This section discusses the aspects of the law that specifically apply to employment.

Under Section 201.041:

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.

This subsection of the Act contains the general definition of employment. The definition is essentially the master-servant concept of the English Common Law.

Tax is collected on the basis of wages paid for employment. Benefits to claimants under the Act are payable on the basis of wages received for employment from subject employers. Therefore, an understanding of the term "employer" is a prerequisite for understanding other provisions of the law.

There are three essential elements to the definition of employment: : first - service, second - wages, and third - direction and control.

The services which are essential to the definition of employment are personal services. A person who agrees to perform personal services may have specific or implied permission to engage the services of a helper, in which event the helper is in employment if the person who engages the helper is in employment. (See Paragraph 1.2.5, "Individuals Employed to Assist".)

The agreement under which a person agrees to perform service is known as a contract of hire. When service is performed as a gratuity with no requirement that services be performed or any understanding that they will be performed, it cannot be said that the services are performed under a contract of hire. A gift in appreciation for gratuitous services cannot be considered wages.  However, any gift, including cash, to an individual under contract of hire must be considered wages.

Services performed by a child under the age of twenty-one for a parent are specifically excluded from the definition of employment. Service performed by a son or daughter over the age of twenty-one constitutes employment if the service is performed under a contract of hire or because of an understanding that wages for the service will be paid. However, the payment of money by a parent to a child may actually constitute only a support payment with no services being expected from the child. In such a situation, all facts should be considered prior to making a ruling.

A valid contract of hire may be either written or oral. Either type may state the terms of the agreement, but it is theoretically possible for the terms of the agreement to be implied by the relationship between the parties or other pertinent facts.

Even though services are essential to employment, it may not be necessary that actual service be performed. The contract of hire may be of such a nature that there is a continuing obligation by one party to perform services for the second party, if so required by the second party. An individual may be absent from his work on a day and yet be in employment on that day by reason of circumstance that the individual is required to return to work under the terms of the contract of hire. An individual absent from work during a day while on vacation or sick leave could be considered as being in employment on that day. The following three examples will expose some of the problems in analyzing the employment status of an individual on a day when no actual service is performed; actual service as used here means actual work:

Example 1: A pharmacist is hired by the owner of a drug store at a salary of $4,700 per month with the understanding that the customary workweek is Monday through Saturday.

The pharmacist does not perform any physical work on Sundays but it appears clear that there is an implied understanding that he/she is to return to work on Monday. Precedent rulings support the position that this obligation constitutes a form of service and that the pharmacist is in employment on Sunday. There is a continuing relationship (employment) which has not been terminated by discharge or resignation.

Example 2: Mr. X is hired by Company A to work six days each week, Monday through Saturday, for compensation at the rate of $5.15 per hour. It is understood that he is to receive two weeks' vacation with pay each year and that, after the first year of service, sick leave with pay accumulates to a maximum of two weeks each year.

It would not appear to be important whether Mr. X was to be paid by the month, by the week, or on an hourly basis. The expressed terms of the contract anticipate vacation and sick leave without change in the employee's relationship since he will return to work under the terms of the contract of hire. The continuing employment relationship and obligation to Company A during absence from work would be presumed to the extent that Company A could require his return to work at its pleasure. It may be safely presumed that Mr. X is in employment on each of the days during his vacation or sick leave.

Example 3: A person is employed OCCASIONALLY to check groceries in a grocery store at the rate of $5.15 per hour. The person is paid for the actual number of hours worked and does not receive pay for any time she is absent.

Under these circumstances, the Commission usually holds that the worker is in employment only with respect to those days actually worked. The type of employment and the rate of pay indicate that each period of employment is the result of a separate agreement, and there does not appear to be the type of continuing relationship as described in Example Number 1.

The Commission believes that it is logical that a distinction be recognized between Example Number 1 and Example Number 3. The conclusion in Example Number 1 is applicable to the situation where the employee is paid by the week, month or year and might also be applicable to a full-time, or part-time, regular employee paid at a daily or hourly rate. The conclusion reached in Example Number 3 is applicable where the employee is paid by the hour or by the day or at piecework rates but works intermittently, and a new hiring agreement occurs each time the worker is needed.

