charged to the customers.
The customers paid the employer for the work done. If the claimant had been an independent contractor, the customers would have paid him.
If additional help was needed on a particular job, the employer hired and paid additional laborers. An independent contractor would be the one to decide whether additional help would be hired and how much to pay them.
The claimant performed his services under the employer's name. A true independent contractor would perform the work under his own business name.
The services performed by the claimant were directly integrated into the employer's business. Anytime a worker's services are so closely connected to those offered by a company, the company is presumed to exercise enough direction and control over his work to ensure the quality thereof.
The only aspect of the work relationship over which the claimant had a significant amount of control was that of his hours. The claimant usually determined the time of his work by agreement with the employer's customers. However, that small factor is inconsequential when taken together with the other factors discussed above.
This claimant was not in business for himself. For the reasons noted above, the claimant was an employee, and his wages should have been reported as such to TWC.
TWC Case 2 - Facts:
The employer was an accounting firm. The claimant was hired to perform contract bookkeeping services for the employer's clients who needed such services. He worked only on jobs assigned to him by the employer and was paid a commission for the work; the commission was based on fees paid by the clients to the employer, and the employer determined the level of fees. The claimant was paid on a weekly basis. He used the employer's office space, equipment, and supplies. The employer reviewed the claimant's work and returned faulty work to the claimant for corrections before delivering the work to clients.
The claimant's initial claim had been disallowed due to insufficient wage credits; the claimant appealed, and the Appeal Tribunal awarded wage credits, finding that the claimant had been an employee of the employer. The employer appealed, and the Commission unanimously ruled that the Appeal Tribunal decision was correct.
Analysis: This claimant was not an independent contractor. Several factors lead to that conclusion:
The claimant's work was directly integrated into the primary service of the employer. A business hires an independent contractor in order to get expertise it is not in a position to supply for itself, and this business was definitely in a position to supply bookkeeping services, since it was an accounting firm.
The claimant did not secure his own jobs, as a true independent contractor would, but rather worked on assignments given to him directly by the employer.
The claimant had no control over the factors of the profit and loss equation, since he had no substantial investment in an independent business enterprise, but rather used the employer's facilities, supplies, and equipment. In addition, the claimant had no role in setting the price for his work or the level of his commission pay, as a true independent contractor would.
Finally, the employer checked the claimant's work for accuracy and returned mistakes to the claimant for corrections. In a true independent contractor situation, the "employer" (who would thus be the independent contractor's customer) would be in no position to make such judgments about the accuracy of details of the contractor's work. The fact that the employer was so concerned about the accuracy of the claimant's work before releasing it to the clients strongly indicates that the employer felt it had the primary responsibility for the work in question. A true independent contractor would not only be delivering his work directly to his clients, but would also have the primary responsibility and liability for the work.
Conclusion: this claimant was an employee - the wages should have been reported.
TWC Case 3 - Facts:
The claimant was paid on an hourly basis to serve as a contract office manager; her main duties were to train the employer's employees how to do their jobs, monitor the quality of their work, and to perform clerical duties in the office. The claimant had signed a written agreement specifying that she was an independent contractor. The claimant's initial claim had been disallowed for lack of wage credits, but the Appeal Tribunal ruled that the claimant was an employee. The Commission upheld the hearing officer's ruling in a unanimous decision.
Analysis: An hourly pay rate is strongly indicative of an employment relationship, whereas most independent contractors are paid by the job or project. In this case, the claimant had no opportunity for a profit or loss, since all materials and facilities were supplied by the employer. Since the claimant's job was to train the employer's employees and monitor the quality of their work, she essentially functioned as their supervisor - it is difficult to imagine a job function that would be more directly integrated into the employer's business. In addition, the fact that the claimant also performed a number of routine clerical tasks associated with the employer's business raises a presumption that she was an employee. The fact that the claimant had agreed in writing that she was an independent contractor is irrelevant, since the facts show that she was an employee. The claimant's wages should have been reported as wages from employment.
TWC Case 4 - Facts:
The employer's company was a car rental agency in a major city, with locations downtown and at area airports. The claimant performed services as the driver of a shuttle van for the employer under a written contract specifying that he was an independent contractor. He was paid a set rate per mile plus an hourly rate for waiting time; paydays were at regular intervals. There was no evidence that he had negotiated the pay rate. He worked only on assignments given to him by the employer and did all work in the employer's name. He had to be on 24-hour call. He was told by supervisors at various levels that he would be fired if he refused to make runs as directed by the employer. The claimant worked for the employer on a continuous basis for about a year.
Analysis: The claimant was an employee based upon the following factors:
The claimant did not negotiate the compensation for the work.
The claimant worked only on assignments given to him by the employer, and the assignments involved the employer's customers; a true independent contractor would have received his assignments from his own customers.
Unlike independent contractors, the claimant had no control over his own time; he had to be on 24-hour call, effectively preventing him from any attempts at developing his own business.
The claimant performed the services in the employer's name - if he had had his own company, he would have performed the work under his company's name.
Just like any employee, he worked for a pay rate imposed by the employer, instead of negotiating his own compensation.
The repeated warnings by the employer that it would fire the claimant for refusal to make runs as instructed is conclusive evidence that the employer exercised direction and control over the services performed by the claimant.
The claimant's services were directly integrated into the primary service offered by the employer, indicative of an employment relationship.
In view of the above facts, the written agreement that the claimant was an independent contractor had no effect concerning this employer's legal obligation to report the claimant's wages and pay the appropriate state UI tax.
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APPENDIX D
INDEPENDENT CONTRACTOR TEST
INTERNAL REVENUE SERVICE
IRS Independent Contractor Test
The IRS formerly used what has become known as the "Twenty Factor" test. Under pressure from Congress and from representatives of labor and business, it has recently attempted to simplify and refine the test, consolidating the twenty factors into eleven main tests, and organizing them into three main groups: behavioral control, financial control, and the type of relationship of the parties. Those factors appear below, along with comments regarding each one (source: IRS Publication 15-A, 2023 Edition; online at https://www.irs.gov/publications/p15a#en_US_2022_publink1000169490. Another good IRS resource for understanding the independent contractor tests is at https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
Behavioral control
Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:
Instructions the business gives the worker. An employee is generally subject to the business' instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work:
The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.
Training the business gives the worker. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.
Financial control
Facts that show whether the business has a right to control the business aspects of the worker's job include:
The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services they perform for their business.
The extent of the worker's investment. An employee usually has no investment in the work other than his or her own time. An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status.
The extent to which the worker makes services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
How the business pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
The extent to which the worker can realize a profit or loss. Since an employer usually provides employees a workplace, tools, materials, equipment, and supplies needed for the work, and generally pays the costs of doing business, employees do not have an opportunity to make a profit or loss. An independent contractor can make a profit or loss.
Type of relationship
Facts that show the parties' type of relationship include:
Written contracts describing the relationship the parties intended to create. This is probably the least important of the criteria, since what really matters is the nature of the underlying work relationship, not what the parties choose to call it. However, in close cases, the written contract can make a difference.
Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. The power to grant benefits carries with it the power to take them away, which is a power generally exercised by employers over employees. A true independent contractor will finance his or her own benefits out of the overall profits of the enterprise.
The permanency of the relationship. If the company engages a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of the company's regular business activity, it is more likely that the company will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.
Former IRS Twenty-Factor Test
The previous twenty-factor test used by the IRS can be seen in the test (see Appendix E of this article) officially adopted by the Texas Workforce Commission, the agency which enforces the state unemployment tax in Texas. That test may be found on the Internet at https://texreg.sos.state.tx.us/fids/200700686-1.pdf (PDF). Employers may also request a copy in printed form by asking for Form C-8 from "Texas Workforce Commission, Tax Department, 101 E. 15th Street, Austin, Texas, 78778".
There is a "safe harbor" rule in Section 530(a) of the Revenue Act of 1978 that sometimes allows companies to classify workers in close cases as independent contractors, even if they might be considered employees under the IRS eleven-factor test shown here, as long as such a classification is consistent with the industry practice for such workers, or a previous IRS audit has found that such workers are not employees, or an IRS ruling or opinion letter supports the classification in question, and the worker has been treated all along as an independent contractor. The important thing to remember is that TWC takes the position that the agency is not bound by the IRS safe harbor rule or by any particular ruling that IRS makes under the federal law, reasoning that TWC must follow its own specific Texas statute, Section 201.041 of the Texas Unemployment Compensation Act, which provides the "direction and control" test explained at the beginning of this article.
Do not underestimate the difficulty of applying these standards to specific individuals performing services. In doubtful cases, always consult a knowledgeable labor and employment law attorney.
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(The following version of Form C-8 is identical in content, but not in format, to the Form C-8 adopted by the Texas Workforce Commission and published in the Texas Register as part of the Payday Rules. That test may be found on the Internet in PDF format at https://texreg.sos.state.tx.us/fids/200700686-1.pdf (PDF). Employers may also request a copy in printed form by asking for Form C-8 from "Texas Workforce Commission, Tax Department, 101 E. 15th Street, Austin, Texas, 78778".)
| Under the common law test, a worker is an employee if the purchaser of that worker's service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done. Control need not actually be exercised; rather, if the service recipient has the right to control, employment may be shown. | Depending upon the type of business and the services performed, not all of the twenty common law factors may apply. In addition, the weight assigned to a specific factor may vary depending upon the facts of the case. If an employment relationship exists, it does not matter that the employee is called something different, such as: agent, contract labor, subcontractor, or independent contractor. |
| 1. INSTRUCTIONS: | 11. ORAL OR WRITTEN REPORTS: |
| An Employee receives instructions about when, where and how the work is to be performed. An Independent Contractor does the job his or her own way with few, if any, instructions as to the details or methods of the work. |
An Employee may be required to submit regular oral or written reports about the work in progress. An Independent Contractor is usually not required to submit regular oral or written reports about the work in progress. |
| 2. TRAINING: | 12.PAYMENT BY THE HOUR, WEEK, OR MONTH: |
| Employees are often trained by a more experienced employee or are required to attend meetings or take training courses. An Independent Contractor uses his or her own methods and thus need not receive training from the purchaser of those services. |
An Employee is typically paid by the employer in regular amounts at stated intervals, such as by the hour or week. An Independent Contractor is normally paid by the job, either a negotiated flat rate or upon submission of a bid. |
| 3. INTEGRATION: | 13. PAYMENT OF BUSINESS & TRAVEL EXPENSE: |
| Services of an Employee are usually merged into the firm's overall operation; the firm's success depends on those Employee services. An Independent Contractor's services are usually separate from the client's business and are not integrated or merged into it. |
An Employee's business and travel expenses are either paid directly or reimbursed by the employer. Independent Contractors normally pay all of their own business and travel expenses without reimbursement. |
| 4. SERVICES RENDERED PERSONALLY: | 14. FURNISHING TOOLS & EQUIPMENT: |
| An Employee's services must be rendered personally; Employees do not hire their own substitutes or delegate work to them. A true Independent Contractor is able to assign another to do the job in his or her place and need not perform services personally. |
Employees are furnished all necessary tools, materials, and equipment by their employer. An Independent Contractor ordinarily provides all of the tools and equipment necessary to complete the job. |
| 5. HIRING, SUPERVISING & PAYING HELPERS: | 15. SIGNIFICANT INVESTMENT: |
| An Employee may act as a foreman for the employer but, if so, helpers are paid with the employer's funds. Independent Contractors select, hire, pay, and supervise any helpers used and are responsible for the results of the helpers' labor. |
An Employee generally has little or no investment in the business. Instead, an Employee is economically dependent on the employer. True Independent Contractors usually have a substantial financial investment in their independent business. |
| 6. CONTINUING RELATIONSHIP: | 16. REALIZE PROFIT OR LOSS: |
| An Employee often continues to work for the same employer month after month or year after year. An Independent Contractor is usually hired to do one job of limited or indefinite duration and has no expectation of continuing work. |
An Employee does not ordinarily realize a profit or loss in the business. Rather, Employees are paid for services rendered. An Independent Contractor can either realize a profit or suffer a loss depending on the management of expenses and revenues. |
| 7. SET HOURS OF WORK: | 17. WORKING FOR MORE THAN ONE FIRM AT A TIME: |
| An Employee may work "on call" or during hours and days as set by the employer. A true Independent Contractor is the master of his or her own time and works the days and hours he or she chooses. |
An Employee ordinarily works for one employer at a time and may be prohibited from joining a competitor. An Independent Contractor often works for more than one client or firm at the same time and is not subject to a non-competition rule. |
| 8. FULL TIME REQUIRED: | 18. MAKING SERVICE AVAILABLE TO THE PUBLIC: |
| An Employee ordinarily devotes full-time service to the employer, or the employer may have a priority on the Employee's time. A true Independent Contractor cannot be required to devote full-time service to one firm exclusively. |
An Employee does not make his or her services available to the public except through the employer's company. An Independent Contractor may advertise, carry business cards, hang out a shingle, or hold a separate business license. |
| 9. LOCATION WHERE SERVICES PERFORMED: | 19. RIGHT TO DISCHARGE WITHOUT LIABILITY: |
| Employment is indicated if the employer has the right to mandate where services are performed. Independent Contractors ordinarily work where they choose. The workplace may be away from the client's premises. |
An Employee can be discharged at any time without liability on the employer's part. If the work meets the contract terms, an Independent Contractor cannot be fired without liability for breach of contract. |
| 10. ORDER OR SEQUENCE SET: | 20. RIGHT TO QUIT WITHOUT LIABILITY: |
| An Employee performs services in the order or sequence set by the employer. This shows control by the employer. A true Independent Contractor is concerned only with the finished product and sets his or her own order or sequence of work. |
An Employee may quit work at any time without liability on the Employee's part. An Independent Contractor is legally responsible for job completion and, on quitting, becomes liable for breach of contract. |
C-8 (0406)
(Source: 40 T.A.C. § 821.5, adopted to be effective June 1, 1998, as published in the Texas Register, May 29, 1998, 23 TexReg 5732.)
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Chapter 103 of the Texas Labor Code (https://statutes.capitol.texas.gov/Docs/LA/htm/LA.103.htm) protects from defamation liability an employer who releases information about a current or former employee to a prospective new employer, unless "the information disclosed was known by that employer to be false at the time the disclosure was made or that the disclosure was made with malice or in reckless disregard for the truth or falsity of the information disclosed." The question that most employers have is how to put the law into practice. Following are some practical tips for how to avoid liability and for how not to tempt employees to try to file lawsuits.
Point 1: Be Careful Over The Phone
As a general rule, it is not a good idea to give job reference information over the phone if someone "cold-calls" you, unless you are absolutely certain who is calling and why. The reason is that you do not know who is calling and, more importantly, why they are calling. The person could be a representative of a prospective new employer, but they could just as easily be a private investigator hired by the ex-employee to see if you say something bad about their client, a debt collector trying to track your former employee down, a stalker or identity thief, a disgruntled ex-spouse or significant other, or even a nosy neighbor. A good general practice is to respond to calls about employees with something like "I'm sorry, but we do not release information about current or former employees over the phone. However, we will be glad to furnish any information that your applicant authorizes us in writing to release to you." Then, suggest that the caller get the applicant to sign a release/authorization form like the one below, or else the sample form in the section of the book titled "The A to Z of Personnel Policies", and send it to your company.
Point 2: Just the Facts, Please
When giving a job reference, release only factual information. Factual information is something you can prove, either with witnesses or documentation. Facts do not include opinions, value judgments, or moral criticism.
Point 3: Supply Only What Is Requested
In addition, it is generally a good idea to provide only what is requested. Unless there is a compelling need to do so, try not to volunteer additional things that are not connected to the information requested by a prospective new employer.
Point 4: Tell the Truth
You may have heard that "truth is an absolute defense to a defamation lawsuit." The fact is, that's true. Tell a prospective new employer only what you know to be true. Telling true facts has been protected in the past by court decisions and is now protected by the new statute.
Point 5: Avoid Inflammatory Terms
Although embellishing a story with vivid terms and frank opinions is human nature, it should be avoided when giving job references. Inflammatory terms can make a person feel they are being unfairly attacked and can tempt a person to seek an attorney. Use points 2 and 4 above to combine facts with truth, as illustrated in the examples below:
Inflammatory: "We fired Joe for stealing."
Non-inflammatory: "We discharged Joe for failing to properly account for items entrusted to him. Items A and B were checked out to him, they turned up missing, and he failed to give a satisfactory explanation for what happened to them. Under our policy, that was a dischargeable offense."
Inflammatory: "Jane was fired for using drugs. We don't tolerate druggies here."
Non-inflammatory: "Jane failed a drug test on (date). The initial positive result was confirmed. Medical review of the result revealed no satisfactory explanation for the presence of the substance that was found. Employees who fail a drug test under such circumstances are subject to termination."
Inflammatory: "Frank was terminated for sexually harassing an employee."
Non-inflammatory: "Frank was terminated for violating our policy prohibiting harassment in the workplace."
There are many other situations in which inflammatory terms might be used and in which it might be better to tone the language down. The main thing is to express the facts in a way that gets the idea across without sounding like name-calling or moral judgment. As in most other areas of employment relations, the more an employee feels that he or she is being fairly treated, the less likely they will be to think they have to hire an attorney or complain to a government agency in order to vindicate themselves.
Use a Written Release Form
It is well-known that it can be difficult to get a usable job reference on an applicant from prior employers. Past employers are often reticent out of fear of defamation lawsuits, or they may suspect that a person requesting information is not really a prospective new employer. It is especially difficult to get usable information out of a "cold call" to another company over the phone. Using a preprinted, fill-in-the-blank form such as the one below can help overcome the reluctance or fear often felt by people asked to give a job reference and can give you a better chance of getting a useful, candid response. See the explanatory note following the sample form.
AUTHORIZATION FOR PRIOR EMPLOYER TO RELEASE INFORMATION
(Please read the following statements, sign below, and return to the Human Resources office.)
I, ____________, hereby authorize any investigator or duly accredited representative of [employer] bearing this release to obtain any information from schools, residential management agents, employers, criminal justice agencies, or individuals, relating to my activities. This information may include, but is not limited to, academic, residential, achievement, performance, attendance, personal history, disciplinary, arrest, and conviction records. I hereby direct you to release such information upon request of the bearer. I understand that the information released is for official use by [employer] and may be disclosed to such third parties as necessary in the fulfillment of official responsibilities.
I hereby release any individual, including record custodians, from any and all liability for damages of whatever kind or nature which may at any time result to me on account of compliance, or any attempts to comply, with this authorization.
______________________
(Applicant's signature)
______________________
(Date)
Note: Have the applicant fill out one of these forms for each prior employer from which you intend to seek job reference information. Using the form will make it much more likely that the prior employer will feel at liberty to release the information you request, or at least more than the usual work dates and salary confirmation that does not offer much of use in the hiring decision. Also keep in mind that if anyone refuses to sign such an authorization, your company would not be obligated to consider that person any further for hiring.
Important disclaimer: The above form is only a sample and is furnished only as an illustration of its category. It is not meant to be taken and used without consultation with a licensed employment law attorney. If you are in need of a form for a particular situation, you should keep in mind that any sample form such as the one available here would need to be reviewed, and possibly modified, by an employment law attorney in order to fit your situation and to comply with state and federal laws. Printing, downloading, using, or reproducing this form in any manner constitutes your agreement that you understand this disclaimer and that you will not use the form for your company or individual situation without first having it approved and, if necessary, modified by an employment law attorney of your choice.
Other Ways to Obtain Usable Reference or Background Information
If you are an employer that is considering hiring an applicant, sometimes you have to be like an investigator and try other techniques. In addition to using the form shown above, you can ask the applicant to give you the contact information for his or her immediate supervisor and try to talk with that person. If that supervisor has been properly trained, they will refer your call to the human resources staff, but sometimes you will find someone who is not trained that well and will give you more insight into the applicant's "real" employment history than you might otherwise get from the HR staff at that company. Second, ask the applicant to give you the name and contact information for at least one third party (customer, vendor, government regulator) who can give a statement as to the applicant's work or expertise. Such parties will sometimes give valuable information concerning an applicant (and sometimes not - the main point is that there is nothing to lose by asking). You can also hire an outside professional investigator to do a thorough reference check, as long as you satisfy the formalities under the Fair Credit Reporting Act. In order to do a background or reference check under the FCRA, an employer must first notify the applicant that such a check will be done, and then must obtain the applicant's written permission to perform the check. If the applicant refuses to sign such a form, you have the option of telling the applicant that the application process is at an end, or, if you are already satisfied with what you have been able to find out, you can opt to hire the individual without a more detailed check being done.
EEOC Issues with Background Checks
Sometimes employers will turn down an applicant as the result of a credit check or an unfavorable report on an applicant's criminal history. Aside from the FCRA concerns noted above, an employer needs to worry about the potential EEOC issues involved. Basically, EEOC takes the position that because statistical evidence shows that a higher percentage of minorities than non-minorities has had financial or criminal history problems in the past, taking an adverse job action based upon such factors has an disproportionate and unfair impact (in EEOC terms, "disparate impact") upon minorities, and the burden will be on the employer to show a legitimate, job-related reason for taking the adverse job action. EEOC expects employers, prior to turning someone down for a job or promotion who has had an unfavorable credit or criminal history report, to do an individualized job-relatedness determination. That means that before turning down someone for a job on the basis of a credit report or criminal history problem, the employer must be able to show that it considered the specific problem and determined that it would not be a good idea or prudent course of action to hire that specific person for a particular position.
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One of the easiest laws to comply with, from the standpoint of laws that make sense and can help an employer's bottom line, is the new hire reporting law, known formally as the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (42 U.S.C. § 653a) on the federal level, and the State Directory of New Hires Act under Texas law (Texas Family Code, Sections 234.101 - 234.104). Under that law, Texas employers must report all new hires and rehired employees within 20 calendar days of the hire, or, if the employer makes new hire reports electronically (online or with magnetic media), at least twice each month, all reports being within 12 to 16 calendar days of each other. Employers that knowingly fail to report new hires are liable for a penalty of $25 per unreported employee, and a penalty of $500 for conspiring with a newly-hired employee to fail to make such a report (see Section 234.105 of the Texas Family Code). The report is made to the Texas Employer New Hire Reporting Operations Center, accessible online at https://portal.cs.oag.state.tx.us/wps/portal/employer. That agency's toll-free number is 1-800-850-6442. TWC has a good information site on new hire reporting at the following Web address: https://twc.texas.gov/businesses/new-hire-reporting.
What Information is Required in a New Hire Report?
The following information must be included in the report of new hires:
How Does New Hire Reporting Benefit the Company?
How does it make sense and help a company's bottom line to comply with such a reporting requirement? Simple: the reports are used primarily for tracking parents who owe back child support and for reducing fraud under various social programs, including unemployment benefits. Employers are a vital link in the effort to ensure payment of child support, not only through garnishment of wages, but also through the new hire reports. If your employees who are owed child support start receiving it because of someone else's new hire report, you will have a better, more focused employee. What you do can help other employers, and what they do in that regard will help you. New hire reporting also helps your company through reduction of benefit fraud. Part of the unemployment tax that every taxed employer has to pay comes from claim fraud that must be recouped somehow, and of course the "somehow" is by resorting to employers! Since a new employee's wages will not be reported to TWC for up to three or four months following their hire, the new hire report can help TWC detect UI benefit claim fraud three or four months earlier than it might normally be found. For more details, see the article titled "How Employers Can Help Reduce Claim Fraud" in the Post-Employment Problems section of this book. In addition, since the new hire reporting law absolutely requires employees to give you their social security numbers, it is one more tool to use in verifying SSNs (see the article in the next section of this book titled "Verification of Social Security Numbers"). If a cross-match turns up a problem with the SSN, you can then contact the Social Security Administration for assistance in verifying whether the number is valid. Finally, new hire reporting can help avoid the problem of employees engaging in "double-dipping" with other state or federal benefit programs, such as workers' compensation.
What If the New Hire Fails to Give a Social Security Number?
If a new hire tells you he or she does not have a SSN, due to immigration issues or to waiting for one to come through, your company is entitled to require the employee to document that they have an application in process for the number. If they state that they have not applied for one, give them the basic information on how to apply to the Social Security Administration for a number (see https://www.ssa.gov/ssnumber/) and tell them how important it is to get that task done promptly.
If a new hire refuses to give you his or her SSN or address, despite having such information, that may or may not be a sign of other problems to come, but the bottom line is that your company does not have to continue such an employee's employment. If the employee claims not to have an SSN for religious reasons, the company is entitled to require the employee to document that fact. Such documentation may consist of a statement, affidavit, or other form of attestation to the effect that the employee has opted out of Social Security due to religious objections to such a number or to participating in a welfare program, or something similar. For more details, see "Employees Without Social Security Numbers" in Part II of this book.
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Especially for Texas Employers
TABLE OF CONTENTS
II. PAY AND POLICY ISSUES
Outline of Employment Law Issues
Ten (Make That 15) Commandments of Keeping Your Job
Verification of Social Security Numbers
Employees Without Social Security Numbers
I-9 Requirements - Document Lists
COVID-19 Vaccination Policy Issues
Exempt / Non-Exempt Status Under the FLSA
Focus on the DOL White-Collar Exemption Regulations
Recordkeeping Requirements for Non-Exempt Employees
Determining Hours Worked for Non-Exempt Employees
The FLSA's Most Common Pitfalls
Selected DOL Wage and Hour Regulations - Table of Contents
Salary and Benefit Discussions Among Employees
The Texas Payday Law - Basic Issues
Minimizing the Risk of Wage Claims
Legal Issues for Military Leave
Employee Privacy Rights and Identity Theft
Monitoring Employees' Use of Company Computers and the Internet
Monitoring Employees' Telephone Use
General Recordkeeping Requirements
Harassment Issues in Unemployment Claims
Harassment - Minimizing Liability
Case Studies in Sexual Harassment
Pregnancy Rights in the Workplace
Things Employers Wish They Had Never Said
Workplace Investigations - Basic Issues for Employers
Workforce Diversity Issues in Workplace Investigations
Searches at Work - Legal Issues to Consider
An Employee's Right to Representation During an Investigatory Interview
HIPAA Privacy Rule - What Employers Need to Know
V. EMPLOYMENT LAW-RELATED WEBSITES
THE A TO Z OF PERSONNEL POLICIES
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OUTLINE OF EMPLOYMENT LAW ISSUES
General Issues - First Steps
New Hire Reporting Requirements
Pay Issues
Fair Labor Standards Act - What It Does and Does Not Do
Exemption Categories under the FLSA
Duties Test for Exempt Employees
Salary Test for Exempt Employees
ERISA - Employee Retirement Income and Security Act
Policy Issues
Affirmative Action/Equal Employment Opportunity Policies
Avoid Favors and Exceptions to Policies
Bad Weather - Pay and Attendance Issues
Cell Phones and Other Electronic Devices
Computer, E-Mail, and Internet Policy
Confidentiality of Employee Information
Conflict of Interest, Trade Secrets, Non-Competition Agreements
Disaster Aftermath - Employment Law Issues
Dress Codes and Grooming Standards
Family and Medical Leave Act (FMLA)
Metal Detectors and X-Ray Machines
OSHA - Workplace Safety and Health Requirements
Refusal to Sign Policies or Warnings
Vacation, sick, and parental leave policies
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The basic rule of Texas employment law is employment at will, which applies to all phases of the employment relationship - it means that absent a statute or an express agreement (such as an employment contract) to the contrary, either party in an employment relationship may modify any of the terms or conditions of employment, or terminate the relationship altogether, for any reason, or no particular reason at all, with or without advance notice.
Exceptions: other than statutes and express agreements, the only significant exception to employment at will is the "public policy" exception, i.e., no termination or adverse job action against an employee in retaliation for the employee having refused to commit a criminal act on the employer's behalf.
Thus, in an employment at will state, and to a lesser extent in other states, employers may develop and change personnel policies, reassign employees, and change such things as work locations, schedules, job titles, job descriptions, pay, and other aspects of jobs at will.
Texas is also a right to work state - under the Texas right to work laws (§§101.052-.053, Texas Labor Code), employment may not be conditioned or denied on the basis of membership or non-membership in a union.
In almost any kind of employment claim or lawsuit, it will help to be able to point to clear written policies and to state that employees are notified of the standards to which they will be held.
Secret policies are useless - employees should of course have access to whatever policies will apply to them - an unknown policy cannot be used against an ex-employee in an unemployment claim or any other kind of employment-related claim or lawsuit.
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I-9 forms do not have to be filled out on applicants, just on newly-hired employees.
Recent I-9 rule from the U.S. Department of Homeland Security: only documents that are unexpired when shown can be used for I-9 purposes (once shown, a U.S. passport, an alien registration receipt card/permanent resident card, or a List B document does not need to be reverified, even if it expires after the employee was hired; other types of documents need to be reverified after expiration).
An employer has up to three (3) business days following hire to get the I-9 form filled out. The employer should have the new employee complete the first section of the I-9 work authorization form at the time of hire, which means at the very beginning of employment, before any work is done, and the employer must complete section 2 within the first three days of employment (or at the beginning of employment, if the job is supposed to last three days or less).
Follow all instructions on the form exactly - omissions or even minor clerical errors can result in potential sanctions.
If a new hire shows the documentation listed on the form, the I-9 requirements are satisfied; the employer should not make the mistake of requiring documentation above and beyond what is shown on the I-9 form (what the government calls "document abuse").
"Providing a Social Security number on Form I-9 is voluntary for all employees unless you are an employer participating in the USCIS E-Verify program. Providing an e-mail address or telephone number is voluntary. ... You may not ask an employee to provide you a specific document with his or her Social Security number on it. To do so may constitute unlawful discrimination." (See USCIS Publication M-274, I-9 Handbook for Employers, Section 3.0 - https://www.uscis.gov/i-9-central/handbook-employers-m-274).
Always use the latest available version of the I-9 form (download it at https://www.uscis.gov/i-9).
If the employer makes copies of the documents shown by the employee, it should keep them in a separate I-9 file in case of a CIS (formerly known as INS) audit.
The employer is not required to be a document-authentication expert; as long as the employer satisfies itself in good faith that the documents are genuine and satisfy the requirements, that is all that is needed.
I-9 records must be kept for three years following the date of hire, or for one year after the employee leaves, whichever is later - recommended: keep this and all employment records for at least 7 years after the employee leaves in order to exhaust all the statutes of limitation.
E-Verify is an optional I-9 program whose participating employers enjoy certain benefits in terms of work authorization verification and relief from sanctions - details are at https://www.e-verify.gov/.
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All employers are required to report certain information on newly-hired employees to a State Directory of New Hires; in Texas, that office is a division of the Attorney General's office.
Rationale for new hire requirements: reduce various types of state and federal benefit fraud and improve the collection of child support.
Employers must report the following information within 20 days of the first day on the job for all new employees:
federal employer identification number,
employer name,
employer address,
employee Social Security number,*
employee name,
employee address, and
first day of paid work.
Employers can report the information by mail, fax, magnetic tape, diskette, e-mail, or telephone.
There is a $25 per employee penalty for knowingly failing to report new hires, and a $500 per employee penalty for conspiring with new hires to fail to make the report.
Forms: most states will supply a new hire reporting form; employers may also design their own forms, as long as the required information is included. It is acceptable to use a W-4 form* as well.
Basic information from the U.S. Department of Health and Human Services is available at https://www.acf.hhs.gov/css/employers/employer-responsibilities/new-hire-reporting.
