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UNEMPLOYMENT INSURANCE LAW - COVERAGE ISSUES

 

Definition of An Employer
Types of Employers
Types of Employees

 

A. General Background

 

All 50 states, including Texas, have unemployment compensation or unemployment insurance statutes that must meet federal guidelines; consequently, unemployment insurance (UI) systems around the country share many characteristics. Generally, anyone who is no longer performing personal services for compensation may file a UI claim and try to draw benefits, but must meet various requirements, including monetary eligibility, continuing eligibility, and qualification requirements. These requirements for Texas claimants are found in the Texas Unemployment Compensation Act (TUCA - Texas Labor Code Sections 201.001 et seq.).

 

B. Definition of an Employer    Top of Page

 

There is a difference under the TUCA between "employing unit" and "employer", as shown by the following definitions from the statute:

 

Sec. 201.011. General Definitions.

 

In this subtitle:

(11) "Employing unit" means a person who, after January 1, 1936, has employed an individual to perform services for the person in this state.

 

Sec. 201.021. General Definition of Employer.

 

(a) 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.

(b) The definition provided by this section does not apply to an employing unit covered by Section 201.023 or to farm and ranch labor covered by Section 201.028.

(c) An individual who performs a service in this state for an employing unit that maintains two or more separate establishments in this state is employed by a single employing unit for purposes of this subtitle.

 

Types of Employers    Top of Page

 

Last Employing Unit
Temporary or Contingent Employers
Not-for-Profit Entities
Public Employers

 

1. Last Employing Unit    Back

 

When an unemployed worker files a UI claim, the claimant must name the individual or business for whom they last performed work for "remuneration" or pay. The source of that last work is known as the "last employing unit", or LEU. The LEU may or may not be an employer that is liable for unemployment taxes or reimbursements to TWC. The conditions for employer liability are set forth in Section 201.021 shown above. As defined in Section 208.002(a), the LEU is "the last person for whom the claimant actually worked, if the claimant worked for that person for at least 30 hours during a week; or" any employer that is a liable or "covered" employer under the law of Texas or any other state, "for whom the claimant last worked." Failure to name the correct LEU may cause TWC to disallow the claim, in which case the claimant is instructed to file a corrected, backdated initial claim naming the correct last employing unit, and a new Notice of Application for Unemployment Insurance is sent to that particular LEU.

 

2. Temporary or Contingent Employers    Back

 

Temporary staffing firms are quite numerous in Texas and supply tens of thousands of temporary employees to client firms that need to cover short-term staffing shortfalls. The TUCA contains the following definition relating to temporary or contingent staffing:

 

Sec. 201.011. General Definitions.

 

In this subtitle:

(20) "Temporary employee" means an individual employed by a temporary help firm for the purpose of being assigned to work for the clients of a temporary help firm.

(21) "Temporary help firm" means a person who employs individuals for the purpose of assigning those individuals to work for the clients of the temporary help firm to support or supplement a client's work force during employee absences, temporary skill shortages, seasonal work loads, special assignments and projects, and other similar work situations.

 

Sec. 201.029. Temporary Help Firm.

 

For purposes of this subtitle, a temporary help firm is the employer of an individual employed by the firm as a temporary employee.

 

Sec. 201.030. Professional Employer Organization.

 

For the purposes of this subtitle, "professional employer organization" has the meaning assigned by Section 91.001 (Chapter 91 of the Texas Labor Code).

 

Chapter 91 of the Texas Labor Code, which regulates the professional employer organization (PEO) industry, supplies further definitions that are useful for understanding temporary and other contingent staffing firms as employers:

 

Sec. 91.001. Definitions.

 

In this chapter:

(14) "Professional employer services" means the services provided through co-employment relationships in which all or a majority of the employees providing services to a client or to a division or work unit of a client are covered employees. The term does not include:

(A) temporary help;

(B) an independent contractor; ...

 

(16) "Temporary help " means an arrangement by which an organization hires its own employees and assigns them to a company to support or supplement the company's work force in a special work situation, including:

  1. an employee absence;

  2. a temporary skill shortage;

  3. a seasonal workload; or

  4. a special assignment or project.

 

Special rules apply when temporary employees of staffing firms become unemployed and file UI claims. Section 207.045 sets forth the conditions under which an employee of a temporary staffing firm or professional employer organization may be disqualified under the voluntary leaving provision:

 

Sec. 207.045. Voluntarily Leaving Work.

 

(a) An individual is disqualified for benefits if the individual left the individual's last work voluntarily without good cause connected with the individual's work.

(b - g)

(h) A temporary employee of a temporary help firm is considered to have left the employee's last work voluntarily without good cause connected with the work if the temporary employee does not contact the temporary help firm for reassignment on completion of an assignment. A temporary employee is not considered to have left work voluntarily without good cause connected with the work under this subsection unless the temporary employee has been advised:

  1. that the temporary employee is obligated to contact the temporary help firm on completion of assignments; and

  2. that unemployment benefits may be denied if the temporary employee fails to do so.