Employers with multi-state operations may designate a single state to report all new hires, or they can choose to report in the individual states where they have employees. Companies choosing to designate a single state for new-hire reporting requirements must notify the Secretary of the Department of Health and Human Services of their election, either online at https://ocsp.acf.hhs.gov/csp/, or by letter or fax to:
Department of Health and Human Services
Multistate Employer Registration
Office of Child Support Enforcement
P.O. Box 509
Randallstown, MD 21133
Fax: (410) 277-9325
* In the case of employees without Social Security numbers, see "Employees Without Social Security Numbers".
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Personnel files are for all records relating to an employee's employment.
Texas employers are not legally required to let employees view the contents of the personnel file.
Exception: public employees may request copies of their personnel file documents under the Public Information Act.
Only one separate file must be maintained apart from regular personnel records: medical information (including FMLA and workers' compensation records) - that is because the Americans with Disabilities Act requires that any medical records pertaining to employees be kept in separate confidential medical files.
Still, it is a good idea to maintain other types of records in separate files as well:
safety records; and
Develop a secure file access procedure to ensure that only those who need to see certain records can ever see them.
For an example of a personnel files policy, click here.
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Only one type of record absolutely must be kept in a separate file apart from the regular personnel files: medical information (including FMLA and workers' compensation records) - that is because the Americans with Disabilities Act requires that any medical records pertaining to employees be kept in separate confidential medical files.
Still, it is a good idea to maintain other types of records in separate files as well:
I-9 records - keep these in a separate I-9 file because it will make it easier to defend against a national origin or citizenship discrimination claim if you can show that such information is available only to those with a need to know (in other words, that those who might have made an adverse job decision were not aware of the person's national origin or citizenship status) - keep in mind that non-I-9 records found in an I-9 audit could result in reports to other governmental agencies from the auditor.
Safety records - this safety record file might also contain documentation relating to an employee's participation or involvement in an OSHA claim or investigation - limiting access to such documentation would make it easier to keep the information from influencing possible adverse decisions against the employee that in turn could result in retaliation claims under OSHA.
Grievance and investigation records - maintain a separate file for these records because they often contain embarrassing, confidential, or extremely private information about employees that could give rise to a defamation or invasion of privacy lawsuit if such facts were known and discussed by others within the company - also, making it known that investigation records will not be divulged may make it easier to persuade reluctant witnesses to give frank and honest answers in an investigation.
The human resources department can develop a security access procedure for these various files - the company can keep an overview by cross-referencing in one file documents in another file - if a person who has access to one file wants to see another document in a separate file, he or she would have to have clearance under the file access procedure in order to do that.
Texas law does not require an employer to allow an employee to access his or her personnel file (exception: public employees may request copies of their personnel file documents under the Public Information Act) - however, most companies allow supervised access and copying of contents at the employee's cost - a company should never place anything in a personnel file that it would be ashamed to show other people (such as 12 average jurors) - remember, anything in any file relating to an employee is discoverable in a claim or lawsuit filed by or on behalf of that employee!
A federal regulation under OSHA contains an exception to the general rule that an employer does not have to turn over copies of a personnel file to employees or former employees. The OSHA rule in question is 29 C.F.R. § 1904.35, which requires a company to give employees and former employees access to OSHA-required records of their work-related illnesses and injuries, i.e., those medical conditions that would be covered by OSHA recordkeeping requirements. Generally, those documents would be OSHA Log 300 and the OSHA 301 Incident Report. "Access" includes copies. The deadline for the access or copies is the end of the next business day following the request, so there is no particular requirement for a 24-hour response. As the rule notes, the first copy of a covered document is free to the former employee or their designated representative, but subsequent copies can be furnished at a "reasonable charge". OSHA's help line is at 1-800-321-OSHA (6742).
Ownership and custody of personnel records generally pass from a predecessor to the successor in a situation involving the sale of a business.
For an example of a personnel files policy, click here.
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Comprehensive information and links to required posters (all free of charge) are found at https://twc.texas.gov/businesses/posters-workplace.
Posters should be displayed in such a way that each employee can readily see them (generally, the requirements have language such as "conspicuously placed" and "readily accessible" to employees). That would mean that employees who do not normally get to certain offices would not be served by posters displayed at those offices. The offices, or sub-offices, where those employees normally congregate would need to have the posters displayed for the benefit of the employees who are served by each such location.
Posters and other kinds of required notices do not have to be placed in individual locations that are only temporary worksites. Example: construction workers building homes in a subdivision would not need to have posters in each house, but rather only in a company jobsite trailer for the project.
In case of a co-employment situation, such as temporary employees assigned to client companies, the employees working at client sites are co-employed by the staffing firms and their clients under various state and federal employment laws. The notice statutes merely require the posters to be in the workplace. The enforcing agencies do not care who actually places the notices where the employees work, as long as the posters are up and visible to the employees. Thus, as long as the client companies have the applicable notices properly posted, their compliance with the notice requirements inures to the staffing firm's benefit. By the same token, if the clients do not have the notices posted, the staffing firm would be co-liable with them for non-compliance with the laws. Bottom line: the staffing firm needs to determine whether the appropriate notices are posted in the clients' locations, and if they are not posted, cooperate with its clients to get the posters displayed.
In a virtual office situation, where the company does not maintain a physical location where employees normally congregate, assemble, or show up for work-related purposes, post copies of the posters on the company's web site section restricted to staff and send an annual e-mail, "read receipt requested", to all affected employees listing and identifying the posters, complete with links to the posters on the web site, and reminding the employees that the posters are there for their benefit and that they should keep the e-mail archived so that they can easily find the links to the posters if needed. It would be advisable to send annual reminders to employees of how to find poster links on the company's intranet or website for staff.
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Work schedules are up to an employer to set and enforce, i.e., scheduling of employees is entirely within the employer's control, and it is up to the employees to comply with the schedule that is given to them.
With only extremely narrow exceptions relating to certain regulated industries or collective bargaining agreements, adults, as well as youths ages 16 or 17, may work, and/or may be required to work, unlimited hours each day (the only limits are employee morale, practical realities, and common sense in general).
One exception to the unlimited hours rule in Texas is for employees in the retail sector. A retail employer must allow full-time employees (defined in the following statute as those who work more than 30 hours in a week) at least one 24-hour period off in seven, i.e., each week, the employee must be allowed to have a day off. See the following link for the statute in question: Section 52.001 of the Texas Labor Code. For an even narrower exception for employees who have been continuously employed with the same retail business since August 31, 1985, see Section 52.002.
Another exception pertains to employers with 15 or more employees: due to religious discrimination laws, in the case of employees who do not want to work at a particular time for reasons related to observance of their religion, failure to allow reasonable time off for religious observances may potentially be considered an act of religious discrimination, unless the company can show that it would be an undue hardship to accommodate an employee's need for time off for the religious observance.
Employers can require employees to work overtime, as long as the non-exempt employees are properly paid for the overtime hours they put in (keep in mind that neither Texas nor federal law require payment of "daily overtime" - overtime pay at time and a half is owed only for hours in excess of 40 in a seven-day workweek); for details on overtime hours and pay, see "Determining Hours Worked for Non-Exempt Employees" and "Calculating Overtime Pay" in this book.
The only exception is for nurses (RNs and LVNs) - under Texas Health and Safety Code Section 258.003, mandatory overtime for RNs and LVNs is permissible only in disaster and other emergency situations. For purposes of this law, "mandatory overtime" is defined as work time above and beyond the normal pre-scheduled shifts (Section 258.002). Thus, while such a nurse can be required to work a schedule of 50 or more hours per week (with payment of overtime pay for any nurse who is non-exempt), they cannot be required to work beyond what they were told they would have to work, unless an emergency situation demands additional hours beyond the pre-scheduled shifts.
Under the employment at will doctrine, an employer can change an employee's hours with or without notice. However, excessive application of flexible / just-in-time scheduling can lead to turnover – see below.
No Texas or federal law requires advance notice of overtime or schedule changes, but as with most employee relations matters, it is a good idea to give as much advance notice as possible when informing employees of extra work or changes in their hours; sudden and adverse changes in hours, or burdensome overtime requirements announced with little or no notice, can under some circumstances amount to good cause connected with the work for an employee to resign, resulting in potential unemployment insurance eligibility for the employee who resigned. Any such employee would have the burden of proving that a reasonable employee would have resigned under the circumstances, and in addition would have to show that they gave reasonable notice to the employer that they were so dissatisfied over the schedule change that they were considering resigning from the company.
When using scheduling software, try to avoid the downsides of flexible scheduling such as "clopenings" (i.e., the same employee works late, closes the store, and opens again a few hours later), insufficient notice of duty times (leading to unavoidable lateness), split shifts, burnout, distractions related to family concerns, and the like.
Although some states require what is known as "show-up pay" (a minimum amount that is paid to employees who show up for work, only to be sent home early or with no work at all), no Texas or federal law requires such a payment; however, it is best to express the employer's policy on that issue clearly in a written policy, one way or the other.
For a sample policy regarding work schedules and compliance with company timekeeping procedures, click here.
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Basic issues in the area of compensation agreements:
Compensation agreements can be oral or written, with hourly, weekly, biweekly, semi-monthly, monthly, commission, piece, book, flag, day, ticket, or job rates, as well as other components such as bonuses or dividends.
As noted in the section on Offers of Employment and Compensation Agreements, if unusual pay methods are contemplated, the employer should have the employee sign a written pay agreement that spells out the conditions for pay exactly in order to avoid misunderstandings and possible wage claims.
An employer may change both the method and the rate of pay, but only prospectively, never retroactively (risk of wage payment law or breach of contract claims); always give written notice of changes in pay.
Employee benefits such as health care, retirement plans, paid time off, and meal or rest breaks are not required under Texas or federal law; it is generally possible to have different sets of benefits available for different categories of employees (such as one set of benefits for hourly workers and another set for salaried exempt employees), but the specifics should be clear and in writing.
Some benefits have specific rules if the company offers them, however:
Pension or retirement benefits - if a company offers such benefits, the federal law known as ERISA provides that an employee who works at least 1,000 hours in a twelve-month period must be given the chance to elect participation in the pension or retirement plan (this is known informally as the "thousand-hour rule" - see 29 U.S.C. § 1052).
Health insurance benefits - if an employer has a health insurance plan, Section 1501.002(3) of the Texas Insurance Code provides that an "eligible employee" is anyone who usually works at least 30 hours per week.
Fringe benefits such as paid leave and paid holidays are taxable only after being used, not when accrued.
Benefits that are forfeited are non-taxable (as would be the case with paid leave lost due to carryover limits or forfeiture of unused leave upon a work separation).
Any benefits that are components of the employee's regular rate of pay, such as in-kind wages (meals and lodging, for example), are taxable along with other wages.
Not taxable: pre-tax benefits such as certain types of flex accounts.
Taxability of fringe benefits is complicated; employers should consult IRS Publication 15-B for details, and doubtful cases should be referred to an employment tax professional such as a CPA or an attorney.
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The FLSA does cover:
Minimum wage and overtime - federal minimum wage is $7.25 per hour (it is the same level under Texas state law) - overtime is generally at time-and-a-half for all hours worked in excess of 40 in a seven-day workweek. Individual state minimum wage laws do not apply unless the FLSA does not apply - for all practical purposes, businesses can assume that all of their employees are covered under the federal wage and hour laws. An agreement between an employer and an employee that minimum wage and overtime will not be paid is void and unenforceable (even in the event of unauthorized overtime), based upon two U.S. Supreme Court decisions from the 1940s: Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 66 S.Ct. 925, 90 L.Ed. 1114 (1946).
Equal pay for men and women - Equal Pay Act - men and women who perform the same job at the same levels of skill, experience, qualification, and responsibility must be paid the same - this is not the same as "equal pay for comparable work", a rule followed by only a handful of individual states - violation of this law raises a sex discrimination issue, which is why complaints are investigated by the EEOC. For comparison purposes, all compensation for work performed is counted, including regular wages, bonuses, commissions, and so on, as well as the value of fringe benefits such as tuition assistance, paid leave, and similar benefits with measurable value. Differences in pay must be supported by business-related factors, i.e., may not be based on sex or other minority characteristics. The EEOC regulations regarding equal pay are in 29 C.F.R. Part 1620.
Child labor - in most situations, children younger than 14 may not work for an employer. Children ages 14 and 15 may work, but only in non-hazardous occupations and only during non-school hours; there is also a substantial limitation on the number of hours they can work each day and week. Children ages 16 and 17 may work any hours they want, but may not work in hazardous occupations. Once a person reaches age 18, there is no limitation on either hours or duties (other than whatever OSHA rules may apply).
The FLSA does not require:
Optional employee benefits and payroll practices not required under any law - this category includes such things as:
Breaks - although some states require breaks, Texas and most other states do not - federal law has no break requirement, other than OSHA rules about restroom breaks for sanitation purposes (see https://www.osha.gov/laws-regs/standardinterpretations/1998-04-06-0) - the only exceptions are found in special regulations relating to highly hazardous occupations such as high-altitude steel erection workers or nuclear plant workers - most companies do allow some sort of breaks, however, in their policies.
Breast-pumping / nursing breaks - these are unpaid breaks - under the 2010 health care reform bill, new FLSA section 207(r)(1) requires employers to give non-exempt nursing mothers reasonable break times to express breast milk, or if children are allowed in the office, nurse their infants, during the first year after the baby's birth (for more information, see "Nursing Mothers" in this outline).
"Coffee breaks" (rest breaks) are paid, since they are regarded as promoting productivity and efficiency on the part of employees and thus benefit the employer - 20 minutes or less in duration.
"Smoking breaks" - smoking breaks are not required under Texas or federal law, are in the same category as rest breaks (see above), and may be controlled in any way with appropriate policies.
"Lunch breaks" are unpaid - defined as 30 minutes or longer for the purpose of eating a meal - employee must be "fully relieved of duties" during the meal break - if employee is answering phones, filing, or otherwise working while eating, the "break" is counted as regular work time.
Premium, holiday, and weekend pay - this is extra pay for unusual hours, such as "double time" or "triple time" pay for working extra overtime or during times when most employees take off - this is not required under any law, but is often a matter of supply and demand, i.e., whatever is necessary to get employees to be available at unusual times.
Shift differentials - defined as higher hourly pay for second or third shifts, as opposed to the normal hourly rate given to workers on the daytime shift - as with "premium pay" above, this is a function of supply and demand.
Raises - not required under state or federal laws, unless the minimum wage is increased on either the federal or the state level. However, even though raises are not required, withdrawing a raise that has previously been promised could give an employee good cause to quit. Important: once a raise goes into effect, the employer must pay it until it is withdrawn - it may be withdrawn only prospectively, never retroactively - a retroactive pay cut will always violate the law.
Pensions - pension or retirement plans are not required - however, keep the "1000-hour rule" in mind in case you have a pension plan and any workers who work at least 1000 hours in a 12-month period.
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The Fair Labor Standards Act provides two different ways for coverage to apply:
Individual coverage - an individual whose work affects interstate commerce is covered as an individual - "interstate commerce" is defined so broadly that practically anything fits, such as ordering, loading, or using supplies from out of state, accepting payments from customers based on credit cards issued by out-of-state banks, and so on
Enterprise coverage - for most businesses, enterprise coverage applies if the business is involved in interstate commerce and the gross annual business volume is at least $500,000 - in that case, all employees working for the business are covered.
Coverage is automatic for schools, hospitals, nursing homes, or other residential care facilities.
Coverage is also automatic for all governmental entities at whatever level of government, no matter how big or small.
Coverage does not apply to certain entities that are not organized for a business purpose, such as churches and eleemosynary institutions.
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Many minor exemptions exist for jobs in certain protected or favored industries.
"White collar" overtime exemptions: executive, administrative, professional, computer professional, and outside sales representative.
Two tests generally apply: the duties test and the salary test.
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Executive: an executive exempt employee has the authority to hire, fire, promote, set policy, and supervises two or more full-time employees (or four or more half-time employees, or at least one full-time and two half-time employees) in managing an enterprise or subdivision of the enterprise - examples given in the regulations include the president of a company or the head of a major division of an enterprise - also, a department head with hiring and firing authority can qualify - if the employee has no actual hiring or firing authority, but is highly influential in such decisions, the executive exemption can still apply.
Administrative: performs specialized or technical office or non-manual work related to management policies or general business operations of an enterprise - the decisions such an employee makes are of substantial importance to the company as a whole - their work supports the organization, not individual customers - has a great deal of discretion and independent judgment in day-to-day duties - typical examples include personnel director, vice president of operations, head buyer, head dispatcher, or department head.
Professional: performs original and creative work or work requiring advanced knowledge normally acquired through a prolonged course of specialized academic study; a professional exempt employee's work cannot be standardized with respect to time - typical examples are physician, attorney, CPA, engineer, architect, scientist (geologist, botanist, physicist, zoologist, chemist, etc.), registered nurse, and teacher at any educational institution.
New regulations from the U.S. Department of Labor became effective on August 23, 2004 and January 1, 2020 - for more information, see the article "Focus on the DOL White-Collar Exemption Regulations" in this book.
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All three of the above exemptions require payment of a true salary:
"Salary" is defined as agreed-upon periodic compensation, intended to cover a period of at least a week, equivalent to at least $684 per week,* that is not subject to reduction on the basis of quantity or quality of work performed.
That means that if an employee does poor work (including damage to or loss of property), the employer cannot dock the employee's salary - if the employee violates a rule (other than a safety rule of major significance), the employer cannot dock their pay - if the employee misses a few hours in a day, a private employer cannot dock the salary (but a governmental employer can!).
However, if in addition to the salary, the exempt employee receives additional pay such as a commission or bonus, such additional pay can be docked, consistent with a written wage deduction authorization agreement - see DOL opinion letters FLSA2006-24 and FLSA2006-24NA.
Vacation: employers can dock the salary in units of a day at a time for personal absences.
Sick days: employers can also dock the salary in units of a day at a time for health-related absences if the employer has a bona fide sick leave policy (at least five paid sick leave days per year – a minimum tenure requirement is permissible) - if the absences are covered by the FMLA, then partial-day deductions from salary are possible.
Two varieties of unpaid suspensions:
Tougher rule applies in the case of absences due to jury duty, witness duty, or temporary military duty: if an employee works any part of a week and misses the rest of the week for jury, witness, or military duty, he or she must receive the full salary for the whole week, but if they miss a full week, no pay is due for that week; deductions from leave balances are allowed in any amount (see item 11 below).
Same rule applies for unpaid holidays, furloughs, bad-weather days, and other occasions when work is unavailable to salaried exempt employees who are otherwise available for work: if the office is closed on a day that a salaried exempt employee would normally work, then partial-week deductions from pay are not allowed, but if the employee misses an entire week for such a reason, the salary may be reduced by that amount; deductions from leave balances are allowed in any amount (see item 11 below).
Partial-day docking of salary should not be done by a private sector employer unless the FMLA applies to an absence, or the employer imposes a disciplinary suspension for violation of a safety rule of major significance.
TWC takes the position that no written authorization is necessary under the Texas Payday Law for such deductions (based on DOL regulation 29 C.F.R. § 541.602(b)). However, no Texas court has ruled on that specific point, and there is always the chance that TWC could change its own rule on this issue. Accordingly, it may be prudent to go ahead and include such an item in a standard written wage deduction authorization agreement, as illustrated by item 12 in the sample wage deduction authorization agreement in this book. An alternative could be to grant a paid leave advance and deduct it later from future accruals, as long as the company's written paid leave policy provides for such offsets. A policy that does not address that issue can certainly be revised accordingly and distributed to all employees.
A prorated reduction of the salary for the first week of work, and for the final week of work, is allowed under the FLSA and does not require written authorization from the employee (see 29 C.F.R. § 541.602(b)(6)).
Partial-day docking of leave balances - DOL says it is permissible to dock leave balances for absences, as long as the salary itself is unaffected - however, docking leave balances for partial days missed can lead to morale problems if the employee feels that such a practice amounts to nickel-and-diming on the employer's part, particularly if the employee always works a lot of hours each week in any event - for compliance with the Texas Payday Law, ensure that any deductions from leave balances are consistent with the company's written paid leave policy.
Recording of work time - DOL guidelines allow employers to require salaried exempt employees to record their work time (using any timekeeping system the employer may require) and to deduct available paid leave from leave balances in any unit of time. That guideline is explained in DOL's wage and hour opinion letter FLSA2005-5, which is online at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/2005_01_07_5_FLSA_TimekeepingSystem.pdf. That rule is also found in DOL's Field Operations Handbook in Section 22a04 (see the bottom of page 7 of Chapter 22 online at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch22.pdf#page=7).
For more information on how the 2004 and 2020 DOL regulations changed the requirements for exemptions, see the article "Focus on the DOL White-Collar Exemption Regulations" in this book.
* $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government. The 2020 regulation provides that up to 10% of the salary can consist of non-discretionary bonuses or commissions.
Outside Sales Representative
Only a duties test applies - for an outside sales representative, the primary duty involves working away from the employer's principal place of business calling on customers and making sales.
There is no minimum wage, overtime, or salary requirement.
The only thing to keep in mind is to follow the commission pay agreement - failure to do so will violate both general contract law and most state wage payment laws.
Computer Professional
There is a special exemption under FLSA section 213(a)(17) for "any employee who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker, whose primary duty is --
the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
the design, documentation, testing, creation, or modification of computer programs relating to machine operating systems; or
a combination of duties described in subparagraphs (A), (B), and (C), the performance of which requires the same level of skills, and
who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 per hour."
The regulations (29 C.F.R. 541.400 and 541.401) exclude workers who build or install computer hardware or who are merely skilled computer operators; they make clear that the exemption applies only to the true software programming or design experts.
A DOL letter ruling of December 4, 1998 (BNA, WHM 99:8201) states that this exemption does not include employees who "provide technical support for business users by loading and implementing programs to businesses' computer networks, educating employees on how to use the programs, and by aiding them in troubleshooting." In other words, "help desk" employees do not fit this exemption. See also DOL opinion letter FLSA2006-42 in this regard.
Properly speaking, the exemption applies only to the very top experts in computer software, i.e., the ones who actually write the software programs, or who design, implement, and maintain a company's network software, intranet, or Internet presence.
An employee who fits this exemption may be paid either a salary of at least $684 per week,* or on an hourly basis with no premium for overtime work, i.e., straight-time pay for all hours worked, as long as the hourly rate is at least $27.63 per hour.
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Allowable Deductions under FLSA
Meals, Lodging, and Other Facilities
Uniforms and Uniform Cleaning Costs
Court-Ordered Garnishments or Statutorily-Required Wage Attachments
Cash Shortages Due to Misappropriation
Focus on Misappropriation Deductions
Miscellaneous FLSA Deduction Problems
Deduction Problems Under the Texas Payday Law
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Aside from certain occupations in agriculture, and the entertainment industry (child actors), children younger than 14 may not be employed by companies; under 29 C.F.R. § 570.122(a)(4), children younger than 14 may be employed directly by their parents (sole proprietors, the only partners of a partnership, or the sole owners of a corporate business) in any occupation other than manufacturing, mining, or one included on DOL's list of hazardous duty occupations - see comment 3 below.
Child actors under 14 may be employed under special rules with submission of a valid authorization form (available at https://www.twc.texas.gov/sites/default/files/fdcm/docs/whcl-73-child-actor-performer-authorization-twc.pdf (PDF)).
No hazardous duties for any child younger than 18 - a complete list of hazardous duty categories is at https://www.twc.texas.gov/sites/default/files/fdcm/docs/whcl-70-child-labor-poster-eng-twc.pdf (and in Spanish at https://www.twc.texas.gov/sites/default/files/fdcm/docs/whcl-70-child-labor-poster-spn-twc.pdf) (PDF).
Limitations on hours of work for children who are 14 or 15:
No work during school hours
No more than three hours during a school day, or more than 18 hours in a school week
No more than eight hours during a non-school day, or more than 40 total hours during a non-school week
No work between 7:00 p.m. and 7:00 a.m. during the school year
If not enrolled in summer school, 14- and 15-year olds may work between 7:00 a.m. and 9:00 p.m. from June 1 through Labor Day.
If interstate commerce is not involved, and the FLSA does not apply, then Texas law provides that 14- and 15-year olds may work no more than 8 hours per day and no more than 48 hours in a week; may not work between 10:00 p.m. and 5:00 a.m. before a school day; may not work between midnight and 5:00 a.m. before a non-school day; and may not work between midnight and 5:00 a.m. during the summer recess.
There are no limitations on hours of work for children who are 16 or 17; however, employers should take care that their work schedules do not cause problems for the young employees under any school truancy laws or local curfews that might apply.
Children are entitled to minimum wage and overtime pay.
Sub-minimum wage of $4.25/hour is permissible during the first 90 days in a job.
Children who are tipped employees may be paid the same as other tipped employees.
Other sub-minimum wages (generally, 85% of the current minimum wage) may be permissible under special certificates issued by DOL for certain student employees and apprentices.
Normal payroll tax laws apply to children, just as they do to workers over 18.
Secure written permission from the child's parent or guardian to employ anyone under age 18, or to conduct background or drug tests on such employees. Under Section 521.051 of the Business & Commerce Code, employers need a parent's or guardian's permission to obtain personal identifying information from minor applicants and employees. Thus, it would be a good idea to have a section on a job application for that, or else obtain a separate signed permission statement from a parent or guardian for a job application from a minor, or for any other collection of personal information from a minor employee.
Special training is advisable for management regarding harassment issues if the business employs children; complaints from employees younger than 18 should receive top priority for resolution; certain offenses (assault, improper photography, etc.) may need to be reported to law enforcement.
Penalties for child labor law violations:
Texas law - civil penalties up to $10,000 per violation; criminal penalties for Class A and B misdemeanors; injunctive relief.
Federal law - civil penalties up to $11,000 per violation ($50,000 for death or serious injury to a minor employee - $100,000 for repeated or willful violations of that type); criminal penalties (up to a $10,000 fine per violation and/or imprisonment); injunctive relief; prohibition on sale or transfer of any goods produced by the employer at the time of, or within 30 days after, a child labor violation (such goods are also known as "hot goods").
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ERISA has disclosure and reporting requirements:
disclosure to participants and U.S. Department of Labor
annual reports to IRS - strict reporting requirements - severe tax penalties for non-compliance
Pension benefit plan (if a company has a pension/retirement plan, it must make it available to any employee who works at least 1,000 hours in a 12-month period) - the plan must be funded - two main types:
retirement pensions (defined benefit plans)
deferred income plans (defined contribution plans)
Welfare benefit plan - no funding requirements - examples of "welfare benefits":
medical/hospitalization benefits
vacation and sick leave pay
disability/death benefits
unemployment benefits
training/apprenticeship/scholarship programs
prepaid legal services
severance pay
normally fits under welfare benefit plan as long as payments are not contingent upon retirement, total pay does not exceed twice the annual pay, and payments are completed within 24 months of termination
exception: severance pay that is a one-time offer not routinely included in an employer's benefit plan; this type of payment is more akin to "wages in lieu of notice" (see below)
Not included in welfare benefits: "payroll practices", on-site facilities, holiday gifts, sales to employees, and some group insurance programs
Payroll practices not covered by ERISA include:
shift premiums or differentials
holiday and weekend premiums
maternity leave pay paid out of general funds
"payday" or wage payment laws - every state has a statute governing at least some aspects of the wage payment procedure - most laws impose a deadline for final pay, limitations on what an employer may deduct from wages and whether authorization for such deductions has to be in writing, and rules on how often particular types of employees must be paid
severance pay: this is a post-termination payment that the employer has somehow previously obligated itself to give - it is usually, but not always, based upon a set formula such as length of prior service - it will delay unemployment benefits for the period covered thereby unless it results from a negotiated settlement of a claim or litigation, or was required under a negotiated contract
wages in lieu of notice: this type of post-termination payment is something that the employer has never previously obligated itself to give - just like the name implies, it is given to make up for the lack of advance notice of termination - such a payment is usually not based upon length of service, but rather upon whatever arbitrary amount the employer deems appropriate at the time - this type of payment delays unemployment benefits for the period covered thereby
DOL has a useful FAQ document for retirement plans on its EBSA site: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa-compliance.pdf. For information on enforcement of ERISA, see https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement/erisa#4.
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Employers may choose to deduct as business expenses any reimbursements to employees for business-related expenses; that would not apply to reimbursements for personal, non-business expenses, such as the costs of the employee's personal entertainment while on the road.
General rule - IRS Treas. Reg. 1.62-2(c): expense reimbursements, both for business and personal expenses, are taxable as part of gross income for employees.
Exception: if reimbursements are made pursuant to an "accountable plan", the payments are not included in gross income (see IRS Publ. 15 (2023)) and are not considered "wages" for purposes of unemployment compensation or the Texas Payday Law.
Accountable plan criteria (IRS rule 1.62-2(c)(5)):
an expense advance is made within 30 days of when an expense is paid or incurred;
reimbursements can only be made for business expenses incurred by the employee in connection with the performance of the employee's duties;
the plan must require employees to substantiate their expenses within a reasonable period of time (within 60 days after the expense is incurred); and
the plan must require employees to repay any reimbursements which exceed substantiated expenses within a reasonable period of time (within 120 days after expense is incurred).
"Non-accountable plan" - reimbursements that do not meet those criteria.
Employers do not have to reimburse an employee's out-of-pocket business-related expenses; however, the employee must be allowed to deduct unreimbursed business expenses as itemized deductions.
Most employers reimburse such expenses pursuant to a written policy - see below.
Careful with minimum wage issues!
Do not force employees to pay business costs if it takes them below minimum wage (see "Deductions for Other Costs to the Employer" in the article "The Texas Payday Law - Basic Issues" for details)
Reimbursements for actual business expenses (i.e., made under an accountable plan) do not count toward the regular rate for overtime calculation purposes, while reimbursements in excess of the actual amounts (those not made in accordance with an accountable plan) would be considered extra pay that would count toward the regular rate of pay - see section 778.217 of DOL's wage and hour regulations for details.
Other than what an employer must reimburse to the employee in order to keep the employee's pay at least at minimum wage, expense reimbursements do not constitute "wages" and may not be the subject of a Texas Payday Law wage claim (see 40 T.A.C. §825.25(d)).
Expense reimbursement policy considerations:
Set a clear written policy stating what will be reimbursed, under what conditions, and when, and have employees sign it; be as specific as possible.
Same thing for expenses that will not be reimbursed - as noted above, be careful with the issue of minimum wage.
Larger expenses should require authorization.
Require receipts.
Provide for auditing by someone other than the employee.
Provide a corrective action procedure for handling violations of the policy.
Under the law of employment at will, the policy can be changed.
Meals and travel:
Usual case: reimbursement is based upon actual costs and receipts, but some companies pay a standard per diem (the federal meal/incidental expense rate is set by IRS and meets the criteria for an accountable plan).
FLSA issue: if the company pays a per diem that is larger than reasonably necessary, the excess must be included in the employee's "regular rate" as noted above (and also must be considered part of taxable wages).
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The U.S. Department of Labor's position is that tip-pooling / tip-sharing arrangements are permissible as long as the employees sharing in the tips have somehow participated in serving the customers who left the tips. Courts cases regarding tip-sharing arrangements focus on whether the employee interacted with the customer, assisted in providing the customer with a pleasurable dining experience, and/or provided "direct table service" before or during the meal, while the customer was seated. It is a good practice to put the tip-sharing policy in writing and have everyone acknowledge it.
DOL regulation 29 C.F.R. § 531.54 sets out the requirements for a valid tip-pooling arrangement, including a prohibition against sharing of tips with managers, supervisors, or owners, distribution of tips no later than the regular payday for the workweek in question, limitation of the tip pool to "employees who customarily and regularly receive tips", notice to employees of the tip pool contribution amount, limitation of the tip credit to the amounts actually received from the pool by employees, and inclusion of cooks, dishwashers, and similar employees in a tip pool if the employer pays tipped employees at least the full minimum wage. These requirements are in addition to the other requirements outlined in 29 C.F.R. § 531.59(b) for taking the tip credit for tipped employees.
DOL Field Operations Handbook § 30d04: Tip pooling.
Two DOL opinion letters address this issue:
Section 203(m)(2)(B) of the FLSA makes it clear that owners and managers cannot keep employee tips, under any circumstances. That would include tips left by customers in tip jars, which the DOL and the courts would consider employee tips under the rationale that customers who leave tips in tip jars do so with the belief that the tips will end up in the hands of the staff who served them, not the owner or manager of the restaurant. The only time that an owner or manager would be permitted to keep a tip would be if the evidence showed that a customer meant the tip for the personal benefit of the owner or manager.
Gratuities charged by an employer are not tips - see 29 C.F.R. § 531.55 - "A compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer's establishment, is not a tip and, even if distributed by the employer to its employees, cannot be counted as a tip received in applying the provisions of sections 3(m)(2)(A) and 3(t)." However, the same regulation points out that if distributed to employees, gratuities count toward any non-tipped wages that are due.
Chau v. Starbucks, 94 Cal.Rptr.3d 593 3 (Cal. Ct. App., 4th Dist., July 2, 2009) - Section 351 (the California tipped employee statute) does not contain any language prohibiting an employer from equitably dividing tips placed in a collective box among the employees who provided the service.
Budrow v. Dave & Busters of Calif., Inc., 90 Cal.Rptr.3d 239 (Cal. Ct. App., 2nd Dist., Mar. 2, 2009) - Bartenders who poured or mixed drinks that were brought to restaurant patrons at their tables could participate in tip pools established pursuant to statute making gratuities property of employees to whom they were paid, even if bartenders did not personally bring drinks to tables.
Hosts are tipped employees: Kilgore v. Outback Steakhouse of Florida, Inc., a/k/a FMI Restaurants, Inc., 160 F.3d 294 (6th Cir. 1998): "an employer must inform its employees of its intent to take a tip credit toward the employer's minimum wage obligation." Hosts at Outback are "engaged in an occupation in which [they] customarily and regularly receive . . . tips because they sufficiently interact with customers in an industry (restaurant) where undesignated tips are common." "... one court has held that a tip pool that benefits a maitre d' is permissible under the FLSA. In Dole v. Continental Cuisine, Inc., 751 F. Supp. 799 (E.D. Ark. 1990), the district court upheld a mandatory tip pool where servers tipped out solely to a maitre d' who 'receives no tips directly from customers' and whose responsibilities included setting up the dining room, greeting and seating customers, serving the first drink to customers, and assisting servers in serving customers as needed."
Etheridge v. Reins International, 91 Cal.Rptr.3d 816: The court explained that "[t]ip pools exist to minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees."
In the Ninth Circuit, the tip pooling rules apply only when a tipped employee is paid a cash wage of less than the federal minimum wage. "The FLSA does not restrict tip pooling when no tip credit is taken." (See Cumbie v. Woody Woo, Inc., 596 F.3d 577, 582 (9th Cir. 2010).) The 4th Circuit recently agreed with the 9th Circuit on that issue (Trejo v. Ryman Hospitality Properties, Inc., No. 14-cv-1485, 2015 WL 4548259 (4th Cir. July 29, 2015)).
For tipped employees, it would not be legal to make deductions from tips toward a "breakage" fund. See the following two cases:
For information on the tip credit and overtime pay for tipped employees, click here.
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Executive Order 14173 revoked Executive Order 11246, so DOL's Office of Federal Contract Compliance Programs (OFCCP) no longer requires federal contractors and grantees to have a written affirmative action plan with regard to race, sex, religion, age, national origin, sexual orientation, and gender identity. E.O. 14173 did not affect AAP requirements under the Rehabilitation Act of 1973 (protecting individuals with disabilities) and statutes covering veterans. However, the OFCCP has put enforcement action with regard to all AAPs on hold pending further guidance from the White House. Any employer needing guidance on affirmative action plans should review the OFCCP's website at https://www.dol.gov/agencies/ofccp.
The same executive order noted that all employers remain responsible for complying with existing non-discrimination statutes, such as those enforced by the EEOC (see the EEOC’s useful resources for employers at https://www.eeoc.gov/.
New executive order from Texas: Executive Order GA-55, issued on January 31, 2025, prohibits "all forms of government race discrimination" and specifically prohibits any DEI, critical race theory, or affirmative action programs based on race or color.
Employers may adopt such policies on their own - however, be careful about "reverse discrimination" - basing employment decisions on minority status alone is very risky.
Affirmative action can be as simple as advertising job openings in media that reach diverse markets and in ways that are designed to bring word of openings and promotional opportunities to the broadest possible group of potential applicants - the goal is to cast as wide a net as possible.
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Absenteeism Policies
"Point" or "no fault" system - example: 1/2 point for each instance of tardiness, 1 point for each absence, plus extra 1/2 point for failing to give notice of tardiness or absence - usually involves a set series of warnings at intervals, such as a verbal warning after 5 points, first written warning after 7 points, second written warning after 10 points, final written warning after 15 points, and termination for 18-20 points within a 12-month period - different companies have different point and warning systems to suit their individual needs.
Be careful - employers covered by the Family and Medical Leave Act, or by a similar state law, need to remember that no FMLA-covered absence may be used as the basis for any kind of disciplinary action - that means it cannot be counted toward total absences in a "point" system.
"Chargeable" and "non-chargeable" absences (or excused and unexcused absences) - remember to leave FMLA-covered absences out of the calculation.
It is up to the employer to decide what will be excused or unexcused, but keep in mind that in an unemployment claim, many states will not disqualify a claimant if the final absence was due to personal illness or the illness of the claimant's minor child (however, a private-sector taxed employer's tax account will usually be protected from chargeback of benefits, as is the case in Texas, for example).
Other important exclusions from such a policy include military leave, jury duty leave, witness leave, and voting leave.
Some employers adopt neutral absence control policies that place an outside limit (beyond the point system) on the overall amount of absenteeism, without regard to the reason, an employee may have without becoming subject to being replaced due to "unavailability for work" - such policies can help an employer avoid the perception that the company is acting out of discriminatory intent with regard to workers' compensation, pregnancy, disability, family leave, or other reasons having to do with medical or family issues; as noted above, do not count military leave, jury leave, witness leave, or voting leave toward such a limit, since those categories are effectively off-limits in terms of corrective or adverse action. Remember to allow for consideration of reasonable accommodations in the event of an ADA-related issue.
An employer always has the right to ask an employee to explain the reason for an absence. If the reason has to do with something that is normally documentable, the employer has the right to require the employee to document the reason given, i.e., jury duty would be documented with a copy of the jury summons, taking care of a matter in court would be documented with some kind of official document relating to the court appearance, a visit to a doctor's office would be documented with some kind of a note or receipt from the clinic, and so on. There is no need to get specific, though, about confidential or private matters, so do not insist on specific medical information or similar things.
If an employee refuses to explain why it is necessary to miss work, the employer would be entitled to treat the absence as unauthorized for that reason alone.
Tardiness policies
What applies to absenteeism generally applies to tardiness.
Notice of absence or tardiness - how much advance notice should be given? To whom should the notice be given? Is it alright to leave a message? What if a supervisor is unavailable? Can the employee's spouse or other companion give the notification? The employer must decide these things and let the employees know exactly what is expected.
Documentation of Attendance
Employers should fully document attendance and hours worked.
Anytime an employee claims the need to miss work due to a medical condition, the employer has the right to require documentation of the condition or the medical visit - remember, due to the ADA, such documentation should be kept in a separate, confidential medical file for the employee, not in the regular personnel file.
The employer must decide whether documentation will be required for any medical absence, or just for those lasting over a certain number of days.
Try to achieve a sensible balance - most companies do not require an actual doctor's note for simple one- or two-day absences for things like 24-hour "bugs", but do require them if the employee claims to have seen a doctor.
Leaves of Absence or Sabbaticals
Have employees apply in writing for such leave; give the answer in writing.
Such periods of absence can be paid or unpaid, voluntary or involuntary, and medical or "other" - the return date can be specified or left open.
For a sample attendance policy, see the following link: Attendance Policy
For a sample work schedule policy, see the following link: Work Schedules and Recording of Work Time
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As a general rule, employers should not make exceptions to company policies and procedures unless there is a clear business case for doing so, such as an urgent and compelling circumstance that makes the exception necessary for some reason.
Exceptions from rules, including "favors" for employees, can potentially put an employer at risk of charges of favoritism and discrimination.
Too many exceptions can swallow a rule and render it effectively irrelevant.
Human nature being what it is, employees are quick to forget favors and slow to forget grievances, so an employer who does favors for employees often finds that employees come to expect them - over time, some employees become more and more demanding and ungrateful.
Exceptions include forgiving rule violations and allowing some employees to disregard procedures, but not others.
Favors include things like loans, wage advances, paid leave advances, bailing employees or their family members out of jail, letting them use equipment that others are not allowed to use, and so on.
It is particularly risky to loan money or advance wages or paid leave, because if that is not done with a clear written repayment agreement authorizing deductions from wages, the employer may not ever be able to recoup the money without taking the employee to court.
Even with a valid wage deduction authorization agreement, if the employee gets a loan or advance and quits suddenly, the employer might not be able to fully recover the money.
As an example of just how sorry an employer can be that it did a favor for an employee, consider this story from an actual wage claim that was filed in late 2006: The employer had allowed an employee paid time off for his wife's maternity-related medical appointments and for spending time with their baby. The employer verbally agreed with the employee that the paid days off would be repaid a day at a time from future paychecks, but when the employee walked off the job soon after the child's birth, the employer deducted the amount all at once from the final paycheck. Since the deduction agreement was not in writing, the employer lost the Texas Payday Law wage claim that the claimant filed. The claimant sent the following e-mail to the employer:
"I know we agreed to you taking the five days you paid me for that I didn't work, one paycheck at a time, but I quit before you could take your money back. You are a dumb s***!!! The Texas Commission says without my signature you can say we agreed to this verbally but you lose since I didn't sign anything. I intentionally left your store open when I quit, hope someone came in and stole everything in the store. Answer my call so I can tell you what a dumb s*** you are. I know (sic) have a new trick with my next job, take days off, promise to do makeup work, get paid and then quit."
(Regarding whether an employer may legally report such things in conjunction with job references, see the topic in the first section of the book titled "References and Background Checks" and the article "Job References".)
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Pay Issues
Hourly employees may simply be paid for the number of hours they work; day-rate employees are paid for the number of days they work; piece-rate employees are paid for the number of pieces they produce. If the company's paid leave policy permits it, they may apply available paid leave to the time missed due to bad weather. A company may also go so far as to have an optional benefit allowing regular pay for bad weather days - that would be similar to an extra day of paid vacation, paid personal time off, paid bereavement leave, or similar optional paid leave. Although such paid leave is optional under the law, once it is promised in writing, it must be given according to the terms of the written policy once the conditions for its use have been satisfied.
Salaried non-exempt employees may have their paid leave balances docked, as long as that is consistent with whatever paid leave policy the company has in place. They may also have their pay docked, as long as they have given written authorization for such a deduction from pay (see item 12 in the sample wage deduction authorization agreement in this book for an illustration of how to obtain such authorization).
Salaried exempt employees may not have their pay docked in increments of less than a full workweek at a time for bad-weather absences (see item 7 in the topic on the salary test for exempt employees) - full-week absences could result in pay reductions with proper written authorization (see item 12 in the above sample agreement). Salaried exempt employees may have their available paid leave balances reduced in any increments of time for such absences, consistent with the company's paid leave policy.
Attendance Issues
Absences due to closure of the business based on bad weather or other similar disaster or emergency condition should not count toward whatever absence limit a business has. On the other hand, if the business is open, and other employees are able to make it in, elective absences by employees may count toward an absence limit. Before such an absence is counted against an employee, the policy should provide the absent employee an opportunity to document how their attendance on such days would not have been possible.
Failure to come into work on a day when authorities have closed area roads and are recommending against travel will likely not be considered disqualifying misconduct in an unemployment claim. An employer would have the burden of proving that the employee really could have come to work, despite the inclement weather conditions.
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Employer may regulate use or possession of such devices in the workplace; reasonable limitations are common.
Company-issued cell phones can have any limitations the employer cares to impose.
No law requires employers to allow employees to make or receive personal phone calls during working hours.
Most employers allow some use within reasonable limits, but provide that excessive personal calls can lead to corrective action.
Excessive personal calls / texting / other costly activities on company cell phones can be billed to an employee, but remember that wage deductions need to be authorized in writing.
Solutions for excess company cell phone charges: Texas Payday Law-compliant agreement for recoupment of wage advances or deduction of such excess charges, or even simpler, do away with company-issued cell phones and pay each employee a set amount per month for reimbursement of business-related use of their own phones (disadvantage: the company loses some control over how the employee uses such a cell phone).
Advise employees to use common sense and discretion - example: leave personal phones in purse or desk and let personal calls go to voice mail, return calls only during breaks, and use discretion when discussing company business over the phone.
With camera phones or other types of image-capture devices, extra precautions are advisable - provide that pictures in non-private areas are allowed only if taking such pictures would not violate a law or the privacy rights of anyone being photographed, and indicate that no cameras whatsoever are allowed in private areas where anyone would have a reasonable expectation of privacy.
Risks: invasion of privacy, theft of company secrets, invasive visual recording.
Sexual harassment claims have been filed based on coworkers' use of such devices.
Provide that a violation of the policy leads to loss of phone privileges or other disciplinary action, up to and possibly including termination.
Safety issues - policy may provide: do not use cell phones while driving, pull off to the side of the road to use the phone, use hands-free equipment for any use of the phone while driving or using machinery or equipment, and that any violations of law or liability from accidents incurred while using a cell phone in violation of the policy will be the sole liability of the employee.
Aside from cell phone cameras, employers must also be concerned with other data-storage technology such as digital cameras, digital movie recorders, iPods™ and similar personal music devices, and flash memory drives ("thumb" or USB drives).
Since offensive pictures of coworkers in private, embarrassing, or intimate situations can be taken and sent via e-mail or the Internet to other people and locations ("invasive visual recording" is a felony in Texas), and such technology can be used to quickly and efficiently conduct industrial espionage by photography, video recording, or copying company files, many employers are now regulating the use of such devices in the workplace unless the employee has been given express permission by the Company to use them for the performance of job duties.
Regulating such devices and their use can be one tool in preventing harassment claims from employees who feel their privacy has been invaded.
Employees should also be warned that they may face both civil and criminal liability for misuse of imaging devices against coworkers and the company, or for unauthorized copying or transmitting of company information.
Under National Labor Relations Board guidelines for the National Labor Relations Act, employees with cell phones are allowed to use them for documenting work-related issues pertaining to situations at the workplace that impact their terms and conditions of employment. However, that right is not unlimited, and it does not include the right to violate applicable laws or to interfere with or otherwise violate the legitimate rights of others. The NLRA can be quite complicated - detailed articles on how the NLRA impacts cell phone policies may be found online by searching with the keywords "NLRB NLRA cell phone policy workplace".
The company policy should make it clear to employees that the employer reserves the right to physically and digitally search any devices with storage or memory capabilities that they might bring to work and connect to company networks or electronic systems, and to make copies of any files found therein (see the sample "Internet, E-Mail, and Computer Use" policy).
Employees who object to such a policy may be instructed to leave their electronic devices at home.
The policy should also remind employees that submission to searches is a condition of continued employment and that if they bring such devices to work, but refuse to allow searches provided for in the policy, they will be subject to discharge - do not include such a provision in the policy unless the company really means it!
Have all employees sign a copy of the policy - keep the signed copy in the employee's file, and give a copy to the employee.
For information on how to handle the signing of employee policies, click here.
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With the right kind of policy, employers have the right to monitor employees' e-mail at work, employees' use of the Internet, and employees' use of company computers.
Every employer needs to have a detailed policy regarding use of company computers and resources accessed with computers, such as e-mail, Internet, and the company intranet, if one exists.
Each employee must sign - it can be made a condition of continued employment.
Define computers, e-mail, Internet, and so on as broadly as possible, with specifics given, but not limited to such specifics.
Remind employees that the company owns all such systems and that that is why it is reserving the right to monitor any and all usage of the systems.
Remind employees that when they use company Internet access and e-mail systems, the company's computers record all incoming and outgoing transmissions of files, e-mail messages, and other data, as well as store copies of e-mail messages received and sent through company systems.
Define the prohibited actions as broadly as possible, with specifics given, but not limited to such actions.
Remind employees that not only job loss, but also civil liability and criminal prosecution may result from certain actions.
Reserve the right to monitor all computer usage at all times for compliance with the policy.
Reserve the right to inspect an employee's computer, hard drive, USB drives, and other removable storage media at any time.
Reserve the right to withdraw access to computers, Internet, and e-mail if the employee abuses such access.
Make sure employees know they have no reasonable expectation of privacy in their use of the company's electronic resources, since it is all company property and to be used only for job-related purposes.
Consider reasonable limits on the use of camera phones (also called cell phone cameras); such phones have been implicated in gross invasions of other employees' privacy and in theft of company secrets.
Prohibit employees from connecting their personal computers and other non-company electronic devices to company systems at any time without express permission from the company.
For a sample computer, e-mail, and Internet policy, click here.
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Good starting point: all information relating to an employee's personal characteristics or family matters is private and confidential.
Information relating to an employee should be released only on a need-to-know basis, or if a law requires the release of the information.
All information requests concerning employees should go through a central information release person or office.
For a sample policy regarding confidentiality of employee and other information, click here.
For a sample policy regarding confidentiality of medical information in particular, click here.
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Conflicts of Interest and Trade Secrets
contractual limitations - if these are an issue, have affected employees sign a clear written agreement promising not to do certain things and agreeing to pay damages in the event that the employees breach the agreement
policy guidelines - on top of a written agreement signed by each affected employee, the policy handbook should mention what the employer expects of employees in this regard
Non-Competition Agreements
Texas law provides that a covenant not to compete is enforceable only if it:
is ancillary to or part of an otherwise enforceable agreement
contains reasonable limitations as to time, geographical area, and scope of activity
most courts have ruled that the public policy is to promote competition, not limit it, and that before an agreement limiting competition will be enforced, the employer must show how non-enforcement would harm it and that enforcement would not place an unreasonable burden on a person's right to practice a profession or trade or otherwise make a living. The more specialized the knowledge for the position is, the easier it is to show a need to limit competition in some way. The more general the knowledge is, the more difficult it will be to show that the business needs protection from competition (this is also known as the "common calling doctrine").
In the case of Alex Sheshunoff Management Services, L.P. v. Johnson and Strunk & Associates, L.P., 209 S.W.3d 644 (Tex. 2006), the Texas Supreme Court held that an "otherwise enforceable agreement" can include an executory promise (a promise that the maker intends to fulfill in the future) made in conjunction with an at-will employment agreement if the employer actually performs the promise it made at the time that it secured the non-competition agreement (such as a promise to give certain training, allow access to certain proprietary information, and similar things that give rise to the business interest protected by the non-competition agreement).
See also Cobb v. Caye Publishing Group, 322 S.W.3d 780 (Tex.App.-Ft. Worth 2010) (covenant not to compete cannot be enforced outside of area where the employee worked and where the employer had any kind of commercial activity); and Marsh USA, Inc. and Marsh & McLennon Cos. v. Rex Cook, 2011 WL 6378834 (Tex. December 16, 2011) (stock options can be consideration to support the agreement).
Beginning September 1, 2025, Texas Business and Commerce Code §§ 15.50 and 15.501 restrict covenants not to compete for physicians, physician assistants, dentists, and licensed nurses – to be valid, such agreements must allow a buyout for one year's salary; expire after one year; cover only up to a five-mile limit; and must clearly express the terms and conditions in writing. For physicians, such agreements are invalid if the physician is discharged for a reason other than good cause.
Non-disclosure or confidentiality agreements specifically limiting what types of confidential information or trade secrets an employee may divulge to third parties are usually easier to enforce than non-competition agreements.
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In the aftermath of Hurricane Harvey in 2017 and the pandemic in 2020 - 2021, employers have been asking some important questions about how to handle employment issues after a disaster (weather-related, fire, flood, earthquake, and the like). Below are the questions we have heard most frequently:
Q: How should my employees who are out of work because of a disaster contact TWC?
A: They may either call the Tele-Center toll-free number 1-800-939-6631, or else submit their unemployment claim online through https://www.twc.texas.gov/services/apply-benefits and select the disaster-affected option if applicable.
Q: I've had to lay off some employees, but if they file unemployment claims, will there be any relief from what those claims will cost my business?
A: If an employer finds it necessary to lay an employee off due to a business closure, even a temporary one, that resulted from a natural disaster, it is possible for a private-sector employer that pays unemployment taxes to receive protection from a chargeback of regular unemployment benefits if the affected employee files an unemployment claim during the period of closure. However, the employer must respond to any claim notices or rulings in a timely manner and explain the circumstances as fully as possible in order to apply for chargeback protection. TWC may extend deadline requirements in cases where an employer or claimant is unable to be reached. Reimbursing employers and public employers are not eligible for such chargeback protection, so such employers would have some direct costs associated with regular UI benefits paid to disaster-affected employees. On the other hand, disaster unemployment assistance (DUA) benefits are paid from federal funds and are not charged back to employers, regardless of whether they are public or private, or taxed or reimbursing. DUA benefits, made available especially for victims of disaster, are available to individuals who have applied for and used all regular unemployment benefits from any state, or do not qualify for regular unemployment benefits and meet one or more of the following requirements as a direct result of the disaster:
A full description of the requirements for DUA claims is on the TWC website at https://www.twc.texas.gov/programs/unemployment-benefits/disaster-unemployment-assistance.
Q: I just want to be sure about this - if I have a private, taxed account with TWC, I will have no costs at all associated with regular UI benefits paid to my disaster-affected employees?
A: That is a very good question! Despite the chargeback protection for individual private taxed employer accounts, non-charged benefits are not entirely without an effect. Under Texas law, non-charged benefits go into a pool of what can be called "ineffective chargebacks", i.e., benefits that cannot be charged to the account of individual employers, and since the non-charging of such benefits lowers the amount in the UI trust fund out of which UI benefits are paid, such chargebacks must be distributed pro-rata among all private taxed employers in Texas through the replenishment tax and the replenishment ratio.
Q: We usually mail paychecks, but the mail delivery has been severely disrupted in my area. How can we stay within the law?
A: The Texas Payday Law also allows hand-delivery of paychecks, direct deposit, delivery to a third party with the employee's written authorization, and delivery by any other reasonable means that the employee agrees to in writing. Communicate as well as you can with your employees regarding their pay, and document your efforts along the way.
Q: Speaking of disrupted mail delivery, are there any exceptions to claim and appeal deadlines for employers and claimants who have to deal with claim-related documents from TWC?
A: In such cases, the claimant or employer would need to provide good evidence of any mail problem and should explain those issue(s), since such issues are addressed on a case-by-case basis.
Q: If the mail system is a problem in my area, what alternatives do I have?
A: It is also possible to file responses and appeals by fax (the applicable fax number will be specified on the document to which you are responding) and even online, using the resources at https://www.twc.texas.gov/services/apply-benefits (for claimants) and https://www.twc.texas.gov/employer-resources/ebs (for employers).
Q: I've got a very small business. If I have to shut down for a while, is it possible for me to file an unemployment claim?
A: That is quite possible, depending upon the nature of your company. Here are the possibilities:
Q: My company has a "no-fault" attendance policy limiting the number of absences an employee can have. I would assume that absences caused by the disaster should not count under that policy?
A: That is correct. Just as with things like jury duty, military duty, or voting, absences due to closure of the business based on bad weather or other similar disaster or emergency condition should not count toward whatever absence limit a business has. On the other hand, if the business is open, and other employees are able to make it in, elective absences by employees may count toward an absence limit. Before such an absence is counted against an employee, the policy should provide the absent employee an opportunity to document how their attendance on such days would not have been possible. Finally, although many evacuation orders have already expired, some are still in effect, and Section 22.002 of the Texas Labor Code protects employees who left their place of employment due to an evacuation order from discrimination, i.e., adverse action, based on an evacuation-related absence. Bottom line: be as flexible and accommodating as possible with your employees who have been directly impacted by an evacuation and/or disaster damage.
Q: I'm the HR director at a small company. Our general manager is talking about firing an employee who is unable to come in on time due to roads being closed. What can I tell the manager?
A: Generally, it is inadvisable to take adverse action against employees who are simply unable to make it to work on time, due to factors outside their power to control. Failure to come into work on a day when authorities have closed area roads and are recommending against travel will likely not be considered disqualifying misconduct in an unemployment claim. An employer would have the burden of proving that the employee really could have come to work, despite the adverse conditions. It would probably work a lot better to talk over the situation with the employee and explore alternatives, such as a temporary change in work hours, doing some work from home, or other options.
For further information on common problems on bad-weather days, see the topic "Bad Weather - Pay and Attendance Issues" elsewhere in this outline for Part II.
Employers with employment law-related questions may call the toll-free hotline for employers at 1-800-832-9394 (option 4), Monday - Friday, 8:00 a.m. - 5:00 p.m., or send an e-mail to employerinfo@twc.texas.gov. Employees and unemployed individuals may call 1-800-939-6631 for information on filing regular unemployment or DUA claims, or they may use the online tools available at https://www.twc.texas.gov/services/apply-benefits (regular UI claims) or https://www.twc.texas.gov/programs/unemployment-benefits/disaster-unemployment-assistance (DUA claims).
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Progressive disciplinary systems usually include a range of disciplinary measures, including two or more of the following steps:
oral and written warnings;
probation;
suspension with or without pay;
disciplinary pay cuts (it is best to make this a token amount of one or two per cent - do not impose such a cut without a prior written warning - give notice of the cut in writing in order to reduce risk of a wage claim);
demotion or reassignment;
final warning; and
discharge.
Documentation is very important for use in justifying a personnel action and defending against claims and lawsuits. Keep the following in mind:
The employee should get a copy, and a copy should go into the personnel file.
Have the employee or a witness sign and date the warning, and have a company representative sign and date it as well.
The warning should clearly let the employee know what the next step will be if the problem continues.
The employer should follow its own policy and prior warnings as closely as possible, unless there is a compelling reason not to do so; do not issue warnings until the company is ready to take action and mean it; warnings that are not enforced are even worse than completely ignoring a problem.
Do not issue a "final warning" until and unless the company is ready to terminate the employee upon the very next occurrence of the problem that caused the warning to be issued - sample wording:
Final Warning
On __________, you were given a written warning concerning excessive personal phone calls while on duty. You were told that while the company allows personal phone calls for emergency reasons, such calls do not include conversations lasting several minutes with friends and family. We reminded you that your coworkers have to shoulder the burden of extra and unnecessary work when you make yourself unavailable to do your job by talking on the phone under such circumstances. Since that time, you have been observed on ____ occasions engaging in personal conversations on the phone while on duty, which is in violation of your previous warning.
This is your final warning. There will be no further chances given. If you violate the Company's phone call policy again, you will be subject to immediate dismissal from employment. We sincerely hope it will not come to that, but you must understand that you have arrived at this point by your own actions, and it is only by following the phone call policy that you will be able to remain employed.
I understand that my signature on this form does not necessarily mean that I agree that I did anything wrong, but rather only that I have seen this warning and have had it explained to me.
I agree: _________________ I disagree: _________________*
Date: _________________
[* Note: regarding why it might be a good idea to include the "I disagree" signature line, see "Refusal to Sign Policies or Warnings".]
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Disclaimers in an offer letter, employment agreement, and/or employee policy handbook can help employers avoid contractual liability toward at-will employees.
Disclaimers should provide that:
the employee handbook is not a contract;
the employee handbook may not be modified except by certain specified procedures and by certain company officials; and
the employee handbook does not alter "employment at will" status - it is common for an "employment at will" disclaimer to appear at both the beginning and the end of an employee handbook - it can also appear in other documents, such as a job application, a compensation agreement, or a request to change the terms and conditions of employment.
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Dress codes and grooming standards, even those that distinguish between men and women, are acceptable under EEOC guidelines as long as they bear a reasonable relationship to legitimate business needs and are enforced fairly. Safety concerns are generally recognized as legitimate business needs: in EEOC v. Kelly Services, 598 F.3d 1022 (8th Cir. 2010), the court upheld a temporary staffing firm that failed to refer a woman for a job in a commercial printing factory because the applicant refused to remove her headscarf, which she said she had to wear for religious reasons. Noting that the work environment was full of printing machinery with rollers, conveyors, and fast-moving parts, the court ruled that the employer was entitled to enforce a dress code that prohibited hats, other headgear, and any loose clothing items around the machines.
Employers can always require employees to appear at work with a neat and clean appearance, including combed or brushed hair, bathed, and wearing clean clothes.
A no-facial hair policy for men is permissible under the above guidelines (business image, safety rules, and so on), but an employer may need to make a reasonable accommodation for certain individuals, such as men with pseudofolliculitis barbae (a skin condition common with some minorities) and those whose religious practices may require wearing of a beard. Accommodation questions of these types should be discussed with an experienced employment law attorney.
Any restrictions on hair length or hair styles should be based on legitimate business needs, such as job-related safety standards. Such restrictions without a business necessity could potentially risk a finding that the policy has a disparate impact on minorities.
Labor Code Section 21.1095 prohibits discrimination that is based on an employee’s hair texture or protective hairstyle associated with the person’s race.
A no-tattoo or body-piercing policy may be enforceable under the above guidelines. Most employers have a middle ground: allow such items if they do not interfere with the safe operation of equipment or can be concealed with clothing. In the case of Cloutier v. Costco, 390 F.3d 126 (1st Cir. 2004), the court held that a retail sales company did not illegally discriminate against an employee who was told that her facial piercings and jewelry violated the company's dress code, despite her position that her religious belief required her to wear such ornamentation, since the employer successfully showed that it had a legitimate interest in presenting a professional image to its customers, the employee's job as cashier placed her directly before the customers, and it would have been an undue hardship to the company to make an exception for the employee.
Poor hygiene: no employer is obligated to tolerate an employee whose dirty appearance cannot be explained by the needs of the job. It is more complicated if an employee appears clean, but has an odor about him or her that is offensive and cannot be explained by the working conditions. In such a case, it would be best to have a discreet, one-on-one talk with the employee to explore that issue and give the employee a chance to explain what might be going on. If the employee gives what amounts to a medical explanation for the odor, the employer has the right to require the employee to furnish medical documentation of that fact. However, if the employer has 15 or more employees and is thus subject to the ADA, it would be prudent to be prepared to address the issue of reasonable accommodation. If the employee does not claim a medical condition as the cause of the odor, the employer may address the issue through the corrective action process.