(i) A covered employee of a professional employer organization is considered to have left the covered employee's last work without good cause if the professional employer organization demonstrates that:

  1. at the time the employee's assignment to a client concluded, the professional employer organization, or the client acting on the professional employer organization's behalf, gave written notice and written instructions to the covered employee to contact the professional employer organization for a new assignment; and

  2. the covered employee did not contact the professional employer organization regarding reassignment or continued employment; provided that the covered employee may show that good cause existed for the assigned employee's failure to contact the professional employer organization.

 

3. Not-for-Profit Entities    Back

 

Sometimes one hears a misconception that non-profit entities are not liable under the unemployment compensation system. Although the law leaves extremely small non-profits out of the picture (those with fewer than four employees), most non-profit institutions will be liable employers under the TUCA:

 

Sec. 201.023. Tax-Exempt Non-profit Organization.

 

In this subtitle, "employer" also means an employing unit that:

(1) is a non-profit organization under Section 501(c)(3), Internal Revenue Code of 1986 (26 U.S.C. Section 501(c)(3));

(2) is exempt from income tax under Section 501(a), Internal Revenue Code of 1986 (26 U.S.C. Section 501(a)); and

(3) 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.

 

4. Public Employers    Back

 

Public or governmental employers are liable under the TUCA. Although most public employers do not pay a quarterly state unemployment tax, all governmental subdivisions must have an employer account with TWC and report the wages of all of their employees on a quarterly basis. The TUCA contains the following definition of such employers:

 

Sec. 201.026 State; Political Subdivision.

 

In this subtitle, "employer" also means a state, a political subdivision of a state, or an instrumentality of a state or political subdivision of a state that is wholly owned by one or more states or political subdivisions of one or more states.

 

Public employers fall into two main groups, depending upon how they pay the costs of unemployment claims for their workers. The first group is "reimbursing governmental employers", consisting of those public entities that have elected reimbursing status with TWC. A reimbursing employer pays no state unemployment tax, but simply reimburses TWC dollar for dollar for its share of any UI benefits paid out to its former employees. The second group is "taxed group account". That designation means that the governmental employer is part of a larger group of similar employers that pool their wage credits and their chargebacks, and pay a group UI tax rate that is based upon the shared claim history of the group.

 

Regardless of whether a governmental employer elects reimbursing status or is part of a taxed group account, the chargeback protection provisions that apply to private sector taxed employers do not apply. That means that if benefits are paid out to former employees, the governmental employer will end up either reimbursing TWC for its share of the benefits or paying a group tax rate that is influenced by the benefit payments.

 

C. Definition of an Employee    Top of Page

 

General Definition of Employment
Temporary Employees
Independent Contractors
Seasonal Workers
Labor Disputes
School Employees
Alien Eligibility
Athletes
Part-Time and Full-Time Employees

 

1. General Definition of Employment    Back

 

The TUCA contains no direct definition of "employee". The term is indirectly defined in the definition of "employment":

 

Sec. 201.041. General Definition of Employment.

 

In this subtitle, "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.

 

From this definition, an "employee" is anyone who performs services under the direction and control of an employer.

 

2. Temporary Employees    Back

 

The TUCA did not contain a definition for temporary employees until September 1, 1993, at which time the following formal definition was added to the law:

 

Sec. 201.011. General Definitions.

 

In this subtitle:

(20) "Temporary employee" means an individual employed by a temporary help firm for the purpose of being assigned to work for the clients of a temporary help firm.

(21) "Temporary help firm" means a person who employs individuals for the purpose of assigning those individuals to work for the clients of the temporary help firm to support or supplement a client's work force during employee absences, temporary skill shortages, seasonal work loads, special assignments and projects, and other similar work situations.

 

Sec. 201.029. Temporary Help Firm.

 

For purposes of this subtitle, a temporary help firm is the employer of an individual employed by the firm as a temporary employee.

 

3. Independent Contractors    Back

 

Just as with the term "employee", the term "independent contractor" is not expressly defined in the Act. However, it is indirectly defined in the following provision:

 

Sec. 201.041. General Definition of Employment.

 

In this subtitle, "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.

 

Hence, independent contractors would be those individuals whose services are performed free from direction or control of an employer. This term is widely misunderstood, however, and one must be familiar with the various tests used to determine whether a worker is an employee or an independent contractor. TWC uses a combination of the common-law "direction and control" test and the "twenty-factor" test traditionally used by the IRS. TWC's criteria have been formally published by the agency's Tax Department on the TWC Web site. It is available at http://www.texasworkforce.org/ui/tax/forms/c8.pdf (PDF).

 

In a nutshell, independent contractors are not independent just because they are called that by the employer, or because they call themselves that, or because they have signed an "independent contractor agreement". Independent contractor status does not depend upon what a piece of paper says about the situation, but rather upon the underlying nature of the work relationship. A good way to think about the concept is this: independent contractors are independent business entities who are in a position to make a profit or loss based upon how they operate their own standalone business enterprises. For much more detail on this subject, see the article "Independent Contractors / Contract Labor" in Part I of this book.