Employers are allowed to have one set of rules for employees who deal with the public and another set of rules for employees who have no regular contact with the public. For example, a department store could have one set of guidelines for cashiers and customer service employees, a set for administrative office staff, and another set for warehouse staff. However, the rules should be uniformly enforced as to all employees within each particular group.
A policy imposing a ban on union insignia is presumptively unlawful in the absence of evidence that special circumstances make such a rule "necessary to maintain production or discipline." (Tesla, Inc., 371 NLRB No. 131, August 29, 2022 - see https://apps.nlrb.gov/link/document.aspx/09031d4583849181)
If a dress code results in what is basically a uniform that is required for the job, there may be a minimum wage issue if not reimbursing the employees for the extra costs would result in their wages effectively going below minimum wage ($7.25 per hour), and/or below time and a half at their regular rate of pay in case of overtime hours.
In that situation, the company would have to reimburse enough to bring them up to minimum wage and/or the proper level of overtime pay for the time they worked that week, if applicable. That would be an issue only for the workweek in which the required clothes were purchased. The company could, of course, require the affected employees to submit receipts documenting their costs and to stagger the purchases over two or more weeks, in order to minimize the chance that a given purchase would have an effect on minimum wage and/or overtime pay.
Failure to abide by the dress code would be a rule violation - address violations according to the company's corrective action procedure.
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Adopt a written policy - some employers are obligated by law to have written drug-free workplace policies (for example, federal contractors and employers subject to U.S. Department of Transportation drug/alcohol testing rules).
Give the policy to all employees in writing - have employees acknowledge receipt.
If drug or alcohol testing is done:
Pre-employment, random, post-accident, and "for cause" testing are all allowed in Texas and many other states.
Specific drug test results should be obtained from the testing lab - do not use a lab that is not willing to give you a copy of the results and the chain of custody of the sample.
Preferably, use a nationally-certified testing lab that will follow strict procedures and furnish complete documentation to support the employer in case a claim or lawsuit is filed - the documentation should show at least the following:
type of tests performed and concentrations of specific substances found;
indication of specific cut-off levels required for a positive result;
initial results confirmed by GC/MS (gas chromatography/mass spectrometry) method; and
chain of custody showing who handled the sample at all pertinent times - this is for dealing with the common excuse that the samples must have been switched.
In cases of drug tests mandated under DOT rules, obtain copies of documents showing complete compliance with DOT regulations concerning the test and the review of the results by the medical review officer - DOT regulation 49 C.F.R. §40.323 allows release of such documentation by the employer for responding to claims and lawsuits arising from such a test.
When responding to unemployment claims arising from drug or alcohol tests, copies of the policy, the signed test consent form, and the documentation outlined in comments 3 and 4 above, should be submitted to TWC in response to the claim.
For a sample policy on drug and alcohol testing, click here.
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Such policies are very tricky and controversial - EEOC's position is that such policies potentially have a disparate impact on ethnic/national origin minorities (see 29 C.F.R. § 1606.7).
Courts will uphold such policies if they are based on business necessity, such as public safety, customer service, or minimizing complaints from other employees - the burden is on the employer to show such necessity (see Garcia v. Spun Steak Co., 998 F.2d 1480 (9th Cir. 1993); Dimaranan v. Pomona Valley Hospital, 775 F. Supp. 338 (C.D. Ca. 1991); Roman v. Cornell University, 53 F. Supp. 2d 223 (N.D. NY. 1999); and EEOC v. Premier Operator Services, Inc., 113 F. Supp. 2d 1066 (N.D. Tex. 2000)).
Prior to implementing such a policy, an employer should, if possible, have documentation to support whatever business necessity exists, such as reports of safety problems, comments from customers about lack of service, or complaints from coworkers that speakers of a different language appeared to be commenting about them in such a way that they felt excluded or targeted.
The policy should be carefully focused on the business needs at issue - unless there is a compelling reason to do otherwise, do not attempt to prohibit speaking of other languages during non-duty times; if employees need to speak a language other than English in order to better do their jobs; or while employees are speaking among themselves in another language in a context that does not suggest they would be aware that others who do not speak that language would consider themselves somehow "talked about" or excluded (this consideration applies not only in the context of different languages - it is certainly possible for English speakers to create morale problems by the way they talk around each other and about others, and it is important for employers to address such concerns anytime they become aware of the issue).
The company should consider whether there are any alternatives to a blanket rule. If poor conduct (unkind remarks) was only an isolated incident by certain workers, and there is no widespread incidence of discriminatory remarks in other languages, simply handle the problem via counseling that is directed toward the ones who caused the problem.
Even the most well-written policy can be useless if the managers are not properly trained in how to explain and apply it; for example, if a manager tells employees that the policy prohibits any speaking of a minority language, even during breaks, a fact issue arises which can make it much harder to deal with a discrimination claim or lawsuit (see Maldonado, et al. v. City of Altus, Oklahoma, 433 F.3d 1294 (10th Cir. 2006)). Thus, proper training is essential, and human resources staff and top management should carefully monitor how the policy is actually applied in the workplace.
The main idea is that such a policy should be applied no more than is necessary to get the job done well and to minimize friction between employees - beyond that, employees should be left to whatever language they prefer to use.
The policy should remind all employees, regardless of what language they speak at a particular time, that cooperation and good communications are vital to the company's interests and that they will be held accountable for the degree to which they exhibit good teamwork and effective communications with coworkers and customers.
Once employees understand that smooth relations and effective communications have a direct bearing on advancement opportunities and potential pay raises, they will generally handle language issues accordingly.
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FMLA applies to any public or private employer with 50 or more employees, as well as to all public agencies, and public and private elementary and secondary schools, regardless of number of employees.
A covered employer must post a notice in the workplace concerning the FMLA and how employees may qualify under its provisions (click here (PDF) for the official poster from the U.S. Department of Labor). Click here for the Spanish-language poster.
Even though all governmental (public) employers and all elementary and secondary schools are covered employers regardless of how many employees they have, individual eligibility requirements may still render an employee ineligible to take FMLA leave - see the following item.
To be eligible, an employee has to have worked at least 1250 hours within the last 12 months; has to have worked at least 12 months' total time for the employer; and be employed at a facility at which at least 50 employees are employed within a 75-mile radius - due to the 1250-hour requirement, many part-time employees will not be eligible for FMLA leave - however, state FMLA laws may have lower requirements - Texas does not have an FMLA-style law, so only the federal law applies.
Be careful not to promise FMLA leave to an employee who is not eligible, because the company might have to extend such leave anyway if the conditions for equitable estoppel are satisfied (see the discussion of the Minard v. ITC Deltacom Communications case in "Other Types of Employment-Related Litigation" in the outline of employment law issues in part IV of this book).
Time spent in military duty counts toward both the hours worked and tenure requirements - for details, see the article titled "Legal Issues for Military Leave" in this book.
The reason for the absence must be the serious health condition of the employee or of a member of the employee's immediate family; the birth or adoption of a child or the placement of a foster child in the home; or "any qualifying exigency" (which generally means an urgent or emergency situation) associated with the employee's spouse, child, or parent being on active military duty, or having been notified of an impending order to active duty, in support of a contingency operation - see DOL's fact sheet on the new law at https://www.dol.gov/agencies/whd/fact-sheets/28m-fmla-military-family), as well as FMLA regulation 29 C.F.R. § 825.126.
With regard to leave to care for a child's serious health condition, or parental leave for a biological, adopted, or foster child, the term "parent" means father, mother, or anyone else who stands in loco parentis (in the place of a parent) to the child, including same-sex parents (see the DOL FMLA opinion letter AI 2010-3, issued on June 22, 2010).
The employer must make up to 12 weeks of paid and/or unpaid leave during a year available to such an employee.
New military caregiver leave: up to 26 weeks of paid and/or unpaid leave during a year is available to an employee whose spouse, child, parent, or "next of kin" (nearest blood relative) is recovering from a serious illness or injury suffered in the line of duty while on active military duty; the law that created this category of FMLA leave also put an outside limit of 26 weeks of all types of FMLA leave in a "single 12-month period" - see https://www.dol.gov/agencies/whd/fact-sheets/28a-fmla-employee-protections and FMLA regulation 29 C.F.R. § 825.127.
The leave can be all at once or intermittent, even 2 or 3 hours at a time, but intermittent leave all goes toward the 12-week limit.
It is best to give employees prompt written notice that they are on FMLA leave and that they must keep in touch with the employer at regular intervals specified by the employer - the return date can be specified or left open.
FMLA leave cannot be counted against an employee under a "no-fault" or "point system".
Generally, an employer's duty to allow FMLA leave is separate from an employee's duty to follow company policies regarding notice of absences and use of leave. In other words, a company must allow FMLA leave for an employee where its use is warranted, but is allowed to hold an employee accountable for failure to abide by company policies to the same extent that it holds other employees accountable in non-FMLA situations.
Important for compliance with Texas Payday Law limitations on wage deductions: if the employer is to make payments on behalf of the employee to keep the health insurance plan in effect during the FMLA leave, the employer should make sure to have the employee sign a written agreement that any money so paid will be regarded as an advance against future wages owed and will be repaid in installments deducted from future paychecks.
FLSA problem - docking exempt workers for time missed:
Executive-, administrative-, and professional-exempt workers must meet the "salary basis" test - for all employers in the private sector, partial-day deductions from salary will destroy the salary basis for the exemption.
The only exception to that rule is for a situation covered by the FMLA - in that case, hourly docking of pay or leave time would be allowable, but careful documentation must be maintained - this exception only works if the employer, the employee, and the situation are all covered by the FMLA!
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Every company with more than just a few employees needs a clear procedure for reporting and resolving grievances.
The procedure should provide for the situation where the supervisor is the subject of the grievance - another person should be designated to handle the grievance in such a case.
An effective grievance procedure can be a useful tool in helping an employer avoid morale problems among employees, which may also make the need for a union seem less compelling for many employees.
It can also be an important part of an alternative dispute resolution system.
Keep grievance records in a separate grievance and investigation file.
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A clear policy is needed - harassment does not need to be specifically prohibited by law (such as sexual harassment) in order for an employer to be able to forbid such conduct - "sexual harassment" includes any unwelcome conduct of a sexual nature that tends to creates adverse or hostile working conditions for an employee.
Provide for education and training of all employees regarding the policy.
It is especially important for all management and supervisory personnel to be fully committed to the anti-harassment policy and procedures.
Essential in light of 1998 Supreme Court rulings on sexual harassment: to the greatest extent possible, limit supervisors' authority to adversely affect the terms and conditions of employment for their subordinates, i.e., firing, suspension, demotion, pay cuts, adverse changes in shifts, work locations, or duties, or similar tangible job actions - make it clear to all employees that the most their supervisors can do is recommend changes, but that any changes must be approved and carried out by specifically-designated individuals.
Prompt investigation and remedial action are needed - results on a "need to know" basis - documentation should be maintained in a separate grievance and investigation file.
Uniform application of policy is important.
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Most state laws, including those of Texas, do not require employers to observe any holidays or to pay employees if time off for holidays is granted.
Just as with paid leave, though, it is essential to set holiday pay policies down clearly in writing, since state payday laws will enforce whatever the written policy says.
The policy should cover what happens if an employee works during a paid holiday, i.e., does the employee simply get double pay for that day, or can the employee have some other day off to make up for the missed holiday? Some companies have policies providing "compensatory holidays" in the event a paid holiday is missed through no fault of the employee, like in this situation in which the employee works on the holiday - in such a case, the comp holiday would be used on a day that is mutually convenient for the employee and the company. Other companies provide that paid holidays are lost if the employee would not have been at work in any event (a holiday that falls in a vacation week or a period of a leave of absence), or if the employee worked on that day. Some companies make no provision at all. However, the only case in which holiday pay is required is the one in which the written policy itself expressly promises such a payment, i.e., if the policy indicates that holiday pay will be given for that day, regardless of whether the employee works or does not work that day. Otherwise, the presumption is that holiday pay is only for people who would have been working on that day, but for the holiday. In other words, the presumption coincides with the most commonly-accepted understanding of holiday pay, which is that it is a benefit given to employees who do not work on a holiday so that they might have a full paycheck for the week in which the holiday occurred.
Do not count paid holiday hours toward "hours worked" for overtime or FMLA eligibility purposes.
Companies with 15 or more employees and thus subject to religious discrimination laws may need to allow employees with religious convictions time off on certain holidays in order to observe religious customs, unless such time off would be an undue hardship for the business (the burden of proving that would be on the employer).
Sample policy:
"The Company will generally observe the following days as paid holidays:
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Jury duty leave is job-protected leave. An employee who is on jury duty is entitled to protection against termination or other adverse action by the employer (see §§ 122.001 and 122.0022 of the Juror's Right to Reemployment Act in the Texas Civil Practices & Remedies Code). However, paid leave for jury duty is not required - see below.
Just as with military leave and leave to serve as a subpoenaed witness in a court or administrative proceeding, an employer should not count jury duty leave toward an absence limit, such as one found in a neutral absence control policy.
Texas law does not currently require that jury duty leave be paid, except for those who are salaried exempt employees (see below). A bill that would have required employers to pay $40 of jury duty pay for the first day of jury service did not pass during the 81st general session of the Texas Legislature in 2009. The general rule under both Texas and federal law is that an employer does not need to pay for time not worked. That would include time spent on jury duty. See https://www.traviscountytx.gov/district-clerk/jury-duty/faq for one Texas county's explanation regarding jury duty pay.
In addition, time spent on jury duty is not time worked for purposes of the FLSA, so it would not count toward overtime. Finally, even if an employer has an optional jury duty paid leave policy, the hours so paid would not count toward overtime, just as other types of paid leave and paid holiday hours do not count toward overtime.
If an employer chooses to pay the employee's regular wages during the jury duty leave, such leave pay can be limited to the difference between the employee's regular pay and what the employee received in return for the service on the jury.
Specific rules apply in the special situation of exempt salaried employees. In the event of absences due to jury duty, witness duty, or temporary military duty, if an employee works any part of a week and misses the rest of the week for jury, witness, or military duty, he or she must receive the full salary for the workweek, but if they miss a full week, no pay is due for that week (see 29 C.F.R. 541.602(a)); however, partial-week deductions from leave balances are allowed. Do not forget that a deduction allowed under the FLSA for a week not worked must be authorized in writing by the employee to be valid under the Texas Payday Law (see item 12 of the sample wage deduction authorization agreement in this book). However, that special rule affects only salaried exempt employees. It does not affect non-exempt employees, or exempt employees who do not have to be paid a salary, such as doctors, lawyers, and teachers.
Thus, the above limitation pertains to partial-week deductions from salary. Deductions for an entire workweek would be legal, if they are authorized by the employee in writing under the Texas Payday Law. Deductions from paid leave would be legal in any amount.
A deduction from the salary of a non-exempt employee could be made for jury duty time, but would have to be authorized by the employee in writing under the Texas Payday Law, or else covered with available paid leave. It would not be a recommended practice to discipline an employee for refusal to authorize such a deduction, since it might be possible for the employee to convince a court that the discipline somehow violated the juror protection law. In most situations, a reasonable alternative would be to give the employee a paid leave advance, and simply offset future leave accruals by the amount so advanced, or else deduct the advance from the employee's final pay at the time of work separation (see item 11 of the sample wage deduction authorization agreement in this book).
Concerning paid leave deductions, such deductions are legal for any employee as long as they do not conflict with the employer's written paid leave policies. An employer should cover the issue of using paid leave for jury duty-related absences in its written policy, and clearly specify whatever procedures employees need to follow.
Requiring an employee to use vacation or other paid leave time for jury duty leave does not conflict with either Texas or federal law. It would be a good idea to ensure that there is no wording in the company's vacation/PTO policy that would prohibit or complicate application of paid leave to a jury duty absence.
Where a company can get into trouble is if it treats its jury-duty employees less favorably than other employees with regard to pay and leave practices. Example: a salaried exempt employee on jury duty misses part of a week to serve on the jury, and the company requires her to apply available paid leave to the part of the week not worked, but does not impose the same requirement on another salaried exempt employee who misses part of a workweek for a different reason. Such disparate treatment would arguably violate the jury duty law.
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The law on sexual orientation and gender identity issues in general has developed rapidly on a federal level - despite the lack of specific mention of such issues in employment discrimination statutes, federal courts have issued some guidelines for LGBT employees (see below).
Texas state law (Chapter 21 of the Texas Labor Code) does not have any provision directly addressing these issues, and for that reason, the state has no authority to investigate such complaints. However, since most Texas employers are also covered by federal employment discrimination laws if they have 15 or more employees, participate in federal contracts, or receive federal grants, it is important to be aware of how federal agencies and courts are interpreting the statutes they enforce.
Local ordinances regarding LGBT discrimination in private employment (such as in Austin, Dallas, Fort Worth, and Plano) were invalidated by a new Texas law enacted in 2023 (Section 1.005, Labor Code.)
Foundational ruling: U.S. Supreme Court case of Price Waterhouse v. Hopkins, 490 U.S. 228 (1989) - the Court held that a female manager had been illegally discriminated against due to her failure to conform to established gender stereotypes.
Similar cases extended the "non-conformance with gender stereotypes" concept to same-sex harassment and LGBT protection: Oncale v. Sundowner Offshore Services, 523 U.S. 75 (1998); Schwenk v. Hartford, 204 F.3d 1187 (9th Cir. 2000); Smith v. City of Salem, Ohio, 378 F.3d 566 (6th Cir. 2004); Kastl v. Maricopa Co. Cmty. Coll. Dist., 325 Fed.Appx. 492 (9th Cir. 2009); Glenn v. Brumby, 663 F.3d 1312 (11th Cir. 2011); EEOC v Boh Brothers Const. Co., L.L.C., 731 F.3d 444 (5th Cir. 2013); Hively v. Ivy Tech Community College, 853 F.3d 339 (7th Cir. 2017); Schroer v. Billington, 577 F.Supp.2d 293 (D.D.C. 2008); see also Lopez v. River Oaks Imaging & Diagnostic Group, Inc., 542 F.Supp.2d 653 (S.D. Tex. 2008), and Creed v. Family Express Corp., No. 3:06-CV-465RM, 2009 WL 35237 (N.D. Ind. Jan. 5, 2009).
The U.S. Supreme Court held in the case of Bostock v. Clayton County, 140 S.Ct. 1731 (2020) that discrimination based on a person’s sexual orientation or gender identity is discrimination based on "sex". However, not all courts agree on the reach of that ruling - see Braidwood Mgmt v. EEOC, 70 F.4th 914 (5th Cir. 2023) (which addresses the extent to which the Bostock holding is inapplicable to religious organizations).
Despite the Bostock ruling, federal agencies, effective January 20, 2025, are subject to a presidential executive order mandating official recognition of only two sexes, female and male, and must omit gender identity and related factors when administering their programs.
On January 30, 2025, Texas Governor Abbott sent a letter to all Texas state agencies quoting that executive order and noting that it is in line with the law in Texas. The Governor's letter instructs Texas state agencies to apply those principles with respect to Texas agency programs and actions.
Federal courts are dealing with legal challenges to the President's executive order, so employers should contact experienced employment law counsel if such an issue arises in the workplace.
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There is a potential problem when an employee needs medical leave and multiple laws apply.
Each law has different purposes and requirements:
Some conditions or events may involve multiple laws, depending upon the number of employees and type of condition or event involved.
As a general rule, if two or more leave-related laws apply to an employee, the employer should consider how much leave or other protection or benefit each applicable law would require for the employee, and then apply the outcome that would provide the greatest benefit to the employee.
As a way of maintaining an outside limit on the overall amount of absenteeism that might result from medical or family conditions, many companies adopt neutral absence control policies - courts will enforce such policies if the policy is evenly and consistently applied and allows for reasonable accommodation under the ADA. See the sample policy of the same name in the section of this book titled "The A to Z of Personnel Policies".
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No significant restrictions exist on use of machines to detect metal objects or to "see into" employees' bags, purses, briefcases, and other objects brought to work.
Use in conjunction with a search policy.
Allowing inspection with a metal detection device can be a condition of continued employment.
Illegal items should not be handled further - notify local authorities.
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The federal health care reform bill signed on March 23, 2010 contained an amendment to the FLSA (new section 207(r)(1)) requiring employers to give breaks for nursing.
Under that new FLSA provision, a non-exempt employee is entitled to a "reasonable break time" to express breast milk for her nursing child, each time the employee needs to express the milk, for up to one year following the child's birth.
"Reasonable break time": the statute indicates that the break must be allowed "each time such employee has need to express the milk." DOL fact sheet #73 (see link in item 7 below) states that "employers are required to provide a reasonable amount of break time to express milk as frequently as needed by the nursing mother. The frequency of breaks needed to express milk, as well as the duration of each break, will likely vary." The burden of challenging how much time a nursing mother needs for such a purpose would be on the employer. For most people, the frequency of such breaks would decline in the natural course of events, so they should not be too difficult to accommodate.
A nursing mom has the right to a private, non-restroom place where the employee will not be disturbed while expressing the milk.
Unlike ordinary coffee or rest breaks, nursing/breast-pumping breaks do not need to be compensated, so the company can have a policy requiring employees to clock out and then back in for such breaks. Employees who use their regular paid rest breaks for nursing/expression of breast milk would be paid for those breaks just like any other employees. In terms of total work time for the shift, the employee may need to either arrive earlier or stay longer to work a certain number of hours, or else experience a slight reduction in pay due to having unpaid nursing/breast-pumping breaks during the day and not being able to arrive earlier or stay later to make up the time.
Employers with fewer than 50 employees are excused from this requirement if compliance would cause them undue hardship (the burden of proving that would be on the small employer).
See the DOL fact sheet at http://www.dol.gov/whd/regs/compliance/whdfs73.htm.
Under a law enacted in 2015, for public-sector employees in Texas, no time limit applies to the right to express breast milk at the employee's workplace (see Chapter 619 of the Government Code at https://statutes.capitol.texas.gov/Docs/GV/htm/GV.619.htm). Public employers must adopt a written policy that states that the public employer supports the practice of expressing breast milk, and make reasonable accommodations for the needs of employees who express breast milk. Such an employer must allow a reasonable amount of break time for an employee to express breast milk, as often as the employee needs to do that, and must provide a secluded place, other than a multi-user bathroom, that is private and safeguarded from intrusions by other employees and the public, where the employee can express her milk. Finally, the public employer must ensure that no adverse action is taken against employees who avail themselves of their rights under the law.
The federal law notes that state laws are not preempted - thus, in Texas the following laws are important to be aware of:
Texas Health & Safety Code, Sec. 165.002. "A mother is entitled to breast-feed her baby in any location in which the mother is authorized to be."
Texas Health & Safety Code, Sec. 165.003. "(a) A business may use the designation 'mother-friendly' in its promotional materials if the business develops a policy supporting the practice of worksite breast-feeding ... ."
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The nation's main workplace safety and health law is the Occupational Safety and Health Act of 1970, which requires all private-sector employers to furnish a safe workplace, free of recognized hazards, to their employees, and requires employers and employees to comply with occupational safety and health standards adopted by the U.S. Department of Labor's OSHA division (for the main duty clause of OSHA, see 29 U.S.C. § 654).
The complete listing of DOL's OSHA regulations is found at https://www.osha.gov/laws-regs/regulations/standardnumber.
OSHA does not apply to the Texas state government or any of its agencies, or a political subdivision of Texas, such as a city or county government (see 29 U.S.C. § 652(5); also "All About OSHA", https://www.osha.gov/sites/default/files/publications/all_about_OSHA.pdf (PDF)).
Compliance with OSHA standards can not only help prevent needless workplace tragedies from accidents, but also help minimize the number of injury-related employee absences, keep workers' compensation and other insurance costs to a minimum, and promote higher productivity from employees who can feel secure that the company is looking out for their safety and can thus concentrate on doing their jobs well.
A myth about OSHA is that the regulations are too complex to understand. Although the regulations are numerous and occasionally very comprehensive and detailed, almost all of them stem directly from common sense, best practices, and what experienced and prudent employees would do in their jobs anyway. For example, the regulations require such things as wearing seat belts when driving vehicles or operating machines with seats, ensuring that safe scaffolding and fall protection are in place for employees working at heights, wearing goggles or other face protection during welding or while working with abrasive materials, using cave-in protection when working in trenches, using guards on any tools with moving blades, using guards and other protective barriers on machines with large moving parts, providing kill switches on machinery for immediate shut-off if anything goes wrong, providing adequate ventilation for workers in enclosed areas where fumes are present, protecting health-care workers from accidental pricks from needles and other sharp medical instruments, avoiding sparks near flammable materials, and so on.
Although employers have the right to take appropriate corrective action toward employees who violate known safety rules, OSHA protects an employee's right to report workplace safety concerns and violations of safety rules, and an employer that retaliates in any way against an employee who reports safety-related problems or participates in an OSHA-related investigation is subject to enforcement action in court by DOL (see 29 U.S.C. § 660(c)(1, 2)).
Non-willful violations can result in civil penalties, which become more substantial for serious or repeated violations, and willful violations can result in both civil penalties and imprisonment for those responsible, depending upon the severity of the violation.
Violations of OSHA are not necessarily enough to prove an employer's negligence as a matter of law in a civil lawsuit arising from a workplace injury, but can be used as evidence of negligence. Similarly, evidence of compliance with OSHA may not be sufficient to avoid liability in such a lawsuit, and compliance is certainly not enough to prevent a workers' compensation claim from being filed, since workers' compensation claims are generally handled without regard to issues of fault. See 29 U.S.C. § 653(b)(4).
Child labor presents special safety issues under both Texas and federal laws. Regardless of how safe a workplace may be for adult employees or how much in compliance with OSHA an employer may be, children may not perform hazardous duties or work during restricted times. A complete list of prohibited duties and restrictions on hours of work for children under both Texas and federal laws appears on the Texas child labor law poster available for free downloading at https://www.twc.texas.gov/sites/default/files/fdcm/docs/whcl-70-child-labor-poster-eng-twc.pdf (PDF). For more information on child labor laws, see the topic "Child Labor" in this outline in part II of this book.
OSHA's official PowerPoint and video presentations for workplace safety education in various industries are excellent training tools for employers and employees alike and are available for free downloading at https://www.osha.gov/training. The department's self-guided study and training tools are available on the OSHA eTools page. In addition, OSHA offers free compliance training and consultation to small and medium-size businesses - see OSHA's On-Site Consultation page for details.
The state agency in Texas with the greatest authority in the area of workplace safety is the Texas Department of Insurance, the Division of Workers' Compensation of which has enforcement responsibility for the Texas Workers' Compensation Act (for the general provisions of that law, see Chapter 401 of the Texas Labor Code). The main workplace safety resource information for Texas is on the TDI website at https://www.tdi.texas.gov/wc/safety/index.html. The Workers' Compensation Division's OSHCON Department provides workplace safety and health consultations to Texas employers, including free OSHA compliance assistance - their website is at https://www.tdi.texas.gov/oshcon/index.html.
As with many federal laws, OSHA does not preempt state laws that provide a greater degree of protection or benefit for employees - thus, in Texas the following laws are examples of state-level workplace safety and health laws (this is not a complete list of state laws affecting workplace safety and health - many occupations regulated under the Occupations Code have safety-related laws in the chapters for those occupations):
Texas Health and Safety Code, Section 81.042 - duty of some employers to report certain communicable diseases to local health authorities or to the Texas Department of State Health Services at 1-800-705-8868
Texas Health and Safety Code, Chapter 256 - Safe Patient Handling and Movement Practices
Texas Health and Safety Code, Chapter 437 - Regulation of Food Service Establishments, Retail Food Stores, Mobile Food Units, and Roadside Food Vendors
Texas Health and Safety Code, Chapter 502 - Hazard Communication Act
Texas Labor Code, Chapter 51 - Employment of Children
Texas Labor Code, Chapter 52 - Miscellaneous Restrictions
Texas Workers' Compensation Act, Texas Labor Code, Chapter 401, et seq.
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Texas and federal laws leave it up to an employer to define what constitutes full-time and part-time status within a company and to determine the specific schedule of hours.
Most companies define full-time employees as those who are regularly scheduled for a set number of hours each week (40, 37.5, 45, or similar amount), and part-time status is for anyone who is regularly scheduled to work less than that amount of time each week.
A common reason for differentiating between part-time and full-time employees is to distinguish the set of employees who receive company benefits from those who are not eligible for such benefits, or to supply a way of distinguishing between two sets of benefits for two classes of employees. It is legal to have one set of benefits, or none at all, for part-time employees, and another set of benefits for full-time employees, as long as there is equal employment opportunity within the company.
Certain benefits have specific rules, however:
Pension or retirement benefits - if a company offers such benefits, the federal law known as ERISA provides that an employee who works at least 1,000 hours in a twelve-month period must be given the chance to elect participation in the pension or retirement plan (this is known informally as the "thousand-hour rule" - see 29 U.S.C. § 1052)
Health insurance benefits - if an employer has a health insurance plan, an "eligible employee" is anyone who usually works at least 30 hours per week. The 30-hour rule is worded so that the focus is on what the employee's usual work schedule is. Here is the exact language from the statute governing that issue (Insurance Code § 1501.002(3) at http://www.statutes.legis.state.tx.us/Docs/IN/htm/IN.1501.htm#1501.002): "'Eligible employee' means an employee who works on a full-time basis and who usually works at least 30 hours a week. The term includes a sole proprietor, a partner, and an independent contractor, if the individual is included as an employee under a health benefit plan of a small or large employer. The term does not include an employee who: (A) works on a part-time, temporary, seasonal, or substitute basis; ... ." Similar language is found in the federal statute for the Affordable Care Act.
Having part-time/full-time definitions that are insufficiently specific can lead to a problem of interpretation, if the workplace gets busy for more than a week or two at a time, and employees who are hired as part-timers have to work 40 or more hours several weeks in a row. Such employees might begin to think of themselves as full-time employees and expect full-time benefits. For that reason, some employers write the definitions in a manner similar to this:
"Full-time employees are those who are regularly assigned to work at least 40 hours each week. Part-time employees are those who are regularly assigned to work less than full-time. While part-time employees may occasionally work 40 or more hours in a particular workweek, or in a series of workweeks, that by itself will not change their regular schedule. However, the company reserves the right to change the regular schedules of employees at any time. In such a case, the company will give affected employees as much advance notice as possible of their new regular schedules and will advise employees of the effect of such changes on their eligibility for company benefits."
For information on unemployment claim issues relating to part-time / full-time status, click here.
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Evaluation criteria should be job-related.
Evaluations must be frank and objective - do not be afraid to let workers know about their faults just because they happen to belong to some minority group - courts have held it to be discriminatory to fail to let minority workers know when their performance or attitude needs improvement.
Design the form to where it is detailed enough to give the needed feedback to the employee, but not so complicated that managers will be reluctant to use it properly.
Give evaluations at regular intervals.
Use measures that are as quantifiable as possible.
Discuss the evaluation with employee; have the employee sign it.
Provide a space for the employee's response / self-evaluation.
Inform the employee that signing the form does not necessarily mean agreement, but rather only receipt and a chance to review.
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One of the thorniest problems is that of the employee who refuses to sign anything, either out of fear that signing something will commit them to it (in reality, under the employment at will rule in Texas, the only thing an employee needs to do to be committed to a policy or warning is stay with the company after being advised of the policy or warning - see TEC v. Hughes Drilling Fluids, 746 S.W.2d 796 (Tex. App. - Tyler 1988, writ denied)), or out of a general lack of cooperation.
Below are some methods that employers can use to deal with such issues.
Method 1 - mandatory staff meeting:
Hold a mandatory staff meeting - everyone knows they have to be there or face the consequences of an unexcused absence (remember to count it as work time for wage and hour purposes).
Prior to the meeting, publish an agenda (e-mail; paper memo; supervisors distribute individual copies to their employees and log who gets copies) showing "distribution and discussion of new employee policy handbook / new ____________ policy" as one of the items to be covered during the meeting.
Before the meeting begins, have everyone there sign an attendance log as proof they were there.
The manager who leads the meeting should follow the agenda, especially the part about the new policy issues.
When the time comes to discuss the policy, distribute copies of the new policy to everyone in attendance - have people in charge who will personally ensure that everyone gets a copy.
Discuss the policy in as much detail as is needed to get the ideas across.
Distribute copies of receipt acknowledgement forms to everyone there and ask everyone to sign them and leave them with a designated supervisor at the end of the meeting.
Collect the receipt acknowledgement forms.
After the meeting, publish the minutes of the meeting, with special attention to the facts that the new policy issues were discussed, that everyone in attendance received a copy, and that everyone was asked to return a signed acknowledgement of receipt form.
Keep a copy of the meeting notice, the agenda, the attendance log, the policy, and the minutes of the meeting as documentation that specific employees were given reasonable notice of the new policy.
In the face of all that documentation, an ex-employee would be facing a real uphill battle for credibility if they try to claim at an unemployment appeal hearing that they were never told about a certain policy.
Method 2: publish new policies on computer at log-in - employee must click on an "acknowledgement and agree" button (something like "I have read this policy and understand that it applies to me") that appears only after the employee has opened the policy document and scrolled down to the end - doing that allows the employee's regular desktop screen to appear (your IT staff should know how to code this set-up; have the IT staff maintain reliable documentation showing how each employee went through the process).
Method 3: on warning forms, have spaces for "I agree with the reason for this warning" and "I disagree with the reason for this warning" - ask employees to choose one or the other and sign or initial their choice - if they do, they will be unable to make a credible claim that they never saw the warning (for a sample written warning, see the "Discipline" topic in this section of the book).
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Any search policy should overcome the "expectation of privacy" - let employees know that all areas within the employer's premises, all persons entering or leaving the premises, all vehicles used in the employer's business, and all belongings brought into or onto company premises or vehicles are subject to search at any time.
No use of physical force is allowed - never, ever physically force an employee to submit to a search - otherwise, your company could face civil and criminal liability for assault, battery, false imprisonment, intentional infliction of emotional distress, and/or other charges. If you reasonably suspect that an employee has someone else's property without authorization and they refuse to submit to a search, you can contact local law enforcement authorities (in this regard, see the topic on malicious prosecution).
All an employer needs to do is to make submission to searches a condition of continued employment - the policy should state that refusal to submit to a search will be grounds for discharge.
For a detailed article regarding searches at work, click here.
For a sample policy regarding searches, click here.
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A surprising number of employers report that employees have posted derogatory comments about their company or their job on the Internet, via Facebook, private blog sites, or other media such as Twitter. Such conduct is becoming increasingly common with the advent of new technologies on the Internet. Unfortunately, while the technology has improved dramatically, there has been no corresponding upswing in common sense or decency in society. Thus, the loose and often intemperate comments that people used to share with each other over drinks are now freely posted online, with the employees sometimes completely unaware that their comments will become available worldwide and be archived on countless network servers across the globe.
Bringing to mind the old saying "fools' names and fools' faces often appear in public places," many examples have appeared in unemployment claims of how unwise use of social media by employees can get them in trouble. Here are a few of those cases:
An employee obtained permission for a two-week FMLA absence, but posted pictures on a social website that were taken during that time of herself and her boyfriend on a Caribbean cruise ship, as well as a running account of the good times she was having.
A golf resort employee used his company-issued "smart phone" to chat with friends and write about his low opinions of his boss. A printout of his chat records revealed that during one staff meeting, he posted comments on a social media site about how boring and useless the meeting was.
Another employee used a social media site to blog about how much she hated her supervisor and her job. Although she used a pseudonym, she could not resist the temptation to gradually come out with enough identifying information about herself, her boss, and her company to where it became clear who she was.
Another employee was found to have posted pictures on his social media page of himself and some non-employee buddies having a drunken good time in the employer's office, after hours, when the store was supposed to be completely closed.
The general principle here would be a restatement of the old wisdom that "your business ends where my nose begins", i.e., while it is true that a person's off-duty activities are a person's own affair, that works only as long as the person does not interfere with the rights of others. In an employment context, employees are free to do what they will in their own free time, as long as what they do does not adversely affect coworkers, the employer, or the employer's clients or customers.
However, recent guidance and rulings from the NLRB indicate that employers need to be careful about blanket prohibitions of discussing company business or their jobs online. That agency takes the position that the NLRA gives employees the right to discuss the terms and conditions of their employment together, even if they do it online on their own time. Although no courts have yet ruled on this specific issue, it seems clear that what was protected activity before the advent of social media (i.e., pay discussions, complaints about working conditions, and the like) remains protected even if it takes place online. Of course, not all online activity is protected. For example, an employee's "freedom" to disparage co-workers while off-duty should be limited by the co-workers' right to be free of a hostile work environment. Similarly, unauthorized disclosure of confidential information is not protected (aside from discussions of pay and benefits between employees). It is hard to define where that line is, but employees can and should be held accountable when they cross it. It is really no different from other forms of off-duty conduct that damage workplace relationships - courts have long held employers responsible if they fail to take effective action with respect to employees who commit illegal harassment against co-workers, whether the harassment occurs on- or off-duty. In general, a company has the right under Texas law to take action against an employee for off-duty conduct if such conduct has the effect of damaging company business (remember, though, the exception for NLRA-protected activity) or work relationships.
It would be a good idea to adopt clear, written policies on computer and Internet usage and on the use of social media by employees. Sample policies on those subjects appear in "The A-Z of Personnel Policies" section of this book.
Should your company adopt such a policy, all employees should sign for copies of the policy and be trained in what it means. If any employees refuse to acknowledge the policy, see "Refusal to Sign Policies or Warnings" for ideas on how to proceed.
In Texas, Penal Code Section 33.07, "Online Harassment", covers the following criminal offenses:
third-degree felony: using a fake name or identity to create a Web page or post one or more messages on a commercial social networking site without the other person's consent and "with the intent to harm, defraud, intimidate, or threaten any person";
class A misdemeanor: sending "an electronic mail, instant message, text message, or similar communication" referencing any identifying information of another person without that person's consent, with the intent of causing recipients of such a communication to believe that the other person sent or authorized it, and with the intent to harm or defraud any person. This offense would become a third-degree felony if the one committing the offense intends to solicit a response by emergency personnel.
For a sample policy regarding computer, e-mail, and Internet usage, click here.
For a sample policy regarding the use of social media, click here.
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It is legal for an employer to monitor employees' use of the company's phones for business purposes.
Let employees and outside callers know in advance that such monitoring will take place.
Stop listening as soon as it is apparent that personal, private details are being discussed - handle from there as a disciplinary matter.
As long as one party to a conversation knows it is being recorded, it is legal to record it (this applies to in-person recordings as well).
Be on guard against surreptitious recording of conversations in the workplace - it is legal for an employer to prohibit possession or use of recording devices in the workplace.
Frank B. Hall Company v. Buck case - a company was hit with a defamation lawsuit after bad statements were made in the context of job reference calls.
For more details, click here.
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Vacation leave is not required under Texas law - sick and/or parental leave is also not required, unless it would be a reasonable accommodation under disability- or pregnancy-related laws.
If granted, such leave can be paid or unpaid.
The employer can impose a cap on such leave and can put substantial eligibility strings on vacation, sick, or parental leave.
Paid vacation or sick leave is usually accrued at a set amount per month or year - parental leave is usually just a set amount per parental event (birth or adoption of a child, or placement of a foster child in the home).
It is extremely important to set the policy down clearly in writing, since the Texas Payday Law will enforce leave pay according to the terms of the written policy.
Things to cover: amount accrued each month/year; whether leave can be carried over from year to year, and if so, how much; what approval is needed to take leave; how much advance notice is needed to take leave; return to work status reports; what happens when paid leave runs out, but the employee is still on leave; whether paid leave advances will be granted, and if so, under what circumstances and with what repayment obligations; what happens to accrued leave balances when an employee leaves the company.
A way to keep the accrued balance from exceeding "x" amount of hours would be to draft the policy in such a way that it would be clear that once an employee reaches an accrued total of "x" hours, no further accruals will occur, and that the maximum amount of available sick leave at any given time will be "x" hours.
These kinds of leave are sometimes lumped together into one category called "personal time off" (PTO).
Do not count paid leave hours toward "hours worked" for overtime or FMLA eligibility purposes.
Just like other forms of paid leave, funeral or bereavement leave is not mandatory - some companies offer this as a separate category of leave, others include it within vacation or sick leave, or else include it as a qualifying reason for personal time off - this kind of leave is usually limited to three days per year or so, if offered - employers are allowed to ask employees to document the need for such leave, but it is a good idea to try to be as sensitive and accommodating as circumstances will allow.
See also: Vacation and sick leave policy checklist and sample policy
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Same basic rules apply as for telephone monitoring - if only video is recorded, notice and consent are not mandatory (but are a good idea - see below) - if audio is also recorded, notice and consent are required (for customers, place a notice on the door that the premises are subject to video monitoring).
To avoid grumbling about covert surveillance and possible bad publicity, go ahead and just let employees know that video monitoring of certain areas will take place and get their written consent.
Never attempt to videotape areas where it is known that employees may be undressed on a routine basis (restrooms, dressing rooms).
Only authorized personnel should ever view surveillance tapes - defamation and invasion of privacy suits can result if tapes are shown to unauthorized persons.
For a sample video surveillance policy/consent form, click here.
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Assuming that an employee has not already voted in early voting, the employee is entitled to take paid time off for voting on election days, unless the employee has at least two consecutive hours to vote outside of the voter's working hours - see Sections 276.001 and 276.004 of the Texas Election Code.
No Texas court cases address those statutes. The following four Texas Attorney General opinions address the matters of time off to vote and pay for such time:
GS-6242 (1944) - an employee is entitled to a reasonable amount of time off from work in order to vote, and the employer can even prescribe what hours the employee will have off, as long as the time is reasonable and sufficient to allow the employee to vote, but the provision requiring the employer to pay the employee for the time so taken is unconstitutional. This latter holding was overruled by AG opinion PD-1475 in 1952 - see below.
PD-1475 (1952) - based upon a decision of the U.S. Supreme Court in Day-Brite Lighting, Inc. v. State, 72 S.Ct. 405 (1952), the Attorney General overruled in part the prior opinion in GS-6242 by holding that the statute in question is a valid exercise of the state's police power, and it does not violate either the Texas or U.S. Constitution to require an employer to pay employees for time taken off from work for the purpose of voting.
PD-1532 (1952) - this ruling clarified PD-1475 by holding that paid voting leave is required only if the employee does not have sufficient time to vote outside his working hours (at least two consecutive hours).
CM-0053 (1967) - the law does not require an employee to be given paid time off to vote while working overtime hours that he had voluntarily requested.
Bottom-line considerations:
Let employees have at least two hours off to vote on an election day (unless they have already voted under early voting procedures).
Such time off needs to be paid to the extent that it cuts into the employee's normal working hours (PD-1532).
Such time off does not need to be paid if the two hours are available outside of normal working hours (PD-1532).
If the time is taken off from mandatory overtime, the time off should be paid at the rate that would have applied to the time so missed (CM-0053).
If the time is taken off from optional overtime voluntarily requested by the employee, the time off does not need to be paid, since the time off would be outside of normal working hours and is time that the employee voluntarily chose to spend working rather than voting (CM-0053).
In general, an employer can satisfy the law by allowing schedule flexibility on the day of voting and allowing the employee to make up any lost time on other days of the week. Reasonable accommodation is always encouraged.
Attendance at state or local political conventions is job-protected leave, but such time off does not have to be paid - Section 161.007(b) of the Texas Election Code provides that "penalty" does not include "a deduction for the actual time of absence from work."
No written authorization is needed to not pay an hourly employee for time not worked while attending a political convention, but if unpaid convention leave is deducted from an employee's salary, such a deduction would need to be authorized by the employee in writing under the Texas Payday Law (see item 12 in the sample wage deduction authorization agreement in this book).
Deductions for unpaid convention leave from the salary of an exempt salaried employee would be more complicated - full days missed could be deducted on a pro rata basis, but not partial days, and any such deductions would have to be authorized by the employee in writing as noted immediately above - for details on the DOL regulations pertaining to deductions from an exempt employee's salary, see "Salary Test for Exempt Employees" in this book.
Deductions from available paid leave balances are allowed - see "Salary Test for Exempt Employees" in this book.
If an employee asks for time off to vote, the employer would be entitled to ask the employee for documentation that the employee spent the time off for the purpose requested. Whether the employer asks for such proof would be up to the employer, but the employer should be consistent – if one employee is asked for proof for such requests, everyone should be asked to do the same.
As a general matter, a good recommendation is to let employees know they are on the honor system and not make them go to the trouble of showing proof. After all, if employees fail to use the voting time wisely, i.e., do something else instead of voting, they are really only hurting themselves.
Employees who believe they are owed pay for any of the time they took off to vote would have the right to file a wage claim under the Texas Payday Law with TWC, or they could report the issue to appropriate law enforcement authorities in their county, which could review the situation and determine whether any action is needed under Section 276.004 of the Election Code (see https://statutes.capitol.texas.gov/Docs/EL/htm/EL.276.htm#276.004. The latter remedy is outside TWC’s scope of authority.
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Regarding the legality of a policy barring weapons at work, preventing possession of weapons while in company vehicles or on company business, or even restricting an employee from carrying a concealed weapon during work hours in his or her own car that is used for company business, the considerations below may be relevant.
The Constitutional protection afforded to U.S. citizens in the Second Amendment does not apply to disputes or controversies between private citizens, so a company would not be constrained under the U.S. Constitution from enforcing such a policy.
The Texas Constitution would also not apply in such a way.
There is no federal or Texas law that would prohibit a company from enforcing such a policy and insisting that employees follow it as a condition of employment.
A weapons policy should be specific enough to cover the general categories that include the usual implements of combat, mayhem, and personal violence (firearms; clubs; sharp and/or pointed objects; explosive or incendiary devices; and noxious, caustic, or toxic chemicals, for example), and may prohibit anything that the employer believes could be used by someone to inflict harm upon another.
The policy may also cover ordinary objects that are used as weapons against others.
In most cases, the property right of an owner or custodian of business premises to control who and what comes onto the property overrides the right of a person to carry a weapon onto the premises - that applies even to a holder of a "concealed carry" license.
A Texas statute (Labor Code Section 52.061) allows CCL holders and those who legally possess firearms to have such firearms and ammunition inside their own locked vehicles parked on their employer's property, but that does not extend to vehicles parked somewhere else. The Texas Attorney General's Office has explained that statute in Opinion No. GA-0972.
It would be best, from the standpoints of enforceability, public relations, and morale, to restrict the policy's coverage to the minimum extent needed for safety and other business considerations. However, if the employee violates a weapons law, even while off-duty, in such a way that it damages the company's reputation, goodwill, or business standing in the community, or causes his work to suffer (absences due to answering the charge), such a violation could legitimately be the basis for appropriate corrective action.
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Texas, unlike other states, does not require an employer to have workers' compensation coverage.
Subscribing to workers' compensation insurance puts a limit on the amount and type of compensation that an injured employee may receive - the limits are set in the law.
Being a "non-subscriber", i.e., going "bare" or without coverage, leaves an employer open to personal injury lawsuits from employees who are injured on the job - the damages and attorney's fees are almost unlimited - in addition, certain defenses available in most personal injury lawsuits, such as assumption of the risk, contributory negligence, "last clear chance", and co-worker negligence, are not available to a non-subscriber in a job injury case.
At hire, notify each new hire of coverage (Notice 6 (PDF)) or non-coverage (Notice 5 (PDF)) and post the same notice along with other required workplace posters - also, let each new hire know that they have five days to elect to waive their right to workers' compensation benefits and retain their common-law right to sue the employer for a work-related injury - the notice must let the employee know that if they give up workers' compensation, they give up the right to receive medical or income benefits under the workers' compensation law (the Division of Workers' Compensation at the TDI has a form available for that purpose at https://www.tdi.texas.gov/forms/dwc/newempnotice011.pdf (PDF)).
If an employer discontinues its workers' compensation coverage, it must inform employees and the Workers' Compensation Division of the Texas Department of Insurance as soon as possible via a Form DWC005 (PDF).
Under workers' compensation law, an injury or illness is covered, without regard to fault, if it was sustained in the course and scope of employment, i.e., while furthering or carrying on the employer's business; this includes injuries sustained during work-related travel.
Injuries are not covered if they were the result of the employee's horseplay, willful criminal acts or self-injury, intoxication from drugs or alcohol, voluntary participation in an off-duty recreational activity, a third party's criminal act if directed against the employee for a personal reason unrelated to the work, or acts of God.
Injured workers must file injury reports within thirty days of the injury, must appeal the first impairment rating within 90 days of its issuance, and must file the formal paperwork for the workers' compensation claim within one year of the injury. If the work-related nature of the injury or illness was not immediately apparent, those deadlines run from the date on which the employee should have known the problem was work-related.
Three main types of benefits: medical benefits, income benefits, and death benefits - each type is statutorily defined and limited.
The law places a heavy emphasis on return-to-work programs, since all studies show that recovery is faster and more efficient if an employee has some kind of useful work to do.
An employee's refusal of suitable light-duty work can stop the payment of workers' compensation benefits.
A job injury can involve other laws as well, such as the FMLA and the ADA - in multiple-law situations, whatever law provides the greatest protection should be applied (see "Medical Leave-Related Laws").
Chapter 451 of the workers' compensation law prohibits discrimination or retaliatory action against employees who have filed workers' compensation claims or are somehow in the process of doing so - stray remarks can be harmful to a company's legal position in a Chapter 451 lawsuit, so never let anyone with your company be heard talking about a claim in terms of it being a problem, since any negative remarks can be twisted and spun to make the employer look as if it intended to retaliate against the claimant.
Design your paid leave policies to avoid "benefits stacking", i.e., the combining of workers' compensation and leave-related benefits in such a way that the employee ends up getting more than 100% of their regular wage each week - for a sample policy, see "Limits on Leave Benefits" in "The A to Z of Personnel Policies" in this book.
Employees on workers' compensation do not have to be allowed to continue accruing leave or other benefits, but should be treated at least as favorably as other absent employees in that regard.
Loss of health insurance benefits while on workers' compensation leave is a COBRA-qualifying event.
If a workers' compensation claimant files an unemployment claim, he or she will be disqualified from unemployment benefits unless the workers' compensation benefits are for "permanent, partial disability", which translates to "impairment income benefits" under the current law - in addition, the claimant's medical ability to work would be in question and should be raised by the employer as an issue in its response to the unemployment claim.
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(This first appeared in Texas Business Today, 2nd/3rd Quarters 1998 issue. Since then, it has appeared on a lot of company bulletin boards and employee break room walls. The last five were added in 2010.)
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IRS Position on Social Security Numbers
Risk of Payroll Audits
Little-Known Exception
Does Anything Trump That Exception?
So, What to Do?
Final Potential Fly in the Ointment
IRS Position on Social Security Numbers Top of Page
Circular E, Employer's Tax Guide (Internal Revenue Service Publication 15) states the following regarding Social Security numbers:
4. Employee's Social Security Number (SSN)
"You're required to get each employee's name and SSN and to enter them on Form W-2. This requirement also applies to resident and nonresident alien employees. You should ask your employee to show you their social security card. The employee may show the card if it is available.
Don't accept a social security card that says "Not valid for employment." An SSN issued with this legend doesn't permit employment.
You may, but aren't required to, photocopy the social security card if the employee provides it. If you don't provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. See Pub. 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN.
...
Correctly record the employee's name and SSN. Record the name and SSN of each employee as they're shown on the employee's social security card. If the employee's name isn't correct as shown on the card (for example, because of marriage or divorce), the employee should request an updated card from the SSA. Continue to report the employee's wages under the old name until the employee shows you the updated social security card with the corrected name."
Risk of Payroll Audits Top of Page
Because of the potential for fines ($50 for each W-2 with an incorrect social security number), it is wise to periodically audit your payroll records to ensure that Social Security numbers are correct. The Social Security Administration (SSA) provides assistance with SSN verification. You may request verification by phone, paper, magnetic tape (allow 30 days' response time), or online (immediate response available, depending upon your Internet connection, for up to ten names and SSNs, while larger lists of up to 250,000 names and SSNs can be uploaded in batch files and verified by the next business day). Up to five SSNs can be verified over the phone toll-free at 1-800-772-6270. Up to 50 SSNs can be verified via paper lists by contacting your local Social Security office. Full information about the SSN verification program is available on the SSA's Web site at https://www.ssa.gov/employer/ssnv.htm. In the absence of an Internet connection, employers can request information from SSA's headquarters by sending a letter to:
Social Security Administration
OSR OPR, DDSE, Client Identification Branch
3-H-16 Operations Building
6401 Security Blvd.
Baltimore, MD 21235
Fax: (410) 966-9439
Requests must include the following information:
Little-Known Exception Top of Page
As with almost everything affected by laws, there is an exception to the apparent iron-clad rule cited in the above guidance (without exceptions, how else would we keep lawyers off the streets?). Every once in a while, you may encounter a would-be employee who, for one reason or another, not only does not have a social security card, but refuses to show you one, or else claims not to have a social security number at all. Such employees generally fall into one of three categories: 1) those who do not accept the prevailing viewpoint that one needs a social security number in order to work in this country and who resent being made to do something they did not know about before; 2) those who are afraid that having a number will enable the government or private investigators to track them for various purposes such as child support enforcement; and 3) those who are true conscientious objectors and believe in principle that it is wrong for a government to try to number and track its citizens in such a way (for the special subset of people who have religious objections, see the final paragraph of this article). The categories can sometimes be very difficult to tell apart.
The IRS actually provides a procedure for employers and employees to use if such a situation occurs and the employer still wishes to hire the individual; the procedure is described in detail on its Web site at https://www.irs.gov/individuals/international-taxpayers/filing-forms-w-2-and-1042-s-without-payee-tins ("Filing Forms W-2 and 1042-S Without Payee TIN's"), and involves the use of an affidavit. While the IRS has no official form for such an affidavit, one form available for such a purpose is called "Form P-1, Reasonable Cause Affidavit by Payor For Not Obtaining Payee's Identifying Number" (a privately-developed form findable with an Internet search engine). Properly filled out and signed by the employer and employee, it serves as a way to request a release from the penalty otherwise provided for an employer under IRS Code Section 26 U.S.C. 6724(a). The employer certifies that it attempted to get the number, and the employee certifies that he or she declined to give the number. (Of course, the employee is thereby potentially submitting himself or herself to the tender mercies of the IRS, but that is a story that is outside the scope of this article.)
The employee might even cite IRS Code Section 26 U.S.C. 3402(p) and Treasury Regulation 26 C.F.R. Section 31.3402(p)-1 in declining to fill out a form W-4. If that occurs, and you hire him or her anyway, simply include an affidavit as discussed above with any required returns to the IRS.
Does Anything Trump That Exception? Top of Page
Despite the exception arising from the "voluntary" nature of the W-4, there is one law that presents a seemingly tougher obstacle for those without SSNs or who wish not to disclose it: the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), a federal law better known by its popular name as the New Hire Reporting Act. 42 U.S.C. § 653a(b)(1)(A) requires employers to report all new hires and rehired employees to a designated state agency (Texas Employer New Hire Reporting Operations Center). The report must include the employee's SSN; current legal guidance from the Texas Attorney General's Office and the U.S. Department of Health and Human Services, the agencies responsible for the state and national new hire registries, respectively, does not address any exceptions regarding SSNs, nor does it address the interaction of the new hire reporting statute with the Religious Freedom Restoration Act (42 U.S.C. § 2000bb) and the case law thereunder. The state law enacted to enforce the federal law is found in the Texas Family Code Sections 253.101 - 253.104. Strict penalties exist for an employer's failure to comply with that law. For more details on new hire reporting, see the article in this book titled "New Hire Reporting Laws". For information on the issue of employees without SSNs, see "Employees Without Social Security Numbers" (the next article in this book).
So, What to Do? Top of Page
To put all this together, if a person showed a Social Security card at I-9 time that the Social Security Administration later says contains an invalid SSN, the employer would have a good-faith suspicion that the Social Security card shown for the I-9 process was not genuine. However, the I-9 requirements can be satisfied with something other than a Social Security card, i.e., with one of the documents contained in "List C" of the I-9 as establishing authorization to work in the United States. If the employee shows what appears to be another valid document from List C, that would cure the defect caused by an invalid Social Security card. However, and this is very important, it would still not cure the defect caused by an invalid SSN for IRS and state unemployment tax purposes. The employer cannot simply continue to report wages under a SSN that is known to be invalid. A similar dilemma occurs if the employee does not furnish any SSN at all for reasons discussed above. In all such cases, the law does not present any obstacle to refusing to hire someone who refuses or fails to supply a correct SSN (other than those who are without SSNs due to religious reasons - see the final paragraph below).
The bottom line is that an employer is entitled to require as a condition of continued employment that all employees with social security numbers furnish them correctly, and in the situation of an invalid SSN, the employer would be entitled to insist that the employee furnish proof that he or she has a valid SSN before allowing the person to return to work, as long as all workers are subject to the same requirement, regardless of nationality or citizenship status. In the case of incorrect SSNs, it would be advisable for the employer to tell the employee about the problem, explain that the company cannot comply with federal and state wage reporting and payroll tax laws without valid SSNs for employees, give the employee instructions on how to contact the SSA (see https://www.ssa.gov/number-card), and give the employee a reasonable amount of time to do so before making a temporary suspension from employment into a permanent discharge. In the case of employees who refuse outright to furnish a social security number, and the employer decides not to hire the employee, the employer could consider taking advantage of its right not to explain why an applicant is not being hired. To explain would only invite legal action. If the employer does decide to hire the employee anyway, it would need to submit an affidavit (such as a completed "Form P-1") along with any reports the IRS requires regarding payroll-related taxes. An employee who refuses to complete the employee section of such an affidavit can be warned and then discharged for continued refusal to cooperate. For more on the issue of employees without SSNs, see "Employees Without Social Security Numbers".
Final Potential Fly in the Ointment Top of Page
If the employee is not hired, and the employee has cited religious objections to having a social security number, an employer with 15 or more employees may have a risk of an EEOC claim for an alleged failure to accommodate an employee's right to practice a legitimately-held religious belief. Despite a lack of court decisions on the new hire reporting laws, it is likely that a refusal to hire based upon reluctance to run afoul of the new hire reporting requirements would pass legal muster. For much more on this issue, see "Employees Without Social Security Numbers". In any such case, the employer should definitely consult a qualified employment law attorney regarding the matter.
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Reasons for Requesting a Social Security Number
W-4 and W-2 Forms
I-9 Form
New Hire Report
Religious Freedom Issues
Court Decisions on Religious Freedom and Child Support
Lack of Clear Administrative Guidance
Refusal to Hire Due to Lack of SSN
Conclusion
Although almost all employers can go years without seeing this situation, and most employers never encounter it at all, every once in a while, an employer might run across an applicant or a new hire who claims not to have a social security number, or else refuses to disclose it. Now, the situation could be as simple as that of a person who is newly arrived in this country and does not yet have a social security number, in which case the employer can give the applicant, if hired, or the new hire the basic information on how to apply to the Social Security Administration for a number (see https://www.ssa.gov/number-card), and proceed with the I-9 process as usual (see "I-9 Requirements"). However, the situation is more complex if the applicant / new hire claims not to have a social security number, or refuses to disclose it, because of a religious or other form of conscientious objection.
It is certainly legal to hire someone who is authorized to work in this country, but who does not have a social security number or who chooses not to disclose it. In such a case, as noted in the article "Verification of Social Security Numbers", the employer has the right to require the employee to complete an affidavit such as a "Form P-1" ("Reasonable Cause Affidavit by Payor For Not Obtaining Payee's Identifying Number" (a privately-developed form findable with an Internet search engine)) or similar document that the employer will need to excuse its failure to obtain a social security number for IRS (whether such an affidavit is sufficient to excuse non-disclosure of the SSN on a new hire report is an open question, at least in the situation of religious objectors - see below). Employers do not face any particular legal issues for discharging an employee who refuses to complete such a form, other than perhaps an unemployment claim, the outcome of which would depend upon whether the employer could prove that refusal to complete the employee portion of the form amounted to work-related misconduct and that the employee either knew or should have known they could be fired for such a reason.
The complicated issue is whether the employer can legally refuse to hire a conscientious SSN objector or discharge a new hire who is in that category, based solely upon that fact. That issue, in turn, depends upon a number of factors, including the reason for the conscientious objection and the number of employees in the company (the religious discrimination laws do not apply to employers with fewer than 15 employees). Conscientious objectors fall into two main categories: those with religious objections, and those without. The simpler of the two situations is that of someone who objects to having a social security number on general principles not involving religious conviction. There is no law or legal doctrine in Texas that affords any kind of job protection for such an individual. In contrast, the situation of a person who objects to having a social security number for religious reasons involves complex legal issues, and the rest of this article will focus on that situation.
Reasons for Requesting a Social Security Number Top of Page
Many employment-related laws call for new hires and other employees to furnish a social security number to the employer, and SSNs are often requested in a number of other situations that affect the workplace - following is a list of the most common situations in which SSNs will be requested:
The situations in which the employer feels the greatest need to get the social security number include the W-4, the I-9, and the new hire report. Here are the legal issues of which employers should be aware for each of those forms:
W-4 and W-2 Forms Top of Page
As noted in the article "Verification of Social Security Numbers", employers do not have to supply the employee's SSN on the W-4 form. However, employers may face a monetary penalty from the IRS for failing to include the employee's full and correct name and SSN on W-2s and other wage reports. To apply for a waiver of the penalty if the employer decides to keep the employee, employers should have the employee who claims not to have an SSN (or declines to give it) complete their portion of an affidavit to that effect, such as the previously-described "Form P-1" (see "Verification of Social Security Numbers").
Section 4 of IRS Publication 15 (Publication 15) contains the following information relevant to the SSN issue:
4. Employee's Social Security Number (SSN)
"You're required to get each employee's name and SSN and to enter them on Form W-2. This requirement also applies to resident and nonresident alien employees. You should ask your employee to show you their social security card. The employee may show the card if it is available.
Don't accept a social security card that says "Not valid for employment." An SSN issued with this legend doesn't permit employment.
You may, but aren't required to, photocopy the social security card if the employee provides it. If you don't provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause. See Pub. 1586, Reasonable Cause Regulations & Requirements for Missing and Incorrect Name/TINs, for information on the requirement to solicit the employee's SSN.
...