 

 

4. Seasonal Workers    Back

 

In general, the TUCA makes no distinction between employees in general and employees who work on a seasonal basis. The fact that an employee may have only seasonal employment has no bearing on his or her ability to file a UI claim following the loss of such employment. It may have a bearing on monetary eligibility, though, if the work season is short and not much other work is done during the year; that subject is covered in more detail later in this paper.

 

Seasonal workers who perform services for agricultural employers are mentioned in a specific provision of the TUCA:

 

Sec. 201.047. Farm and Ranch Labor as Employment.

 

(a) Farm and ranch labor is employment for the purposes of this subtitle if the labor:

(1) is performed by a seasonal worker employed on a truck farm, orchard, or vineyard;

 (2) is performed by a migrant worker;

 (3) is performed by a seasonal worker who:

(A) is working for a farmer, ranch operator, or labor agent who employs a migrant worker; and

(B) is doing the same work at the same time and location as the migrant worker; ...

 

The main thrust of that provision is to ensure that seasonal workers on farms or ranches have the possibility of filing UI claims following the end of the season for which they are hired.

 

5. Labor Disputes    Back

 

Section 207.048 of the TUCA basically disqualifies from unemployment benefits any claimant who is unemployed as the result of a work stoppage that stems from a labor dispute. The effect of this section is to prevent striking workers from collecting UI benefits during the work stoppage that resulted from a labor dispute in which they might be involved, either directly or indirectly. Precedent cases adopted by the Commission make it clear that such workers are not even considered separated from employment - the work relationship is still in existence during the pendency of the labor dispute. The work relationship comes to an end only if the employer or the employee takes an unequivocal action to sever the employment relationship, such as the employee formally resigns from employment, the employer lays the striking workers off, the employer refuses an unconditional offer by the striking employee to return to work, or some other similar action occurs.

 

6. School Employees    Back

 

The TUCA prevents school district employees from collecting UI benefits based upon their school wages during any period in which work is not available between academic terms or semesters, or during a school break, if there is "reasonable assurance" that the employee will be able to return to such employment in the following academic term or semester, or following the end of the break. Hence, school employees may not collect UI benefits based upon their school district wages during holiday breaks, or over the spring or summer breaks, or during other breaks in the school year, as long as there is reasonable assurance that the employee will return to the school's employment following the break.

 

7. Alien Eligibility    Back

 

Generally speaking, individuals who are not legally employable in the United States may not draw UI benefits, even if they meet all the other eligibility and qualification requirements. For one thing, it is illegal to employ such workers, and wages from illegal employment are not supposed to be reported to TWC. For another, one of the continuing eligibility requirements for every claimant is that they be authorized to work in the United States. A person who is not so authorized is not "available" for full-time work, as required under the statute. The TUCA provides in pertinent part the following regarding alien workers:

 

Sec. 207.043. Aliens.

 

(a) Benefits are not payable based on services performed by an alien unless the alien:

(1) is an individual who was lawfully admitted for permanent residence at the time the services were performed;

(2) was lawfully present for purposes of performing the services; or

(3) was permanently residing in the United States under color of law at the time the services were performed, including being lawfully present in the United States as a result of the application of Section 212(d)(5) of the Immigration and Nationality Act (8 U.S.C. Section 1182(d)(5)).

 

8. Athletes    Back

 

In a provision similar to that covering school employees between semesters, professional athletes may not file for UI benefits between sports seasons if there is a reasonable assurance that they will return to the team in the next sports season:

 

Sec. 207.042. Athletes.

 

Benefits are not payable to an individual based on services, substantially all of which consist of participating in a sport or athletic event or training or preparing to participate in a sport or athletic event for a week that begins during the period between two successive sport seasons or similar periods if:

(1) the individual performed the services in the first of the seasons or periods; and

(2) there is a reasonable assurance that the individual will perform the services in the later of the seasons or periods.

 

9. Part-Time and Full-Time Employees    Back

 

The TUCA does not distinguish between part-time and full-time employees in terms of coverage under wage reporting and claim-filing laws. Employers must report the wages of all employees, both part-time and full-time, to TWC. Likewise, there is nothing special about part-time status that prevents an individual who was last employed on a part-time basis from filing an unemployment claim. However, if an employee loses her part-time position with a company and files an unemployment claim, she will be ruled ineligible for UI benefits if she is available only for part-time employment. One of the basic eligibility criteria is that claimants must be available and actively searching for full-time employment, and another provision of the law disqualifies a claimant who refuses an offer of suitable full-time work without good cause (see the following article, "Unemployment Insurance Law - Eligibility Issues"). Claimants who have been through the system before sometimes tailor their statements to the agency in order to fit those criteria - they will say they are available for full-time work, even though they might rather work only on a part-time basis. Even if a former part-time employee manages to convince a claim investigator that they are available for full-time work, their UI benefits will be based upon the relatively low wage levels they earned in the part-time job. UI benefit levels are not very appealing in any event (as of October 1, 2014, a maximum of $465 per week even for the highest earners; the minimum is $64 per week), and benefit levels for former part-timers would be lower still, so most people do not have a great incentive to keep drawing benefits after a few weeks unless they genuinely cannot find suitable new work despite their best efforts to do so.

 

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