Correctly record the employee's name and SSN. Record the name and SSN of each employee as they're shown on the employee's social security card. If the employee's name isn't correct as shown on the card (for example, because of marriage or divorce), the employee should request an updated card from the SSA. Continue to report the employee's wages under the old name until the employee shows you the updated social security card with the corrected name.
IRS individual taxpayer identification numbers (ITINs) for aliens. Don't accept an ITIN in place of an SSN for employee identification or for work. An ITIN is only available to resident and nonresident aliens who aren't eligible for U.S. employment and need identification for other tax purposes. You can identify an ITIN because it is a nine-digit number, formatted like an SSN, that starts with the number "9" and has a range of numbers from “50–65,”“70–88,”“90–92,” and “94–99” for the fourth and fifth digits (for example, 9NN-7N-NNNN). For more information about ITINs, see the Instructions for Form W-7 or go to IRS.gov/ITIN."
I-9 Form Top of Page
Although there is a space in section 1 of the I-9 form for the employee's SSN, there is no requirement on an employer that it get that space filled in. Here is what the U.S. Citizenship and Immigration Services bureau (USCIS) of the U.S. Department of Homeland Security says about that in its current instructions for employers for the I-9 form:
Employees may voluntarily provide their Social Security number, or leave this field blank. However, if you are enrolled in E-Verify, your employees must provide their Social Security number.
Employees who have not yet received their Social Security number and who can satisfy Form I-9 requirements may work while awaiting their Social Security number. Have them enter their Social Security number in Section 1 as soon as they receive it.
You cannot ask employees to provide a specific document with their Social Security number on it. To do so may constitute unlawful discrimination.
Source: M-274, I-9 Handbook for Employers (https://www.uscis.gov/i-9-central/form-i-9-resources/handbook-for-employers-m-274/30-completing-section-1-employee-information-and-attestation (PDF))
In addition, although a social security card is listed as one of the items in List C on page 3 of the Form I-9 that an employee can show to prove employment authorization, it is only one of several such documents. USCIS cautions that conditioning the I-9 process on showing of a social security card can possibly subject an employer to a charge of "document abuse", which amounts to a form of employment discrimination. Thus, an employer should not insist on seeing a social security card in connection with the I-9 employment verification process.
New Hire Report Top of Page
The issue is trickiest when it comes to the new hire report that employers must submit to the state new hire directory within the first twenty (20) days after hire. The federal statute (42 U.S.C. § 653a(b)(1)(A)) and the regulation adopted by the Texas Attorney General's office (1 T.A.C. § 55.303) both specify that the employer must include the SSN as one of six data elements. Interestingly, both provisions also note that the reporting should be done with a copy of the W-4 form or its equivalent. If, as noted above, the SSN may not be required when completing the W-4, can the new hire reporting statute nonetheless insert such a requirement? Another question is what weight should be given to a person's religious belief that having a social security number is wrong? Those questions are not definitively answered by any materials currently available from either state or federal government agencies (see "Lack of Clear Administrative Guidance" below for details).
Religious Freedom Issues Top of Page
Following a decision by the U.S. Supreme Court in the case of Employment Division v. Smith, 494 U.S. 872 (1990), Congress passed a law in 1993 known as the Religious Freedom Restoration Act (42 U.S.C. 2000bb). Its purpose was to reverse the Supreme Court's holding in Smith that facially-neutral legal requirements and restrictions were permissible as long as they applied equally to all, regardless of religious faith or lack thereof. The RFRA specifically provided that the legal standard for restrictions on a person's exercise of religious faith should be restored to the pre-Smith holdings in Sherbert v. Verner (374 U.S. 398 (1963)) and Wisconsin v. Yoder (406 U.S. 205 (1972)), both of which held that the government must prove two things to defend a requirement or restriction that substantially burdens a person's sincerely-held religious belief: 1) that the government action is in furtherance of a compelling state interest; and 2) that the action is the least-restrictive means of enforcing that interest. Thus, the RFRA addressed the balancing test that must occur before Congress or a state may infringe upon a person's free exercise of religious faith.
There is a real potential for a conflict between the two federal statutes in question, 42 U.S.C. § 2000bb (the RFRA) and 42 U.S.C. § 653a(b)(1)(A) (the "New Hire Reporting Law" requiring employers to report an employee's SSN to a designated state agency). No U.S. court has yet directly addressed a situation involving the interplay between the two statutes. Thus, one must speculate on what the outcome might be. The RFRA predates the new hire reporting law; which law came last is sometimes taken into account in conflict of law situations, but the effect is not always the same. As a general rule, though, the most recent law is given precedence, all other factors being equal, since a court usually presumes that the lawmakers were aware of their prior enactment and would have included a saving provision in the latter statute if they had intended for the previous statute to be undisturbed. However, there is likely no need to get into that kind of analysis, since the new hire law is extremely specific in nature, and the RFRA does not attempt to address PRWORA's subject matter, but instead affords a general backdrop for constitutional analysis of federal and state statutes and regulations. Although the Supreme Court ruled in Boerne v. Flores, 521 U.S. 507, 117 S.Ct. 2157, 138 L.Ed.2d 624 (1997), that the RFRA was unconstitutional as applied to states and local governments, the Ninth Circuit in Sutton v. Providence St. Joseph Medical Center, 192 F.3d 826 (9th Cir. 1999), ruled that the RFRA is constitutional as applied to the federal government.
The RFRA makes it clear that a government action that infringes on a person's religious liberty interest must pass certain tests if it is to be considered constitutional. Here is the statute in question:
§ 2000bb. Congressional findings and declaration of purposes
(a) Findings
The Congress finds that—
(1) the framers of the Constitution, recognizing free exercise of religion as an unalienable right, secured its protection in the First Amendment to the Constitution;
(2) laws "neutral" toward religion may burden religious exercise as surely as laws intended to interfere with religious exercise;
(3) governments should not substantially burden religious exercise without compelling justification;
(4) in Employment Division v. Smith, 494 U.S. 872 (1990), the Supreme Court virtually eliminated the requirement that the government justify burdens on religious exercise imposed by laws neutral toward religion; and
(5) the compelling interest test as set forth in prior Federal court rulings is a workable test for striking sensible balances between religious liberty and competing prior governmental interests.
(b) Purposes
The purposes of this chapter are—
(1) to restore the compelling interest test as set forth in Sherbert v. Verner, 374 U.S. 398 (1963), and Wisconsin v. Yoder, 406 U.S. 205 (1972), and to guarantee its application in all cases where free exercise of religion is substantially burdened; and
(2) to provide a claim or defense to persons whose religious exercise is substantially burdened by government.
The statute summarizes what used to be the prevailing case law in cases involving infringements of religious liberty. Basically, in order to justify such an infringement, the government must show a compelling interest in doing so. Only a compelling government interest (in the case law, the government interest is equated with "public interest", i.e., the interest of the people at large) can justify going against a fundamental right guaranteed under the Constitution. The burden of proving such an interest has always been on the government. These principles certainly come to light in the two court cases cited in the RFRA provision in question, relevant selections from which appear below:
Sherbert v. Verner, 374 U.S. 398, 406 (1963) (an unemployment insurance case): "We must next consider whether some compelling state interest enforced in the eligibility provisions of the South Carolina statute justifies the substantial infringement of appellant's First Amendment right. It is basic that no showing merely of a rational relationship to some colorable state interest would suffice; in this highly sensitive constitutional area, 'only the gravest abuses, endangering paramount interest, give occasion for permissible limitation,' Thomas v. Collins, 323 U.S. 516, 530, 65 S.Ct. 315, 323, 89 L.Ed. 430. ... For even if the possibility of spurious claims did threaten to dilute the fund and disrupt the scheduling of work, it would plainly be incumbent upon the appellees to demonstrate that no alternative forms of regulation would combat such abuses without infringing First Amendment rights" (ibid at 407).
Wisconsin v. Yoder, 406 U.S. 205, 235 (a compulsory school attendance case): "... courts must move with great circumspection in performing the sensitive and delicate task of weighing a State's legitimate social concern when faced with religious claims for exemption from generally applicable education requirements. ... and it was incumbent on the State to show with more particularity how its admittedly strong interest in compulsory education would be adversely affected by granting an exemption to the Amish" (ibid at 236).
However, in the case of U.S. v. Lee, 455 U.S. 252, 102 S.Ct. 1051 (1982), the U.S. Supreme Court ruled that the exemption from SSN taxes that applies to self-employed individuals with religious objections to participation in the social security system (26 U.S.C. § 1402(g)) does not apply to employers or employees with similar religious objections.
An argument that the new hire reporting statute is not a statute that would have to pass muster under the RFRA, if push ever came to shove for a religious objector to SSNs, would be unlikely. The real question is, would the government's purpose in enacting the SSN reporting requirement be compelling enough to meet the standards under Verner and Yoder? Most commentators on the new hire reporting requirement recognize two main purposes for the law: 1) to better enable the federal and state governments to track across state lines non-custodial parents who for one reason or another fail to satisfy their court-ordered child support obligations; and 2) to enable state and federal agencies to detect, discourage, and deal with benefit fraud under various government programs. Now, as important as the second purpose is, it is doubtful that it would be enough to pass the compelling interest test as explained in RFRA and in the Verner and Yoder cases. However, the public interest behind that first purpose is much more compelling, and has been used as a rationale for many other enactments on a state and federal level. It is why, for example, that in the order of priority for garnishments and wage attachments, child support has a greater priority than anything except for a bankruptcy court garnishment (even there, the bankruptcy trustee must give child support garnishments priority over almost everything else when disbursing funds to creditors of the estate) or a prior IRS tax lien. For guidance on how compelling the child support interest is in relation to an infringement of religious liberty, a court would look to, among other things, the intent and findings of Congress when it passed the new hire reporting statute.
The only provision in PRWORA (Public Law 104-193) dealing directly with a Congressional finding on the child support issue seems to be in Section 101 of Title I, in which the following finding appears:
(4) In 1992, only 54 percent of single-parent families with children had a child support order established and, of that 54 percent, only about one-half received the full amount due. Of the cases enforced through the public child support enforcement system, only 18 percent of the caseload has a collection.
The statute does not list child support as a "compelling government interest", although it characterizes the goal of ensuring the financial self-reliance of alien immigrants as such. It characterizes the goal of reducing child pregnancy and out-of-wedlock births as a "very important government interest", which might not satisfy the tests in the RFRA.
Court Decisions on Religious Freedom and Child Support Top of Page
An essential task here is to analyze the case law regarding free exercise and compelling state interest issues. The cases that deal with this subject seem to focus on four main issues:
The threshold questions are the first two, but once those have been established by the plaintiff or defendant, the second two questions must be answered in the affirmative by the government in order for the government action to be enforceable.
The case that turns up time after time in other free-exercise child support cases is Hunt v. Hunt, 162 Vt. 423, 648 A.2d 843 (Vermont 1994), in which the Vermont Supreme Court held that the state has a compelling interest in enforcing child support obligations, and hence affirmed the child support order even though it produced a burden on the father's free exercise of his religious beliefs, but vacated the contempt order against the father because the state failed to prove that contempt was the least-restrictive means of enforcing the obligation.
Other cases that recognize a compelling state interest in enforcing child support obligations include Murphy v. Murphy, 574 N.W.2d 77, 80 (Minn.App. 1998); Walton v. Walton, 789 S.W.2d 64, 67 (Mo.App. 1990); Berry v. Berry, 769 P.2d 786, 787 (Or.App. 1989); In re Marriage of Crockarell, 631 N.W.2d 829, 835 (Minn.App. 2001); and Rooney v. Rooney, 669 N.W.2d 362, 370 (Minn.App. 2003). There were others as well, but they did not particularly address religious freedom issues.
The Texas Attorney General's office, which enforces the new hire reporting laws and has a major division devoted to enforcing child support obligations, takes the position that child support is an important state interest (see Op. Tex. Att'y Gen. No. DM-0384 (1996) (however, the same opinion notes that a child support compliance requirement must not interfere with the fundamental right to marry)). This author has not found any Texas cases directly addressing the sort of issues one finds in the Hunt case.
Regarding the SSN requirement in the new hire reporting law, based upon the case law and other indications such as the high priority given to child support withholding orders in wage garnishment situations, it seems likely that a court would find that there is a compelling state interest behind the law. The real battle, in this author's view, would be over whether the government could meet its burden of showing that the SSN requirement is the least-restrictive means of enforcing that interest. Much would depend upon whether the government could document its opinion, as might be the case with studies showing that the SSN is the most universal identifier and that forcing the government to use some other means of identifying and "tagging" support-delinquent parents would be too great a burden on the public. Such an argument failed in two cases dealing with state requirements that Amish horse-drawn carts had to display an orange, triangular slow-moving vehicle plaque on the back of each cart on the road. The courts in both cases ruled that the state had failed to offer any studies establishing that the Amish alternative of a white reflective stripe across the back would have left the automobile-driving public less safe. Thus, the states failed the least-restrictive means test in that situation.
How the least-restrictive test would work out with the SSN requirement is unknown. The author is unaware of any case directly on point here.
Lack of Clear Administrative Guidance Top of Page
This area of the law is so relatively new that there is a dearth of authoritative government rulings, opinion letters, and other forms of official guidance. All of the agency handbooks for employers regarding the new hire laws are still at the "here's what the law says" stage, and all of the references point back to the same untested statutes. "Untested" in this context means no published court opinions directly on point, especially at the appeals court level. What seems to be the most direct agency guidance is on the Web site of the U.S. Department of Health and Human Services, in the National Directory of New Hires section, in the FAQ section for employers - here is the link:
https://www.acf.hhs.gov/css/faq/new-hire-reporting-answers-employer-questions.
Here is question 14 and HHS's answer:
14. What information must an employer report?
Federal law requires you to collect and report these seven data elements:
Of course, that answer does not get the analysis very far, since it merely makes the obvious observation that the new hire report form has a "required field" for the SSN, which in turn is based upon the basic statute (42 U.S.C. 653a). Following is HHS's answer to the author's request for clarification of the interaction between the RFRA and the SSN requirement in the new hire reporting law:
Response (FPLS) - 06/24/2008 03:16 PM
No, we have not undertaken a study regarding how PRWORA and the RFRA interface. 42 U.S.C 653a requires that employers report newly-hired employees' names, addresses, and Social Security numbers. If the employee has a Social Security number, it should be reported; if the employee does not have a Social Security number, we will attempt to locate the person without it.
We regret that we do not have additional information on this topic. For information regarding the new hire reporting laws, please visit ... [https://www.acf.hhs.gov/css/employers/employer-responsibilities/new-hire-reporting].
Thus, it would appear that there is no particular penalty under the federal new hire reporting law if the report does not include an employee's SSN for the reason that the employer does not have it. If a report comes in without such a number, the new hire office will simply go ahead with its mission, which is to keep track of the employee at the new job.
Under Texas law, new hires must be reported to the Attorney General's New Hire Reporting office - the applicable regulation is 1 T.A.C. § 55.303, which includes the SSN as one of seven required data elements (thus echoing the federal law). The latest guidance from the Texas office, quoting HHS directive PIQ-99-05 (issued July 14, 1999), is that failure to provide an SSN is permitted if the employee or applicant submits an affidavit stating that the individual does not have a Social Security number [author's note: no official form exists for such an affidavit]. Of course, that flexibility does not apply to someone who has a number, but refuses to reveal it.
Refusal to Hire Due to Lack of SSN Top of Page
As to the question of whether an employer may legally refuse to hire an applicant due to failure or refusal to furnish a social security number, courts from around the country generally support an employer's right to refuse to hire an applicant for such a reason. In Seaworth v. Pearson, 203 F.3d 1056 (8th Cir. 2000), cert. denied, 531 U.S. 895, 121 S.Ct. 226 (2000), the Eighth Circuit Court of Appeals held that the IRS requirement that an employer furnish an employee's correct name and SSN with payroll tax documents is sufficient neutral justification for refusal to hire, even if the refusal infringes on an applicant's religious beliefs, and that an employer is not obligated to seek a waiver from the IRS in order to get past that requirement (thus, even though an employer may file an affidavit of reasonable cause for failing to furnish the SSN, it is not bound by any law to do so). The Seaworth court cited other court decisions along the same line: E.E.O.C. v. Allendale Nursing Centre, 996 F.Supp. 712, 717 (W.D. Mich.1998) ("requirement that employee obtain SSN is requirement imposed by law, not employment requirement"); Sutton v. Providence St. Joseph Med. Ctr., 192 F.3d 826, 830-31 (9th Cir. 1999) ("employer not liable for not hiring person who refused for religious reasons to provide his SSN, because accommodating applicant's religious beliefs would cause employer to violate federal law, which constituted 'undue hardship'"); and Ansonia Bd. of Educ. v. Philbrook, 479 U.S. 60, 67, 107 S.Ct. 367 (1986) ("accommodation causes undue hardship whenever it results in more than de minimis ["too small to matter"] cost to employer") (ibid). The Sutton case further noted that in the absence of proof of some kind of collusion with the government, there is no valid RFRA claim against a private sector employer that is simply complying with the law (Sutton, supra at 836-842). A similar decision came in the case of Weber v. Leaseway Dedicated Logistics, Inc., 5 F.Supp.2d 1219 (D.Kan.1998), aff'd in an unpublished opinion, 166 F.3d 1223 (10th Cir. 1999), which held that a trucking company did not have to hire an applicant for a commercial driver position who refused on religious grounds to submit his SSN; according to the court, the SSN was required by both IRS and DOT regulations, and it would have been an undue hardship on the employer to hire the applicant and risk both IRS and DOT penalties. Finally, in Baltgalvis v. Newport News Shipbuilding Inc., 132 F.Supp.2d 414 (E.D. Va. 2001), aff'd in an unpublished opinion, 15 Fed. Appx. 172 (4th Cir. 2001), the court, agreeing with the decisions cited above, ruled that the employer did not violate religious discrimination laws by acting on the basis of IRS requirements regarding the SSN, and that it would have been an undue hardship on the employer to require the company to either seek a waiver from the IRS or use an identifying number other than the SSN.
In an opinion letter dated June 14, 2003, the EEOC agreed with the above court decisions and indicated there would be no problem under Title VII with an employer insisting that an employee give a valid SSN in connection with employment (see https://www.eeoc.gov/foia/eeoc-informal-discussion-letter-101).
Conclusion Top of Page
While it may be possible for an employer to hire an employee without a social security number and seek a waiver from IRS regulations requiring its use on various payroll tax-related forms, it is by no means clear that other laws, such as new hire reporting statutes and DOT regulations, allow such waivers. On the other hand, it seems very clear that courts around the country will support an employer's decision that it will not hire an employee who fails to give a social security number for use in complying with various government regulations, even if the failure to give the SSN is due to the employee's sincerely-held religious belief.
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Ever since passage of the Immigration Reform and Control Act in 1986, employers have had to verify the employment authorization of each employee they hire. This is done with the I-9 form, a copy of which must be completed for each newly-hired employee. IRCA is enforced by the U.S. Citizenship and Immigration Services (formerly known as the INS) (https://www.uscis.gov/).
The USCIS has a handbook with detailed guidance on the I-9 form, including frequently-asked questions and answers on employment eligibility verification and I-9 forms at the following link: https://www.uscis.gov/i-9-central/handbook-employers-m-274.
The main things for employers to keep in mind about I-9s are:
The latest version of the I-9 form (October 21, 2019) is available on the USCIS Web site at https://www.uscis.gov/i-9 (PDF). Following is a list of the acceptable documents as they appear on the most recent Form I-9 (all documents must be unexpired):
List A - Documents that Establish Both Identity and Employment Authorization
List B - Documents that Establish Identity
List C - Documents that Establish Employment Authorization
The I-9 list quoted above is based on the most recent version of the underlying USCIS regulation, found in 8 C.F.R. 274a.2(b) (revised effective May 14, 2020), which is online at https://www.ecfr.gov/cgi-bin/text-idx?SID=72ff3c980252210c71a18bce1ce2a66b&mc=true&node=se8.1.274a_12&rgn=div8.
Receipts and Reverification of Documents
8 C.F.R. § 274a.2(b)(1)(vi)(A) provides that unless the employment is for less than three business days, a receipt for a lost, stolen, or damaged document will suffice for I-9 purposes as long as the replacement document itself is presented within 90 days of hire or, in the case of reverification, no later than the expiration date of the reverified document. The receipt is not acceptable, though, if the employer has actual or construction knowledge that the employee is not authorized to work in the United States. Other receipts that are acceptable with restrictions are the arrival portion of the Form I-94 or I-94A containing an unexpired Temporary I-551 stamp and photograph, or the departure portion of Form I-94 or I-94A with an unexpired refugee admission stamp. For details on receipts, see Section 4.4 of the I-9 Handbook for Employers (M-274).
ID cards (included in the List B documents) often cause confusion. A frequent issue is whether a driver's license is required, or some other form of ID can suffice. A related issue is whether ID cards with expiration dates must be reverified upon expiration. First, the ID document listed first in List B does not have to be a driver's license - it can be any government-issued ID card, even a parolee's ID card if the date of birth, gender, height, eye color, and address are on it. Second, regarding reverification of expired ID cards, as the note on the top of page 3 of the latest I-9 form specifies, "all documents must be unexpired" when presented for verification. However, the only expirable documents that require a tickler-based reverification procedure are those that involve work authorization, not identity. Thus, the DHS documents that expire would have to be reverified upon expiration, i.e., new, unexpired documents would have to be presented. If a document used only for identity purposes expires, that does not require reverification. See Section 6 of the I-9 Handbook for Employers (M-274), which includes the following statement: "Reverification is never required for U.S. citizens or noncitizen nationals. Reverification is also never required when the following documents expire: U.S. passports, U.S. passport cards, Form I-551 (Alien Registration Receipt Cards/Permanent Resident Cards, which are also known as Green Cards), and List B documents."
* SSA regulation 20 C.F.R. § 422.103(e)(3) - "Restrictive legend change defined. ... This restrictive legend appears on the card above the individual's name and SSN. Individuals without work authorization in the U.S. receive SSN cards showing the restrictive legend, 'Not Valid for Employment'; and SSN cards for those individuals who have temporary work authorization in the U.S. show the restrictive legend, 'Valid For Work Only With DHS Authorization'. U.S. citizens and individuals who are permanent residents receive SSN cards without a restrictive legend. ... ."
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Change in Ownership of the Company
A Problem of Terminology
Significance of Probationary Periods in Unemployment Claims
There is no Texas or federal law that either requires or prohibits employers from treating employees as probationary, initial, trial, introductory, or provisional employees. No matter what name a company assigns to new employees, that is a matter of company policy. That issue primarily has relevance with respect to whether new employees have seniority of any kind for purposes of a benefit plan. With the possible exception of access to health insurance (ask your health insurance carrier), no other types of benefits would have to be immediately granted.
The other major reason for classifying employees as new, probationary, initial, trial, introductory, or provisional is to let them know that during that time, they will be subject to special scrutiny and must turn in successful performance in order to continue with the company and become "regular" employees. There is also no particular legal significance to such a classification, since Texas is an employment at will state, and an employer can subject any at-will employee at any time to special scrutiny, consistent with express employment agreements and specific statutes such as employment discrimination laws.
Change in Ownership of the Company Top of Page
Sometimes a company changes ownership, in which case the predecessor's employees may be hired by the successor company. In such a case, the new owner of the company would have the legal right to consider the predecessor's employees as new employees of the new company. Of course, the new owner would have to ensure that the predecessor entity fully pays the employees through their ending date with that company, or else be prepared to assume such obligations itself. If a company acquires the organization, trade, and business of the other company, it also acquires whatever obligations the predecessor entity owes to its employees and to TWC (under Section 204.086 of the Texas Unemployment Compensation Act, the successor company acquires any state unemployment tax debt the predecessor owes to TWC). The division of such liabilities is usually accomplished via the contract of acquisition.
A Problem of Terminology Top of Page
The problem with using a term such as "probationary period" or "probationary employee" is that over time, such terms have acquired a certain amount of semantic baggage that tends to mislead some employees into thinking that once they have "passed" the probationary period, their jobs are "safe" or even guaranteed, and they cannot be fired except for cause. In other words, some people think, however erroneously, that during a probationary period, their employment is at will, and they can be fired at any time for any reason that doesn't violate a specific law, and that passing a probationary period actually modifies the at-will employment relationship to where their employer can no longer fire them at will, but rather must have some sort of good cause before it can fire them. Such employees, if they are fired after completing the initial period of employment, often think they have a good case for bringing a lawsuit against the company. As a rule, such lawsuits are extremely difficult to sustain and are usually dismissed.
Under general Texas employment law, the presumption is that all employment is at will, unless the employer has done or said something tangible that would modify the relationship. Usually, that kind of thing is something like a formal written employment contract, wherein certain procedures are laid out that must be followed before someone can be terminated from employment, such as a prescribed series of warnings and a notice period, or else specified offenses that can lead to immediate termination. Most employment relationships are not on the basis of a formal contract, and employment at will is the rule followed. A general statement of the Texas employment at will rule is found in the topic "Pay and Policies - General" in this book.
With the above issues in mind, most employment law attorneys in Texas these days advise against calling the initial period of employment a "probationary period", simply because it is so often misunderstood by employees, and for that reason can lead to unnecessary, and expensive, lawsuits. Rather, many attorneys advise calling the initial period an "initial", "trial", "introductory", or "provisional" period, not because those are magic words or are required by law, but because they have not resulted in the same level of misunderstanding by employees. No matter what the initial period of employment is called, though, it is a good idea to make it clear in the section of the policy handbook defining such a period that completion of the period does not change the employment at will relationship and that either party may terminate the employment relationship at any time, with or without notice. That would be in addition to the standard employment at will disclaimer that should be in any good employee handbook. See "Disclaimers - General" in the Outline of Employment Law Issues at the start of this section of the book.
Significance of Probationary Periods in Unemployment Claims Top of Page
Put simply, probationary periods, by themselves, have no significance in unemployment claims and can actually mislead an employer into a false sense of security if they think that a probationary period will insulate the company from such claims. The UI law does not care how long someone worked for a particular employer prior to filing a UI claim. Anyone who is no longer working for pay can file a basic UI claim, but must satisfy several different wage, work separation, and eligibility criteria in order to actually draw any benefits.
Where probationary, initial, trial, introductory, or provisional periods can come in handy with respect to UI claims is in the area of chargeback liability. The key is in whether the employer is a base period employer. That, in turn, depends upon the timing of the initial claim with respect to whatever period of employment the claimant had with the employer. Basically, if the claimant worked a relatively short period of time with the company, and filed the initial claim fairly soon after losing that short period of employment, the employer might not be a base period employer at all, meaning that it will have no potential chargeback or reimbursement liability if the claimant draws benefits. This subject is fully explained in the topics "Date of the Initial Claim" and "Length of Time Worked Prior to the Initial Claim" in the article "How Do Unemployment Claims Affect an Employer?" in part IV of this book. Below is a chart showing what the base period of a UI claim looks like:
| Base Period Quarter 1 |
Base Period Quarter 2 |
Base Period Quarter 3 |
Base Period Quarter 4 |
Lag Quarter | Quarter In Progress When Claim Is Filed |
| Included | Included | Included | Included | Not Included | Not Included |
As an example, if an employer hires an employee in February, and lets the employee go after 30 days, and the claimant files an initial claim prior to April 1, then the base period would not include the first quarter of that year (the quarter in progress), nor the fourth quarter of the preceding year (the lag quarter), but would consist of the fourth quarter of the year before the year preceding the current year, and the first three quarters of the year preceding the current year. Since the employer did not report wages during that base period, it will have no financial involvement in the claim. The same would apply if the claimant waited until April, May, or June to file the initial claim - in that case, the base period would omit the second quarter of the current year, the first quarter of the current year, and consist of the four quarters of the preceding year. If the ex-employee files an initial claim after June 30 of the current year, then the employer could be a base period employer, but its chargeback liability would be limited due to having paid only 30 days' worth of wages.
Conclusion
Observing a probationary period has elements of both benefit and risk. The risk lies in misunderstandings and false expectations that employees can develop unless the employer carefully explains what is entailed. The benefits are that using such a period can make it psychologically easier to discharge an employee who is not a good fit for the job or the company, and can help an employer limit its potential chargeback liability in an unemployment claim. No matter what, using probationary periods does not relieve an employer of its responsibility to properly manage new employees and their expectations.
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Many companies have employees who smoke, and many companies allow employees to take some sort of break or breaks during the workday. The question often arises whether employees who smoke must be given extra breaks. Some employers even wonder whether smoking is a protected disability that must be accommodated under the Americans with Disabilities Act. The answer to both questions is "no".
Employers in the vast majority of situations do not have to give breaks during the day, so if a company does allow breaks, it can put whatever strings it wants to on those breaks. That includes limits on how long the breaks can be, how many breaks occur during the day, and where the breaks can or cannot be taken. Thus, if an employee is normally allowed two breaks per eight-hour shift, the employer can legally deny any extra breaks for smoking, for example.
Smoking by itself is also not a "disability" under the ADA or its state equivalent, Chapter 21 of the Texas Labor Code. One way that would not be the case is if the employer were to make the mistake of regarding the employee as disabled; the law is such that regarding a non-disabled person as disabled will generally bring them under the protection of disability protection laws. Another theoretical way is if the person is so dependent upon nicotine in tobacco products that they can be considered an addict. Addiction to alcohol or drugs can, under some circumstances, be regarded as a disability under the ADA. If a person's addiction becomes so bad that it substantially impairs a major life activity such as working, walking, sleeping, seeing, or breathing, the addiction may be covered under the law. If a person has a covered disability, the employer has a duty to explore with the employee whether a reasonable accommodation exists that would allow the person to nonetheless do the job. So, if an employee tries to claim that they are disabled due to nicotine addiction and must be allowed to have extra breaks for smoking, do not worry - remember that even if the ADA applies, employers do not have to accept whatever accommodation an employee might request, and there are other accommodations that might be reasonable in such a context, such as nicotine patches. An employer could well argue that extra breaks would not be a reasonable accommodation due to loss in efficiency, morale problems among non-smokers who do not get extra breaks, and so on. The bottom line is that a company does not have to make an exception to its break policy just to let smokers take extra breaks.
For a sample policy on smoking at work, click here.
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Effective February 6, 2024, Senate Bill 7 added a new Chapter 81D to the Texas Health & Safety Code to prohibit COVID-19 vaccine mandates for employees by private employers, including adverse action against individuals who are unvaccinated. In addition to employees, the new law also covers contractors, applicants for employment, and applicants for a contract position, which would include medical and nursing interns.
Minor exceptions to a charge of "adverse action" exist for health care facilities, healthcare providers, and physicians. For example, requiring the wearing of personal protective gear by unvaccinated individuals is not an adverse action by a health care facility, healthcare provider, or physician if it is pursuant to a "reasonable" policy. TWC will consult with the Texas Department of Health Services to determine whether a particular healthcare facility policy is reasonable.
TWC enforces the new law and has adopted rules for such enforcement (see 40 T.A.C. Chapter 844). A penalty of $50,000 may be imposed if employer fails to take remedial action to make a complaining employee whole. TWC can recover its investigation costs from the employer, regardless of remedial action. TWC could also seek injunctive relief via the Attorney General's Office to enjoin future violations.
The bill does not prohibit any employer from requiring health and safety precautions that are unrelated to a person’s COVID-19 vaccination status.
Under Section 81C.003 of the Health and Safety Code, a governmental entity may not require a person to be vaccinated against COVID-19 for any reason, unless required by federal law.
The latest EEOC guidance on COVID-19 and other vaccination policies is on their website at the following links:
The laws, regulations, and directives dealing with vaccinations have been known to change based on public health conditions and other causes that themselves often change rapidly and without warning. An employer would be well-advised to seek qualified employment law counsel in the private sector before taking any action that might adversely affect an employee and possibly cause them to file a claim or a lawsuit or otherwise result in an expense to, or compliance problems for, the company.
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Total Exemption - Exemptions from the Definition of "Employee"
Exemptions - Minimum Wage, Overtime, Child Labor, and Recordkeeping
Exemptions - Minimum Wage, Overtime, and Child Labor
Exemptions - Minimum Wage and Overtime
Exemptions - Minimum Wage Only
Focus on the White-Collar Exemptions
Other Types of White-Collar Exemptions
Caveat: Job Titles Do Not Make Employees Exempt
The Fair Labor Standards Act has many exemptions. Some exemptions are extremely broad, as in the case of exemptions from the definition of "employee". Others are more narrow, such as various exemptions from overtime pay. Still other exemptions apply to two or more protections normally afforded by the FLSA. On the following pages (see the links above) are the major categories of exemptions.
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The following categories of workers are excluded from the definition of "employee" under the Fair Labor Standards Act and thus do not have the benefit of any of the provisions of the FLSA:
Congressional interns - Section 203(e)(2)(A), in conjunction with Section 203(a)(2) of the Congressional Accountability Act of 1995, which made most employees of Congress subject to the FLSA
Employees of the United States Postal Service or the Postal Rate Commission - Section 203(e)(2)(B)
Employees of States, political subdivisions of States, or interstate governmental agencies who are exempt from the civil service laws of their States and who are either elected officeholders of the State or subdivision or else are selected by such officeholders to serve on their personal staff, are appointed by such officeholders to a policymaking position, serve as an immediate advisor to such officeholders regarding constitutional or legal powers of the office in question (such as a general counsel), or are employed by the legislature of the State or political subdivision (except for employees of the legislative library of such a State or political subdivision) - Section 203(e)(2)(C)
Volunteers for public agencies of States, political subdivisions of States, or interstate governmental agencies under certain conditions - Section 203(e)(4)
Volunteers at community food banks who are paid with groceries - Section 203(e)(5)
Volunteers for non-profit religious, charitable, and civic organizations
Prisoners in jail or correctional institutions
Church members performing religious duties
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Exemptions from Minimum Wage, Overtime, Child Labor, and Recordkeeping
The following categories of employees are exempt from the minimum wage, overtime, child labor, and recordkeeping provisions of the FLSA:
Employees who work in foreign countries or in certain territories under the jurisdiction of the United States - Section 213(f)
Employees of non-appropriated fund instrumentalities under the jurisdiction of the Armed Forces who serve in foreign countries or in certain territories under the jurisdiction of the United States - Section 213(f), in conjunction with Sections 218(b) and 218(b)(2)
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Exemptions from Minimum Wage, Overtime, and Child Labor
The following categories of employees are exempt from the minimum wage, overtime, and child labor provisions of the FLSA:
Employees who deliver newspapers to consumers - Section 213(d)
Homeworkers who make wreaths from evergreens - Section 213(d)
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The following categories of employees are exempt from both minimum wage and overtime pay requirements of the FLSA:
"White collar exempt" employees - executive, administrative, professional, computer professional, and outside sales representative employees - Section 213(a)(1) and 213(a)(17) (the latter section, applicable to computer professionals, specifies a minimum hourly rate of $27.63 per hour, which applies if the employee is not paid a minimum salary of $684 per week)
Employees of certain amusement or recreational establishments - Section 213(a)(3)
Employees involved in cultivation, propagation, catching, harvesting, or first processing at sea of aquatic forms of animal or vegetable life - Section 213(a)(5)
Certain agricultural employees of small farms or family-owned farms - Section 213(a)(6) - does not apply to farms operating in conjunction with other establishments, the combined business volume of which exceeds $10,000,000
Employees principally engaged in the range production of livestock - Section 213(a)(6)
Employees exempt under special certificates issued under Section 214 - Section 213(a)(7)
The 213(a)(7) exemption encompasses the following categories:
Learners - under special certificates issued by the Secretary of Labor - Section 214(a)
Apprentices - under special certificates issued by the Secretary of Labor - Section 214(a)
Messengers - under special certificates issued by the Secretary of Labor - Section 214(a)
Students employed in retail or service establishments - under special certificates issued by the Secretary of Labor - significant limitations on hours - Section 214(b)(1)
Students employed in agriculture - under special certificates issued by the Secretary of Labor - in compliance with child labor laws - Section 214(b)(2)
Students in institutions of higher education who are employed by their institutions - under special certificates issued by the Secretary of Labor - significant limitations on hours - Section 214(b)(3)
Handicapped workers - under special certificates issued by the Secretary of Labor - Section 214(c)
Students of elementary or secondary schools who are employed by their schools as part of the curriculum - in compliance with child labor laws - Section 214(d)
Employees of certain small local newspapers - Section 213(a)(8)
Switchboard operators for certain independently-owned public telephone companies - Section 213(a)(10)
Seamen on vessels other than American vessels - Section 213(a)(12)
Certain babysitters or companions for the elderly - Section 213(a)(15)
Criminal investigators paid on an availability pay basis - Section 213(a)(16)
Computer professionals - Section 213(a)(17) (also noted at the beginning of this list) [note: to get the overtime exemption, the employer must pay the employee at least $27.63 per hour, i.e., a "minimum" wage, for all hours worked, or else a true salary of at least $684 per week.]
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The following categories of employees are exempt from minimum wage only:
Employees in Puerto Rico or the Virgin Islands - special rates apply - Section 206(a)(2)
Employees in American Samoa - special rates apply - Section 206(a)(3)
Domestic service employees who are not covered by the Social Security Act or who work 8 or fewer hours per week in such service - Section 206(f)
New employees younger than age 20 who are within their first 90 days on a job - Section 206(g)
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The following categories of employees are exempt from overtime pay, but not from the minimum wage; some of the exemptions from overtime pay are very limited and need to be studied carefully:
Employees working under a collective bargaining agreement that limits hours worked to 1040 in any period of 26 consecutive weeks - Section 207(b)(1)
Employees working under a collective bargaining agreement that imposes certain minimums and maximums on hours worked in a 52-week period - Section 207(b)(2)
Employees of certain smaller wholesale or bulk distributors of petroleum products that are engaged primarily in intrastate operations, if such employees receive at least 1 1/2 times the minimum wage for hours worked between 40 and 56 in a workweek and 1 1/2 times their regular rate for hours in excess of 12 in a day or 56 in a workweek - Section 207(b)(3)
Employees working irregular hours under a bona fide individual contract or collective bargaining agreement that specifies a guaranteed regular rate not less than minimum wage for purposes of calculating overtime pay and guarantees such pay for not more than 60 hours in a workweek - Section 207(f)
Certain employees paid on a piece rate basis - Section 207(g)
Retail or service establishment employees whose regular rates are at least 1 1/2 times minimum wage and who earn more than half their income in a representative period from commissions - Section 207(i)
Employees of hospitals or other types of residential care facilities - exemption from the 40-hour workweek rule - two-week period may be used for overtime computation if employees are paid time and a half for hours worked in excess of 8 in a day or 80 in a two-week period - Section 207(j)
Fire protection or law enforcement employees of public agencies - a period of 7 to 28 days may be used for overtime computation if time and a half is paid for hours in excess of a certain number set by regulation - Section 207(k)
Certain employees who are engaged in activities related to the auction sale of certain types of tobacco, as long as such employees get time and a half for hours worked over ten in a day or 48 in a workweek - exemption good for up to 14 weeks in a 52-week period - Section 207(m)
Employees of local electric railways, trolleys, or bus carriers - limited exclusion from overtime computation of hours spent in charter activities - Section 207(n)
Public agency employees working under a compensatory time agreement - Section 207(o)
Fire protection and law enforcement employees who volunteer for a special detail in the employ of a separate and independent public agency - Section 207(p)(1)
Public agency employees who work part-time for the same agency in some other capacity or who substitute for other workers - under certain conditions, hours in excess of 40 may be paid at straight time - Section 207(p)(2,3)
Employees receiving certain types of remedial education in connection with the employment - overtime exclusion is limited to 10 hours per workweek, i.e., straight time is paid for up to 50 hours per workweek - Section 207(q)
Certain employees of motor carriers regulated by the U.S. Department of Transportation - Section 213(b)(1)
Employees of certain rail carriers (as defined in 49 U.S.C. 10102) - Section 213(b)(2)
Employees of certain air carriers - Section 213(b)(3)
Outside buyers of poultry, eggs, cream, or milk, in their raw or natural state - Section 213(b)(5)
Any employee employed as a seaman on any vessel - Section 213(b)(6)
Certain employees of small local radio or television stations - Section 213(b)(9)
Certain employees of automobile, truck, farm implement, trailer, boat, or aircraft dealerships - Section 213(b)(10)
Local delivery drivers or driver's helpers compensated on a trip rate or other delivery payment basis - Section 213(b)(11)
Any agricultural employee - Section 213(b)(12)
Employees who operate or maintain ditches, canals, reservoirs, or waterways for agricultural purposes - Section 213(b)(12)
Employees who are primarily engaged in agricultural work, but who occasionally perform livestock auction duties that are paid at minimum wage or more - Section 213(b)(13)
Certain employees of small country grain elevators and related establishments - Section 213(b)(14)
Employees who process maple sap into non-refined sugar or syrup - Section 213(b)(15)
Employees who prepare and transport fruits or vegetables from the farm to the place of first processing or first marketing within the same state - Section 213(b)(16)
Employees who transport fruit or vegetable harvest workers within a state - Section 213(b)(16)
Drivers employed by taxicab companies - Section 213(b)(17)
Firefighting and law enforcement employees of certain very small fire or police departments - Section 213(b)(20)
Domestic service employee who resides in the household in which the work is performed - Section 213(b)(21)
Certain married house parents in non-profit educational institutions for children enrolled in and residing at such facilities who are either orphans or else have at least one natural parent who is deceased - Section 213(b)(24)
Employees of motion picture theaters - Section 213(b)(27)
Certain employees of small forestry or lumbering operations - Section 213(b)(28)
Employees of amusement or recreational facilities located in national parks, forests, or refuges - Section 213(b)(29)
Criminal investigators who are paid on an availability pay basis - Section 213(b)(30)
Certain minimum wage employees whose minimum wage rates are set by the Secretary of Labor - Section 213(e)
Certain employees engaged in cotton ginning, processing of raw cotton or cottonseed, or processing of sugar cane or sugar beets in certain facilities, as long as such employees get time and a half for hours worked over ten in a day or 48 in a workweek - exemption good for up to 14 weeks in a calendar year - Section 213(h)
Certain employees who are engaged in cotton ginning for market in a county where cotton is grown in commercial quantities, as long as such employees get time and a half for hours worked over ten in a day or 48 in a workweek - exemption good for up to 14 weeks in a 52-week period - Section 213(i)
Certain employees who process sugar beets, sugar beet molasses, or sugar cane into sugar (other than refined sugar) or syrup, as long as such employees get time and a half for hours worked over ten in a day or 48 in a workweek - exemption good for up to 14 weeks in a 52-week period - Section 213(j)
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The so-called white-collar exemptions (executive, administrative, and professional) are often difficult to apply to real-life situations. One has to understand that those exemptions come with both salary and duties tests and that the exemptions follow certain underlying principles.
Quick Basics
The executive, administrative, and professional exemption categories each have a salary test (minimum salary is $684/week; computer professionals can be paid $27.63/hour or more in straight-time pay for each hour worked in lieu of the minimum salary) and a duties test.
Up to 10% of the salary can consist of non-discretionary bonuses or commissions.
Employees who meet the tests for their categories do not have to be paid overtime pay, regardless of how much overtime they work.
A salary alone does not make an employee exempt.
A title alone does not make an employee exempt.
Generally, exempt employees are the most important, highest-ranking, or highest-skilled workers in the company.
Exempt employees are the ones to whom the non-exempt workers look for leadership, supervision, and other forms of guidance.
Exempt employees all have a great deal of discretion and independent judgment in how they do the details of their jobs, meaning that to a large extent, they are "standalone" employees.
It is practically impossible to standardize the work of an exempt employee with respect to time.
They are not treated as hourly employees, i.e., the emphasis is not on the exact number of hours they work, but rather on whether they are completing their projects or managing their departments properly.
An employer hiring exempt employees is basically buying "results", whether the result is a better-run company, projects being managed to completion on time, departments being efficiently managed, or professional tasks that can only be performed by the holder of a special license; an employer hires non-exempt employees for the time they will be expected to put in carrying out specific instructions in predetermined sequences that have been designed by exempt employees.
Keep in mind that in the event of a wage and hour audit or claim involving the employee's exempt status, what the facts show really happened day to day in the employee's job is at least as important as what is in the official job description.
Executive-exempt employees have true executive authority, i.e., the power to hire and fire (or else great influence over such decisions) and carry out functions of similar importance with respect to the employment of those who work for them; they are generally the presiding officer of the company or the head of a major division of an enterprise.
Administrative-exempt employees are the "back office" staff and support the work of the entire company or a major division of an enterprise; the decisions they make are of substantial importance to the company as a whole.
Professional-exempt employees are either people in recognized professions (usually, professions for which a basic or advanced college degree and a license or certificate from the state are required) or else people who perform creative and original work in the areas of writing, art, music, and other traditional arts.
The outside sales representative exemption applies only to those whose primary duty is contacting customers or potential customers, making sales, working on contracts, and the like, and who are customarily and regularly away from the employer's principal place of business while performing such duties.
Outside sales representatives may be given a quota, but then are generally free to determine the number of hours needed to meet or exceed the quota.
Exempt computer professionals are the very top information technology employees in an organization; merely being good at using computers to get a job done is not enough for inclusion in this category.
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In order for an employee to be exempt from the minimum wage and overtime requirements, he or she must be paid, with only minor exceptions relating to persons paid a fee, on a "salary basis". DOL regulations at 29 C.F.R. 541.602(a) state that a person is paid a salary if he or she receives each pay period a set amount constituting all or part of the compensation, the amount of which is "not subject to reduction because of variations in the quality or quantity of the work performed." The minimum salary amount is $684 per week, up to 10% of which can consist of non-discretionary bonuses or commissions (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government). Generally, an employee "must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked". However, the regulation recognizes "the general rule that an employee need not be paid for any workweek in which he performs no work". Further guidance on the salary test is found in DOL's Field Operations Handbook, Section 22h08, and in DOL regulation 29 C.F.R. § 541.604(a), the relevant part of which states: "Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off." "Paid time off" would presumably mean compensatory time (which is not allowed in lieu of overtime pay for non-exempt employees).
Certain Salary Deductions Are Allowed
If a salaried exempt employee misses a day for personal business unrelated to a medical condition, there is no problem with docking their pay for a day's worth of salary. If the same employee misses a day for medical reasons, and the employer has a bona fide sick leave policy (at least five paid sick leave days per year – a minimum tenure requirement is permissible), the employer may deduct a day's worth of pay for such a reason, but if the employer has no policy in place providing paid leave for such absences, then such a deduction would not be allowed. If a salaried exempt employee misses an entire workweek for any reason, then the employer could deduct a week's worth of pay from the salary. Days missed over a period of time longer than a workweek cannot be aggregated and later deducted a week at a time. Although written authorization for such deductions is unnecessary (because 29 C.F.R. § 541.602 specifically allows them), obtaining prior written authorization from employees tends to help minimize complaints when deductions are actually made. Regarding such deductions from salary, see item 12 in the sample wage deduction authorization agreement in this book.
In the event of absences due to jury duty, witness duty, or temporary military duty, if an employee works any part of a week and misses the rest of the week for jury, witness, or military duty, he or she must receive the full salary for the workweek, but if they miss a full week, no pay is due for that week (see 29 C.F.R. 541.602(a)); however, partial-week deductions from leave balances are allowed. The same rule applies for unpaid holidays, furloughs, business closures, bad-weather days, and other occasions when work is unavailable to salaried exempt employees who are otherwise available for work: if the office is closed on a day that a salaried exempt employee would normally work, then partial-week deductions from pay are not allowed, but if the employee misses an entire week for such a reason, the salary may be reduced by that amount; partial-week deductions from leave balances are allowed. The salary may be prorated for initial and terminal workweeks, i.e., pay for partial workweeks is allowed for the beginning and ending workweeks of employment, and no written authorization is needed for such proration.
Almost No Partial-Day Deductions from Salary Allowed
Under DOL interpretation and the U.S. Supreme Court's decision in Auer v. Robbins, 117 S.Ct. 905 (1997), if an employer has a clear policy that creates a substantial likelihood that an exempt employee's salary will be docked under circumstances not allowed in 29 C.F.R. 541.602, the salary test is not met, and the employee would be considered an hourly employee potentially entitled to back overtime pay. The rationale behind this interpretation is that since salaried exempt employees often put in substantial overtime for no additional compensation, it is unfair to make them "subject to" monetary penalties for missing a nominal amount of work on isolated occasions, especially if, as is usually the case, the few hours missed are made up by extra hours within the same week. As noted above, deductions from the salary on a full-day basis are allowed under limited circumstances: a day missed for personal business, or a day missed for medical reasons, if the employer has a sick leave pay policy in place. Under the new salary definition regulation, a deduction for an unpaid suspension for violation of a disciplinary rule may be made on "any basis", i.e., on a partial-day basis or any other interval. For more details, see the discussion under "Changes in Deductions from Salary" in the article "Focus On The DOL White-Collar Exemption Regulations". Regarding the only other category of partial-day salary deduction allowed, see the "FMLA Exception to Salary Test" section below.
Special Rules for Governmental Employers
Special rules apply for governmental employers with personal leave and sick leave accrual policies; generally, due to principles of public accountability for tax money, governmental employers may dock salaried employees' pay for absences of less than a day without losing the salary basis for the exemption, as long as the absences are due to personal or health-related reasons, assuming that the employee is either out of paid leave, chooses not to use it, or has been denied permission to use paid leave (29 C.F.R. 541.710); DOL administrative letter rulings of January 9, 1987 and July 17, 1987).
FMLA Exception to Salary Test
In addition to disciplinary suspensions, one other category of partial-day deduction from salary is allowed for private employers. Under the Family and Medical Leave Act, 29 U.S.C. 2612(c), an employer may grant unpaid leave for FMLA absences, even on a partial-day basis, without affecting the status of employees who are exempt from overtime pay under 29 U.S.C. 213(a)(1). DOL's regulation on this question is found at 29 C.F.R. 825.206(a) and commendably makes clear that partial-day deductions for intermittent leave will be allowed only if the employer, the employee, and the situation in question are covered by the FMLA.
Deductions from Leave Balances
Employers may require salaried exempt employees who miss partial days or partial weeks to apply paid leave time to such absences. In a letter ruling dated April 9, 1993 (BNA, WHM 99:8003), DOL stated "where an employer has bona fide vacation and sick time benefits, it is permissible to substitute or reduce the accrued benefits for the time an employee is absent from work, even if it is less than a full day, without affecting the salary basis of payment, if by substituting or reducing such benefits, the employee receives in payment an amount equal to his or her guaranteed salary." DOL has affirmed this position in several letter rulings issued since then. That having been said, employers may want to consider flexibility toward paid leave deductions if, by the end of the week, the employee has made up the hours by working extra time. In such cases, there should be no need to deduct from leave balances, since the whole purpose of paid leave is to enable an employee to receive full pay for a workweek that would otherwise be short due to absences. In other words, an employee who has worked the full number of hours normally associated with a standard workweek has not really had a short workweek, so it should be unnecessary to apply paid leave during such a week.
Exemptions from the Salary or Fee Requirement
A special exemption from the salary or fee requirement for the professional exemption category applies to physicians, attorneys, and teachers (see 29 C.F.R. 541.303(d), 541.304(d), and 541.600(e)). Such employees may be paid on any basis (unless a specific state law applies; Texas has no such law). Thus, the wage agreement or employment contract will determine what the pay of a physician, attorney, or teacher should be, and the only limitations on wage deductions would be the ones that apply under the Texas Payday Law.
Texas Payday Law Still Applies
Despite the deductions from salary allowed under the FLSA on a partial-day, full-day, and weekly basis, as long as the interval of the pay period is longer than the time involved in the deduction, the employer would be facing a wage deduction situation that would be covered by the Texas Payday Law. Although TWC currently interprets the salary definition regulation to permit such deductions without the need for specific written authorization from an employee, that interpretation could potentially change at some point in the future. Accordingly, employers may wish to cover themselves by including such deductions in a standard wage deduction authorization agreement. For a sample wage deduction authorization form that addresses this issue, click here and see item # 12.
See also: Deductions from Exempt Employees' Salaries
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The DOL has set forth special tests for the executive, administrative, and professional exemption categories (29 C.F.R. 541.100, 541.200, and 541.300). They all have minimum weekly salary levels, as well as a requirement that the employee's primary duty be devoted to exempt duties. Each test has important distinguishing factors. For example, an "executive" has the primary duty of management of a company or subdivision of a company; supervises two or more employees; and has authority to hire, fire, and promote employees, or else greatly influences such decisions. An "administrative" employee performs office or non-manual work related to the management or general business operations of the company or its customers; customarily and regularly exercises discretion and independent judgment with respect to matters of significance; and makes decisions of substantial importance to the organization as a whole. A "creative professional" employee's primary duty must be "the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor." "Learned professionals" perform work requiring "advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction", exercise discretion and independent judgment in performing job duties, and perform work that is generally incapable of standardization with respect to time.
Examples of occupations typically encountered in the exempt categories:
Executive: President of the company or the head of a major division of an enterprise, general manager with hiring and firing authority, department heads who have hiring and firing authority.
Administrative: Vice-president of operations, general manager, department heads, personnel director, payroll director, chief financial officer, comptroller, head buyer, head dispatcher.
Professional: Physician, attorney, CPA, engineer, architect, scientist (chemist, physicist, astronomer, geologist, zoologist, biologist, and so on), registered nurses, pharmacists, dentists, teachers, artists, writers, and other creative professionals.
In each category, the employee's "primary duty" must be exempt in nature. "Primary duty" is defined in 29 C.F.R. 541.700. As that regulation indicates, a duty in which the employee spends "more than 50 percent" of their work time is presumed to be the primary duty. However, the same regulation notes that in cases where the employee happens to spend 50 percent or less of the workweek in exempt duties, the exempt duties may still be the primary duties depending upon the following criteria:
the relative importance of the managerial duties as compared with other types of duties;
the amount of time spent performing exempt work;
the employee's relative freedom from direct supervision; and
the relationship between the employee's salary and the wages paid other employees for the kind of non-exempt work performed by the supervisor (or other type of exempt employee).
These criteria have been widely accepted by courts around the country. Some courts have related the second criterion to the frequency with which the employee exercises discretionary powers.
Effective January 1, 2020, the Department of Labor (DOL) regulation 29 C.F.R. 541.100, all parts of which must be satisfied, defines an executive exempt employee as any employee who is:
Compensated on a salary basis at a rate of not less than $684 per week (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging, or other facilities;
Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
Who customarily and regularly directs the work of two or more other employees; and
Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.
DOL regulation 29 C.F.R. 541.200 defines an administrative exempt employee as one who is:
Compensated on a salary or fee basis at a rate of not less than $684 per week (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging, or other facilities;
Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Under regulation 29 C.F.R. 541.300, DOL distinguishes between two categories of exempt professional employees: "learned professionals" and "creative professionals". The exemption applies to any employee who is:
Compensated on a salary or fee basis at a rate of not less than $684 per week (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging, or other facilities; and
Whose primary duty is the performance of work:
Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or
Requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
As 29 C.F.R. 541.301 notes, the primary duty test for learned professionals includes three elements:
The employee must perform work requiring advanced knowledge;
The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Regarding creative professionals, 29 C.F.R. 541.302(a) notes that "to qualify for the creative professional exemption, an employee's primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical, or physical work. The exemption does not apply to work which can be produced by a person with general manual or intellectual ability and training."
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Outside salespeople fall into a special category of exempt employees who do not have to receive either a salary or fee, or, for that matter, minimum wage or overtime pay; many such employees receive only a commission, while others receive that plus occasional bonuses, dividends, or overrides, depending upon the individual pay agreement in effect. Under 29 C.F.R. 541.500, an "outside sales employee" is someone who is "customarily and regularly engaged" away from the employer's place of business in making sales or obtaining orders for the sale of goods or services (see also 29 C.F.R. 541.501 - 541.502, which define the terms "making sales or obtaining orders" and "away from the employer's place of business"). The main thing to remember is that the pay for such an employee will be determined by the compensation agreement.
There is yet another important "white collar" exemption that does not necessarily require a salary to be valid, that being the exempt "computer professional". The definitions found in 29 C.F.R. 541.400 apply the exemption to any computer employee paid on a salary or fee basis at least $684 per week (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the Federal government, or $380 per week if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging, or other facilities, or else paid an hourly wage of not less than $27.63 an hour. In addition, the exemptions apply only to computer employees whose primary duty consists of:
The regulations exclude workers who build or install computer hardware or who are merely skilled computer operators; they make clear that the exemption applies only to the true software programming, design, or systems analysis experts. A DOL letter ruling of December 4, 1998 (BNA, WHM 99:8201) states that this exemption does not include employees who "provide technical support for business users by loading and implementing programs to businesses' computer networks, educating employees on how to use the programs, and by aiding them in troubleshooting." See also DOL opinion letter FLSA2006-42 (October 26, 2006), as well as court decisions in Hunter v. Sprint Corp., 453 F.Supp.2d 44 (D.C. 2006) and Martin v. Ind. Mich. Power Co., 381 F.3d 574 (6th Cir.2004). As those decisions point out, typical help desk functions such as "responding to ... help desk tickets", "installing software ... on individual workstations", "troubleshooting Windows 95 problems", and "configuring desktops, checking cables, and replacing parts" are not covered by the computer professional exemption. Properly speaking, the exemption applies only to the very top experts in computer software or systems, i.e., the ones who actually write the software programs, or who design, implement, and maintain a company's network software, intranet, or Internet presence. An employee who fits this exemption may be paid on an hourly basis with no premium for overtime work, i.e., straight-time pay for all hours worked, as long as the hourly rate is at least $27.63 per hour. However, the employer could still choose to pay such a person on a salary basis without having to worry about extra straight-time pay if the employee meets the salary and duties tests for this exemption.
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The DOL cautions against assuming that any particular job title or position will automatically be considered "exempt". The determination depends upon the facts behind the work relationship, not on what the employer and the employee may call it. However, the regulations do make clear that employees such as company and department heads, personnel directors, executive assistants, financial experts, physicians, and company attorneys are generally considered exempt, while employees such as clerks, errand runners, secretaries, bookkeepers, inspectors, and on-the-job trainees* are non-exempt. In general, anyone performing "line duties" as the primary part of their job will be considered non-exempt and thus entitled to overtime pay if they work more than 40 hours in a week.
* "On-the-job trainees" refers to new employees or current employees in new positions within a company who undergo specific job-related training while earning whatever pay applies to new employees in such positions. In limited circumstances, however, certain trainees may be exempt from the FLSA - for more information, see the topic on "Student Interns - Trainees" in this book.
Conclusion
It is clear that understanding which employees are exempt and which are non-exempt requires much more than just looking at a title and a salary. Several specific legal tests are involved. Companies should do periodic reviews of their exempt and non-exempt positions to ensure that changes in job duties or pay practices have not created changes in exempt / non-exempt status as well.
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Effective August 23, 2004, the U.S. Department of Labor adopted new duties-test regulations for interpreting Section 213(a)(1) and 213(a)(17) of the FLSA, which are the regulations specifying overtime exemptions for white-collar exempt employees, including executive, administrative, professional, outside sales representative, and computer professional employees. The revised regulations, accessible online, mainly had the effect of clarifying and reorganizing the criteria for distinguishing between exempt and non-exempt salaried employees. DOL's official guidance for the new Part 541 rules is at https://www.dol.gov/agencies/whd/overtime/2019/index. Following is a brief outline of the most notable changes the 2004 and 2020 regulations made.
Changes in the Salary Test
Instead of the old salary test divided into "long" and "short" tests that differ between categories of exempt employees, DOL adopted two clear dividing points, $684/week, and $107,432/year for "highly-compensated employees." Here is how the new regulations divide salaried employees up:
Changes in Deductions from Salary
Many of the long-standing rules about deductions from salary, including the prohibition against partial-day deductions from salary, remain in effect under the new regulations. For instance, deductions in units of a full day at a time are still allowed for absences caused by personal business, and for absences due to medical conditions, assuming that the employer has a sick leave pay policy. There were also no changes in the general rules for deductions for time missed for jury duty, witness duty, military duty, and office or plant closings due to business- or weather-related shutdowns: deductions for such absences may be made only in units of a full workweek at a time. However, the new regulations made the following useful changes:
Keep in mind that such salary deductions should (as a matter of best practice) be authorized in writing by the employee - for an illustration of this principle with regard to salary deductions, see item 12 in the sample wage deduction authorization agreement in "The A to Z of Personnel Policies" section of this book.
Simplified Duties Tests
The new regulations greatly simplify the duties tests applying to each category of exempt employee. The old " long test" standard of exempt duties at least 80% of each workweek was deleted, and the old " short test" standard of having exempt work as a primary duty was extended to cover each category. The test for " primary duty" was clarified to explain that it does not have to be performed at least 50% of the time to be considered the primary duty. Instead, the new regulation expressly incorporates the standards commonly recognized by courts, namely, 1) the relative importance of the exempt duties; 2) the amount of time spent performing exempt work; 3) relative freedom from direct supervision; and 4) the relationship between the employee's salary and the wages paid to other employees for the same kind of non-exempt work. Following is a summary of the duties tests for the various exemption categories:
Employers should note that the basic principles applying to exempt employees continue to be important: the white-collar exemptions are intended for the most important, highest-ranking, and most highly-skilled employees, the ones for whom it is generally impossible to standardize their work with respect to time, and the ones whose decisions substantially impact the company as a whole.
The DOL has posted a very useful overview of the various overtime exemption categories on its website at:
https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/overtime_complianceguide.pdf.
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Since the most frequently-requested overtime exemption regulation is the one defining what a true salary is, it is presented here in its entirety for the convenience of employers who need to see the full definition as adopted and enforced by the U.S. Department of Labor. Following is the text of 29 C.F.R. 541.602:
General rule. An employee will be considered to be paid on a "salary basis" within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.
Subject to the exceptions provided in paragraph (b) of this section, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work.
An employee is not paid on a salary basis if deductions from the employee's predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.
Up to ten percent of the salary amount required by §541.600(a) may be satisfied by the payment of nondiscretionary bonuses, incentives and commissions, that are paid annually or more frequently. The employer may utilize any 52-week period as the year, such as a calendar year, a fiscal year, or an anniversary of hire year. If the employer does not identify some other year period in advance, the calendar year will apply. This provision does not apply to highly compensated employees under §541.601.
If by the last pay period of the 52-week period the sum of the employee's weekly salary plus nondiscretionary bonus, incentive, and commission payments received is less than 52 times the weekly salary amount required by §541.600(a), the employer may make one final payment sufficient to achieve the required level no later than the next pay period after the end of the year. Any such final payment made after the end of the 52-week period may count only toward the prior year's salary amount and not toward the salary amount in the year it was paid.
An employee who does not work a full 52-week period for the employer, either because the employee is newly hired after the beginning of this period or ends the employment before the end of this period, may qualify for exemption if the employee receives a pro rata portion of the minimum amount established in paragraph (a)(3) of this section, based upon the number of weeks that the employee will be or has been employed. An employer may make one final payment as under paragraph (a)(3)(i) of this section within one pay period after the end of employment.
Exceptions. The prohibition against deductions from pay in the salary basis requirement is subject to the following exceptions:
Deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability. The employer is not required to pay any portion of the employee's salary for full-day absences for which the employee receives compensation under the plan, policy or practice. Deductions for such full-day absences also may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder. Thus, for example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions from pay for the three days of absence before the employee qualifies for benefits under the plan; for the twelve weeks in which the employee receives salary replacement benefits under the plan; and for absences after the employee has exhausted the 12 weeks of salary replacement benefits. Similarly, an employer may make deductions from pay for absences of one or more full days if salary replacement benefits are provided under a State disability insurance law or under a State workers' compensation law.
While an employer cannot make deductions from pay for absences of an exempt employee occasioned by jury duty, attendance as a witness, or temporary military leave, the employer can offset any amounts received by an employee as jury fees, witness fees, or military pay for a particular week against the salary due for that particular week without loss of the exemption.
Deductions from pay of exempt employees may be made for penalties imposed in good faith for infractions of safety rules of major significance. Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines.
Deductions from pay of exempt employees may be made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules. Such suspensions must be imposed pursuant to a written policy applicable to all employees. Thus, for example, an employer may suspend an exempt employee without pay for three days for violating a generally applicable written policy prohibiting sexual harassment. Similarly, an employer may suspend an exempt employee without pay for twelve days for violating a generally applicable written policy prohibiting workplace violence.
An employer is not required to pay the full salary in the initial or terminal week of employment. Rather, an employer may pay a proportionate part of an employee's full salary for the time actually worked in the first and last week of employment. In such weeks, the payment of an hourly or daily equivalent of the employee's full salary for the time actually worked will meet the requirement. However, employees are not paid on a salary basis within the meaning of these regulations if they are employed occasionally for a few days, and the employer pays them a proportionate part of the weekly salary when so employed.
An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act. Rather, when an exempt employee takes unpaid leave under the Family and Medical Leave Act, an employer may pay a proportionate part of the full salary for time actually worked. For example, if an employee who normally works 40 hours per week uses four hours of unpaid leave under the Family and Medical Leave Act, the employer could deduct 10 percent of the employee's normal salary that week.
When calculating the amount of a deduction from pay allowed under paragraph (b) of this section, the employer may use the hourly or daily equivalent of the employee's full weekly salary or any other amount proportional to the time actually missed by the employee. A deduction from pay as a penalty for violations of major safety rules under paragraph (b)(4) of this section may be made in any amount.
Under current TWC rules, no written authorization is necessary under the Texas Payday Law for the deductions authorized under § 541.602(b) above. However, it may help reduce potential complaints from employees if the employer obtains such authorization, as illustrated by item 12 in the sample wage deduction authorization agreement in this book.
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Use of Automated Timekeeping Systems
Timecard Policies and Strategies
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Part 516 of the wage and hour regulations (Title 29, Code of Federal Regulations) governs the recordkeeping obligations of employers under the FLSA. Employers should not regard the recordkeeping requirements as optional in any respect. Not only does the law require it, keeping accurate, reliable records regarding payroll matters is simply good strategy. The reason is simple: if an employee claims unpaid wages, especially unpaid overtime, and the employer is unable to counter the claim with any documentation, the "best evidence" rule used by the DOL will generally mean that the wage claimant will prevail on the question of hours worked, unless there is some independent reason to disbelieve the claimant. Following are the types of information for which employers must maintain records for possible inspection by DOL, as specified in 29 C.F.R. 516.2(a):
employee's full name - this is the same name as appears on Social Security records;
employee's home address - current address, including the employee's zip code;
employee's date of birth - this only applies if the employee is under 19 years of age. An alternative is to maintain an age certificate or other proof of the child's age - in Texas, such an age certificate is available from the Wage and Hour Department of the Texas Workforce Commission;
employee's gender and occupation - this is to allow verification of compliance with the Equal Pay Act provisions of the FLSA (see also 29 C.F.R. 1620.32);
workweek applicable to the employee;
employee's regular rate of pay - this applies to workweeks in which overtime is worked. In addition, the records must also reflect any payments to the employee that are not included in the regular rate;
wage payment basis - this is the basic pay rate applied to the employee's straight-time earnings;
hours worked by the employee - the records of hours worked should show hours worked each day and total hours for each workweek;
employee's straight-time earnings - total earnings on a straight-time basis, excluding overtime pay;
overtime pay on a workweek basis - this shows total overtime compensation for each workweek in which overtime is worked;
deductions from and additions to each employee's pay - these records must be maintained individually for each employee and must reflect the types of deductions or additions, the amounts deducted or added, and the dates of deductions or additions;
total wages paid - this is the total compensation paid to each employee for each pay period, broken down by straight-time earnings, total weekly overtime pay, and deductions or additions to pay;
pay periods - the records must show the dates on which each employee is paid, as well as the pay period applying to each employee's wage or salary payment; and
back pay - this relates to any government-supervised back or retroactive pay to employees that is given as a result of employment claims or lawsuits. Such records must reflect the employees receiving the back pay, the amount of the payment, the period covered by the payment, the date such payment is made, and date of receipt of the payment by the employee.
While some wage and hour records must be kept only two years, others require retention for three years under the federal law, and since the Texas unemployment tax rules require a four-year retention period for payroll records, it is a good idea to keep all wage and hour records for at least four years.
The recordkeeping requirements may change in the future. Employers should visit https://www.dol.gov/agencies/whd often to stay up with developments in this area of the law.
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As noted above, under 29 C.F.R. 516.2, employers must generally keep accurate records of all hours worked for non-exempt employees (working "off the clock" is never allowed for non-exempt employees). The exact method of recording the time worked is up to the employer, but it must be in a form that can be made available for inspection and copying by the DOL in the event of an investigation. Failure to keep records of hours worked is a risky proposition. Not only would that be a violation of part 516 of the regulations, it would also leave the employer at the mercy of the "best evidence" rule. Specifically, in the area of time worked, whoever has the best evidence of work time will prevail on that point. If an employer keeps no records, it is at the mercy of an employee who has maintained a personal log of hours worked. Unless there is a reason to disbelieve the employee and his or her personal log, that will generally be taken as the best evidence of the time worked, even if the employee may have been overly generous in crediting himself or herself with hours worked.
There are many different ways to record employees' work times. One is by designating a person to serve as timekeeper and manually enter starting and stopping times on a piece of paper. Another is to have employees fill in their own work times. Employers can have employees punch a time clock. Some companies with advanced systems have employees "swipe" their company ID cards or badges through a device that electronically records the time and enters it into a timekeeping database. Finally, some companies ask employees to enter their own times on their computers, or else use a telephone-based system to record their times. Regardless of the method used, it is subject to the requirements of part 516 and the "best evidence" rule in the event of a dispute.
If anyone makes revisions to time records, there should be a reliable log of all such changes and who made them. Time records, both original and modified, are subject to potential challenge by employees, so maintain the records in such a way that an outside auditor (such as from the U.S. Department of Labor in a records compliance audit situation) can tell that the revised and unrevised records are true and genuine and reflect what actually happened in terms of time worked, wages paid, and who made what changes at what time. Changes made to electronic time records would presumably need some sort of digital verification and security protocols, so ask your IT staffer to ensure the integrity of the system and that all access and changes are properly logged and allowed only with proper access codes. At some step of the process, it would be prudent to get the employees to sign off on any changes. That can be done electronically, but is, like any step of the process, subject to challenge by an employee who might feel cheated in some way. Have your IT staff work with your timekeeping software vendor regarding security, access, and verification issues.
For a sample policy on recording of work time, click here.
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Many employers do not pay employees according to the exact number of hours and minutes they work, but rather utilize some sort of "rounding" or "roundoff" system whereby a certain interval is set that serves as the minimum block of time that will be recognized as a unit of time worked or not worked. Time missed or worked within that interval will not be deducted from or added to the time worked, whereas time missed or worked outside that interval will result in that interval being deducted from or added to the time worked. The regulations on this are found in subpart D of part 785 of the wage and hour regulations. 29 C.F.R. 785.47 explains the so-called de minimis ["too small to matter"] rule, stating that "insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded." It notes, however, that the de minimis rule applies only in case of intervals of "a few seconds' or minutes' duration", and the employer would need to be able to explain how disregarding such intervals is "justified by industrial realities." In addition, any fixed or regularly-occurring work time may not be disregarded, no matter how small, as long as it can be readily ascertained. 29 C.F.R. 785.48(a) notes that if employees voluntarily clock in early prior to their scheduled starting time, or clock out after their scheduled ending time, they do not have to be paid for any time they are not actually working (i.e., getting a cup of coffee, reading a newspaper, eating doughnuts, etc.). However, employers should avoid letting employees do that, since major discrepancies between the time clock records and the hours for which pay is given may "raise a doubt as to the accuracy of the records of the hours actually worked.", in turn possibly tempting DOL to pay more attention to whatever personal records the employees may have maintained.
Strategic tip: do not allow employees to clock in or out more than a minute or two early or late. If they want to come early or stay late to relax, they can do that if the company approves, but make it clear that no work will be allowed outside of the normal schedule, and they should not clock in until they are ready to work.
As to "rounding" practices, 29 C.F.R. 785.48(b) explains that rounding off work times to the nearest 5 minutes, one-tenth of an hour, or even quarter of an hour is permissible, as long as it works both ways, i.e., both to the advantage and disadvantage of the employee. That way, the system can be said to achieve a balance over time, and the employee is not suffering a detriment by virtue of a system that always rounds off in favor of the company.
DOL's Field Operations Handbook covers this subject in Chapter 30, "Records, Minimum Wage, and Payment of Wages", pertinent excerpts from which appear below:
§ 30a02 Recording working time.
In recording working time, insubstantial or insignificant periods of time outside the scheduled working hours may be disregarded. The courts have held that such trifles are de minimis. This rule applies only where a few seconds or minutes of work are involved and where the failure to count such time is due to considerations justified by industrial realities. An employer may not arbitrarily fail to pay for any part, however small, of the employee's fixed or regular working time.
It has been found that in some industries, particularly where time clocks are used, there has been the practice of recording the employee's starting and stopping time to the nearest five minutes, or to the nearest one-tenth or quarter of an hour. For enforcement purposes, this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in the failure to compensate the employees properly for all hours they have actually worked.
If a record is kept with respect to each employee employed on a weekly or monthly basis in an establishment or department thereof operating on a fixed schedule, indicating the exact schedule of hours per day and hours per week which that employee is normally expected to work, and if the payroll (or other) records maintained by the employer indicate for each worker or for each group of workers that such scheduled hours were, in fact, adhered to, this will be considered compliance with Reg. 516 (Part 516, the recordkeeping regulations). When fewer or more hours than those fixed by the schedule are worked, the employer must supplement this record by showing the exact number of hours worked on the day and week involved.
The records must also contain a statement made each pay period that, except where otherwise recorded, the employees worked neither more nor less than the scheduled hours. This policy is applicable only where hours of work are actually fixed and it is unusual for the employee(s) to work either more or less than the scheduled hours.
§ 30a03 "Long punching" of hours.
Where time records show elapsed time greater than the hours actually worked because of reasons such as employees choosing to enter their work places before actual starting time or to remain after their actual quitting time, the CO [Compliance Officer] shall determine whether any time is actually worked in these intervals. If an employee came in early for personal convenience and did not work prior to the scheduled beginning time, a recording of the fact that the employee worked, for example, 8 hours that day is all that is required.
The CO may suggest to the employer, but not require, that the punch-time be kept as close to the work-time as possible to avoid any question that work was performed during such intervals.
Note: FOH 30a02(a) and (b) basically correspond to 29 C.F.R. 785.47 and 785.48(b), respectively, while FOH 30a03(a) corresponds to 29 C.F.R. 785.48(a).
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As noted in "Recording Working Time" (section B of this article), employers may use an automated or electronic system for keeping track of employees' work times. In an administrative letter ruling issued on February 6, 1998 (BNA, WHM 99:8120), DOL stated that a timekeeping procedure that utilizes an interactive voice-response telephone system and requires employees to enter starting and stopping times and leave usage on a company intranet-based "timecard" complies with the FLSA's hours worked (part 785) and recordkeeping (part 516) requirements, even if all data are stored in the company's computer system and no paper records are maintained. However, the computer-based system must be able if necessary to retrieve and output the data in a form that complies with part 516, and the recording of working time must meet the guidelines contained in 29 C.F.R. 785.46, 785.47, and 785.48. That ruling affirmed the DOL's stance in a similar ruling issued March 10, 1995 (BNA, WHM 99:8019); in that situation, employees used an automated telephone system to enter number codes through their telephones. Printouts of the time records were posted for four days for the purpose of review and corrections, and following that time, the printouts were discarded. Even though the only records were the ones maintained in the computer system, this procedure was deemed permissible by DOL as long as it affords "an accurate representation of time worked and provided the employer is able to convert the data, or any part of it, into a form which is suitable for inspection."
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If employers track employees' work time with time cards, some special precautions and policies are in order. Following are some things that employers may wish to consider:
require all employees to handle their own time cards;
prohibit employees from handling the time cards of other employees;
prohibit any changes or alterations to the time cards that are not pre-approved by designated supervisors;
prohibit employees from working "off the clock";
have employees sign their time cards;
include a certification on each time card to the effect that the time card accurately and completely reflects all time worked during the period in question and that no hours were worked that do not show up on the card.
For a sample policy that may help the company administer a reliable system for tracking hours worked, see the topic in this book titled "Work Schedules and Recording of Work Time".
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Employers must pay strict attention to the FLSA's recordkeeping requirements. The most essential principles of wage and hour recordkeeping are:
a DOL audit will always involve a check of the employer's wage and hour records, which an employer must keep for at least three years;
the most dangerous thing about not keeping accurate records is not the relatively minor penalties the DOL can impose, but rather that in wage and hour disputes, the DOL will usually give the benefit of the doubt to an employee's claims regarding time worked and pay deductions;
it is up to an employer to design an accurate and reliable timekeeping system.
Employers may also receive help on these issues by calling the legal staff at the toll-free number for the TWC Employer Commissioner's office: 1-800-832-9394. Finally, the U.S. Department of Labor website offers the full text of the FLSA and the accompanying regulations at https://www.dol.gov/agencies/whd.
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Calculation of the Regular Rate of Pay
Regular Rate of Pay for Hourly Employees
Regular Rate for Day Rates and Job Rates
Regular Rate for Book Rates and Flag Rates
Regular Rate for Employees Paid a Commission
Regular Rate for Salaried Non-Exempt Employees
Employees Working at Two or More Rates
Regular Rate Includes Certain Non-Cash Payments
Bonuses and Incentives and Exclusions
Annual Salary Paid in Shorter Period
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Overtime pay for a non-exempt employee depends upon the employee's "regular rate" of pay. Part 778 of the regulations contains all of the various ways to determine an employee's regular rate. Under 29 C.F.R. 778.109, an employee's regular rate of pay is an hourly rate, and under 29 C.F.R. 778.107, it must be at least minimum wage. This is true no matter what pay method is used to determine an employee's pay. Regardless of whether a non-exempt employee is paid by an hourly rate, salary, piece rate, day rate, book rate, flag rate, job or task rate, commission, or by some other method or combination of methods, the pay must be converted into an hourly equivalent to arrive at the "regular rate" for overtime computation purposes. See "Calculation of the Regular Rate of Pay" below for the basic way of computing the regular rate.
Under the OBBBA (H.R. 1, enacted in 2025), qualified tips (which would include an employee's share of a tip pool) and FLSA-required overtime pay are partially exempt from federal income tax (but not from other state and federal payroll taxes). Useful guidance regarding the extent to which such payments may be excluded from an employee's gross income is on the IRS website at https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions (click on "No tax on tips (Section 70201)" and "No tax on overtime (Section 70202)").
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According to 29 C.F.R. 778.109, "the regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions under section 207(e)) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid." "Total remuneration" means all wages earned by the employee during that week from whatever work was done and by whatever pay methods are used. For example, if an employee is paid an hourly rate plus a commission, the regular rate would be the straight-time hourly earnings plus the commission for that workweek, divided by the total number of hours worked during the workweek. If on top of that a productivity bonus is paid, the bonus would be added to the hourly earnings and the commission and then divided by the number of hours worked to arrive at the regular rate for that workweek. "Hours actually worked" does not include paid leave or holiday hours.
No matter what pay method is used, the regular rate of pay for overtime calculation purposes must be no less than minimum wage. The following topics describe in detail the methods for calculating overtime pay depending upon the pay method used for an employee. For a brief summary of all of the methods, see the "Conclusions" section at the end of this article.
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If a worker gets an hourly rate and nothing more, the regular rate will be the hourly rate. If productivity bonuses are given, they must be included in the regular rate as shown below. If a worker gets a shift differential, i.e., additional pay for working an unusual shift, the hourly rate, including the shift differential, is still the regular rate. The differential may not be counted toward overtime pay that might be due - the regular rate is simply higher because the hourly rate itself is higher. As an example, if the normal hourly rate is $12.50 per hour, and an employee receives a shift differential of $1.50 per hour, the regular rate of pay for that employee would be $14.00 per hour. 29 C.F.R. 778.110 covers the issue of the regular rate for employees who are paid a simple hourly rate. The regulation also gives an example of how to include a bonus in the regular rate. Here is the regulation in its entirety:
29 C.F.R. 778.110 - Hourly rate employee.
(a) Earnings at hourly rate exclusively. If the employee is employed solely on the basis of a single hourly rate, the hourly rate is the "regular rate." For overtime hours of work the employee must be paid, in addition to the straight time hourly earnings, a sum determined by multiplying one-half the hourly rate by the number of hours worked in excess of 40 in the week. Thus a $12 hourly rate will bring, for an employee who works 46 hours, a total weekly wage of $588 (46 hours at $12 plus 6 at $6). In other words, the employee is entitled to be paid an amount equal to $12 an hour for 40 hours and $18 an hour for the 6 hours of overtime, or a total of $588.
(b) Hourly rate and bonus. If the employee receives, in addition to the earnings computed at the $12 hourly rate, a production bonus of $46 for the week, the regular hourly rate of pay is $13 an hour (46 hours at $12 yields $552; the addition of the $46 bonus makes a total of $598; this total divided by 46 hours yields a regular rate of $13). The employee is then entitled to be paid a total wage of $637 for 46 hours (46 hours at $13 plus 6 hours at $6.50, or 40 hours at $13 plus 6 hours at $19.50).
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The regular rate for pieceworkers is computed by taking the total earnings from the piece rate work and dividing that figure by the hours worked. The resultant amount is the regular rate and represents straight-time pay for each hour worked. Since straight time is already figured into the piece rate earnings, including any overtime hours, each overtime hour would need to have additional compensation at half of the regular rate in order to bring the employee up to time and a half.
29 C.F.R. 778.111 explains the method for determining a pieceworker's regular rate and gives examples of how to use this computation method. The regulation also makes clear that if a pieceworker is given a bonus or some other form of compensation for work, such as waiting time pay, the additional compensation must be added to the piece rate earnings before dividing that total by the number of hours worked to arrive at the regular rate. In case a pieceworker is given a guarantee of minimum hourly pay, the employee is really being paid on an hourly basis in workweeks in which the piece rate earnings fail to equal the minimum guarantee. In that case, the regular rate would be computed on the basis of the hourly rate, plus any additional compensation such as bonuses.
As with any other pay method, the piece rate method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.
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Some employees are paid a daily rate or a job rate, which is intended to cover whatever hours it takes the employee to perform the work that day or for a particular job. Such a pay method is allowed as long as it results in overall compensation equal to at least minimum wage for all hours worked. Under 29 C.F.R. 778.112, the regular rate is determined by adding together all the daily-rate payments for the workweek, or all the job-rate payments for the jobs performed during the workweek, and dividing that total by the number of hours worked. If the resultant regular rate is below the minimum wage, the employer would have to make up the shortfall. Of course, if additional payments such as bonuses are made, those would have to be added to the daily-rate or job-rate earnings before dividing by the number of hours worked. The total daily-rate or job-rate earnings represent straight-time pay for all hours worked, meaning that overtime hours have to be compensated at only half of the regular rate.
As with any other pay method, the day or job rate method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.
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A form of wage payment known by various names, book rate, flag rate, task rate, or stint rate, bears similarities to piece rate payments on the one hand and daily or job rates on the other. In this variation, the employer applies a rate, usually determined by some sort of study or sometimes an industry standard, to various tasks performed by an employee. A common application for book or flag rate pay is found in the case of mechanics working for automobile repair shops. The employer will award four hours' worth of pay, for example, to a mechanic who completes a certain type of repair job on a car. The actual work may take less or more time than four hours. In such a case, the regulations found at 29 C.F.R. 778.312, 778.313, and 778.314 will apply. 29 C.F.R. 778.312 notes that these situations often turn out to be either a daily rate method or a piece rate method with a guaranteed hourly minimum. 29 C.F.R. 778.313 governs how overtime pay is calculated for employees paid a book, flag, or task rate.
As with any other pay method, the book or flag rate method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.
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Employees paid on a commission basis, or who are paid a commission in addition to an hourly rate or salary, are covered by the minimum wage and overtime rules just as any other non-exempt employee. As with other methods for determining the regular rate of pay for overtime purposes, the commission payments must be included with other forms of pay for hours worked in order to calculate the total straight time pay, which is then divided by the hours worked during a workweek in order to arrive at the regular rate of pay for that particular workweek. This basic method applies whether the commissions are paid on a weekly basis or on some other, less frequent basis. Since commission payments often vary from week to week, it is very common for employees paid on a commission basis to have a regular rate that likewise varies from week to week. 29 C.F.R. 778.117 explains the general issues in computing the regular rate for commission-pay employees.
If commissions are paid weekly, add the commission payment to the other forms of pay for that week and divide that total by the number of hours worked that week. Since the commission payment and other forms of pay represent the straight-time earnings for that week, any overtime would be compensated by paying half of the regular rate times the number of overtime hours on top of the straight-time earnings, thus bringing the employee up to time and a half; see 29 C.F.R. 778.118.
If commissions are paid on a delayed basis, extra overtime pay based upon commissions earned for a particular workweek does not have to be paid until the commission amount is determined. 29 C.F.R. 778.119 provides that in case the commission payments can be specifically tied to particular workweeks, the amounts so allocated are added to the other earnings for those workweeks, and the regular rate calculations are carried out as discussed above. If the commissions cannot be allocated to specific workweeks of activity, then the calculation is carried out basically the same as for bonuses that are paid for a quarter, half-year, or year: the commission must be allocated pro-rata to each workweek in the period covered by the commission payment, and in any workweeks in which the employee worked overtime, the regular rate would be recalculated as discussed above; see 29 C.F.R. 778.120. As is the case with commissions paid weekly, for a workweek with overtime hours, overtime pay equals half of the recomputed regular rate times the number of overtime hours. Put another way, the extra overtime pay would be equal to one-half of the increase in the regular rate due to the commission, multiplied by the number of overtime hours that week. (The regular rate increase only needs to be multiplied by one-half because the commission allocation itself represents the straight-time payment - adding the two together results in the payment of time and a half.) If the hours worked vary significantly from week to week, thus making it unrealistic to allocate equal portions of the commission to each workweek, an alternative method is allowed under 29 C.F.R. 778.120(b) that involves allocating an equal amount of the commission to each hour worked during the computation period (i.e., commission amount divided by total hours in the computation period); the overtime is then calculated by multiplying one-half of that figure (representing the increase in the regular rate attributable to the commission) by the number of overtime hours worked in each workweek during that period. See 29 C.F.R. 778.119 and 778.120 for examples of the above calculations.
As with any other pay method, the commission pay method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.
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The regular rate of pay for salaried non-exempt employees is always calculated by dividing the salary amount, based on a weekly equivalent, by an hours worked amount. However, the exact amounts and what is then done with the regular rate will vary according to the exact situation. Keep in mind that if a salaried employee is also given a productivity bonus or a commission, or some other type of compensation for work performed, the extra compensation must be added to the weekly salary equivalent before dividing the total by the hours worked. As with any other pay method, the salary method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.
The weekly salary equivalent for an employee paid a weekly salary is simply the weekly salary. The weekly salary equivalent for an employee paid biweekly is equal to one-half of the biweekly salary. The weekly salary equivalent for an employee paid semimonthly or monthly is derived as explained below in Section H.2.
For detailed information on the various ways that overtime pay may be calculated for a salaried non-exempt employee, see the following topics.
Under 29 C.F.R. 778.113(a), to arrive at the regular rate for a non-exempt salaried employee, take the weekly salary equivalent and divide it by the number of hours the salary is intended to compensate. If the salary is for a 40-hour workweek, overtime is simple: divide the salary by 40 to get the regular rate, and then pay any overtime hours by multiplying 1.5 times the regular rate. However, if the salary is for a lesser workweek, such as 36 hours, divide the salary by 36 to get the regular rate. If the employee works 40 hours on such a basis, the total pay would be the salary for the 36 hours plus 4 hours times the regular rate. If the employee works 42 hours, the total pay would be the salary for the first 36 hours, plus 4 hours times the regular rate, plus two hours times 1.5 times the regular rate. Finally, if the salary is intended to compensate for 45 hours per week, the regular rate would be the salary divided by 45. The hours past 40 would be compensated at one-half of the regular rate up to 45, and hours past 45 would be paid at time and a half.
For non-exempt salaried employees who are paid either twice per month (semimonthly) or monthly, the payments must be reduced to their workweek equivalents in order to arrive at the regular rate of pay. Once the workweek equivalent is known, then the general rule for weekly salaries is applied. (Keep in mind that under the Texas Payday Law, non-exempt employees must be paid at least twice per month, i.e., biweekly or semimonthly, and so the provision about monthly salaries will not apply to non-exempt employees in Texas or any other state with a similar provision.) 29 C.F.R. 778.113(b) provides two main ways for an employer to compute overtime pay for salaried employees paid once or twice per month. The first method involves figuring out the workweek equivalents:
Semimonthly salary - multiply the salary times 24 to get the annual equivalent, then divide that figure by 52 to get the workweek equivalent. Then apply the general rule of 29 C.F.R. 778.113(a) to arrive at the regular rate.
Monthly salary - multiply the salary by 12 for the annual equivalent, then divide that figure by 52 to get the workweek equivalent. Then apply the general rule of 29 C.F.R. 778.113(a) to arrive at the regular rate.
The other main way to pay overtime based on semimonthly or monthly salaries is to figure it on the basis of an established basic rate as provided in section 207(g)(3) of the Act and Part 548 of the regulations. 29 C.F.R. 548.3(a) provides that the employer and employee may agree that the regular rate shall be determined by dividing the monthly salary (or semimonthly salary times 2) by the number of regular working days in the month and then by the number of hours of the normal or regular workday. Of course, the resultant rate in such a situation may not be below the statutory minimum wage. Further requirements for such an established regular rate are found in 29 C.F.R. 548.2.
Once again, Texas employers must pay their salaried non-exempt employees at least twice per month, i.e., either biweekly or semimonthly.
If an employee is paid a fixed salary each workweek for hours that vary up and down from week to week, the employer may use an overtime calculation method authorized in 29 C.F.R. 778.114. This method is called the "fixed salary for fluctuating workweeks" form of computing overtime. It is easily the most favorable method for employers of computing overtime, but certain requirements have to be met. Many employers favor it because it results in a diminishing regular rate, and thus diminishing overtime pay, the more overtime hours there are in a workweek. For the same reason, many employees do not like this method. Moreover, the regular rate varies under this method from week to week, so some employers and employees do not like the unpredictability of this way of computing overtime pay. A final drawback of this method of pay is that DOL takes the position that it is incompatible with various forms of incentive pay, i.e., bonuses, shift premiums, and other types of incentives based on production or performance. Thus, it is restricted to those who are paid solely by means of a fixed salary (a commission on top of a fixed salary is not a problem, but it must be figured into the regular rate of pay before the overtime pay calculation is done).
For an employer to qualify for using this method, the employee must have a work schedule with fluctuating hours, i.e., not be on a fixed schedule, and must be paid a fixed salary that is meant to be straight-time compensation for all hours worked in a workweek, whether the employee works less than or more than 40 hours per week. In addition, the fixed salary must be paid "pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many." The "understanding" does not require a formal agreement or explanation beyond simple notice that the fixed salary will serve as straight-time compensation for all hours worked (see Samson v. Apollo Resources, Inc., 242 F.3d 629, 637 (5th Cir. 2001)). With almost no exceptions, no reduction in the salary may be made for short workweeks. Although the full fixed salary must be paid during short workweeks resulting from a lack of work or authorized absences due to personal business or illness, an employer may make "occasional disciplinary deductions for willful absence or tardiness" if the employee, without authorization, fails to work the available schedule. However, such deductions may not affect either the minimum wage or the regular rate calculation for overtime pay purposes, i.e., the full salary is still divided by the actual hours worked that week to calculate the regular rate of pay. See the DOL Field Operations Handbook § 32b04b(b); see also 29 C.F.R. § 778.304(a)(5), (b); 29 C.F.R. § 778.307; and Samson v. Apollo Resources, Inc., 242 F.3d at 639. Application of available paid leave to time missed during a short workweek is allowed, as noted in several DOL opinion letters, including FLSA2006-15 issued on May 12, 2006. Finally, the salary must be large enough to ensure that the regular rate will never drop below minimum wage. In using this method, the regular rate is determined by dividing the fixed salary by the number of hours actually worked that week (which does not include paid leave or paid holidays). Now, here's where the importance of this overtime method comes in: since the fixed salary is already deemed to compensate the employee at straight time for all hours worked, any overtime hours only need to be paid at "half-time", instead of time and a half. Remember, the employee has already been paid straight time by virtue of the salary, and the straight time is only paid once, so the overtime hours will be paid at half the regular rate, thus bringing the employee's pay up to time and a half for such hours. In workweeks in which the overtime is high, the regular rate will be low, and the employer will enjoy a lower per-hour overtime cost. The drawback is that if work is slow, and the employee is only working 25 or 30 hours per week, the fixed salary must still be paid. Useful examples of how to apply this method are found in 29 C.F.R. 778.114. You can also use the calculator below to see how the overtime pay is calculated using this method and how the regular rate of pay varies according to the number of overtime hours worked in a particular workweek (note: you must have JavaScript enabled in your browser to use the calculator below; this utility is not intended to be a substitute for the advice or assistance of a payroll professional, nor is it an official pay calculator - it is here only to help illustrate the principles behind the overtime pay calculation when the fixed salary for fluctuating workweeks method applies):
(When entering figures into the blanks provided in the first set of fields (the salary and hours for a workweek), enter only numbers - no dollar signs or commas are needed. For fractions of hours, convert fractions to decimals first, then enter the decimal numbers, rounding to the nearest tenth or hundredth of an hour, depending upon how exact you would like the calculation to be.)
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