As a general principle, an employee is considered to be performing service each day of each week during the period of time that there is an employment relationship between the employee and the employer. The relationship exists from the day employment began through the day that it was discontinued by discharge, death, resignation, or an alteration in the terms of the employment agreement, making the individual an independent contractor. This position of the Commission is supported by ruling of the Internal Revenue Service.

Internal Revenue Service, which collects the tax imposed by FUTA promulgated Revenue Ruling 55-19 in 1955 on the subject of proper interpretation of Section 3306(a) of the Federal Unemployment Tax Act. This ruling, particularly with respect to part-time and casual laborers, is based primarily on the continuation of an "employer-employee relationship" rather than the concept of "employment" (i.e., service, remuneration, and control), even though the term "employment relationship" is also used in the ruling. In the Tax Department's opinion, the IRS position can be more firmly defended under the wording of the FUTA than could an identical position be defended under the wording of Subsection 19(g)(1) now 201.041 of the TUCA. Since an employer liable under FUTA is also a subject employer under the TUCA, it will sometimes be advisable for TWC to assert tax liability under subsection 19(f)(5) now 201.025 rather than subsection 19(f)(1) now 201.021.

Revenue Ruling 55-19 being complete and unambiguous, is reprinted below:

Circumstances under which a person may be regarded as an employer within the meaning of section 1607(a) of the Federal Unemployment Tax Act, and accordingly liable for tax imposed under the Act.

Inquiries have been received regarding the method to be used in arriving at a weekly count of employees for purposes of determining liability of an employer under certain conditions, particularly where part-time employees are involved. The following questions and answers illustrate the application of the foregoing provisions of the Act.

Question: Are employees considered to be in the employ of an employer during the entire week where, because of the long daily hours of employment, the employees are granted 1 or 2 days of absence each week and substitutes replace the absent regular employees?

Answer: The regular employees should be considered to be in the employ of the employer during the entire week. The basis of this conclusion is that the employer-employee relationship, which exists between the parties, does not terminate by reason of their absence from duty for 1 or 2 days during the week. If the employer- employee relationship exists, it is immaterial that the employee performs no physical service for the employer on certain days of the week.

Question: Is the method or frequency of payment considered to be a factor in determining whether or not an employee is 'regular' or 'permanent'?

Answer: The basis on which compensation is paid is not a factor to be considered in determining whether a person had the requisite number of employees for the prescribed period to qualify as an employer under the Act.

Question: Would a worker who is paid on a daily basis always be construed to be 'in employment' on only a day-to-day basis?

Answer: The existence of an employment relationship is the controlling factor. Whether or not an employment relationship, once established, continues depends upon the intention of the parties. For example, if the agreement between the parties requires the performance of services on 1 day each week, the employment relation continues and the employee should be counted in determining liability under the Act even though he/she is paid at the end of each day. On the other hand, where an employee works 1 day, and the understanding between the parties is that the employer will communicate with the employee if and when his/her services are needed and that the employee will work if not otherwise engaged, the employment relationship is terminated at the end of the day worked. In the latter instance, the employee should be counted in the employ of this employer only on the days he/she actually performed services.

See also Tax Supplement 176-74

"Wages" are the reward of labor and always come from contracts, expressed or implied. Any doubt that wages are an essential to "employment" was resolved by the Kenyon Case. The court gave its whole consideration to the question of whether wages were essential to a finding of "employment" under the Act. The court recognized that the law used the term "wages" in place of "contract of hire" but held "that the purpose and meaning of the Texas Unemployment Compensation Act is that a person shall receive some remuneration, in the form of wages, salary or non-cash remuneration for services performed by such individual before he shall be considered as performing services under a 'contract of hire,' expressed or implied. . . ." See Tax Supplement 176-74.

Under the language of the statutory definition of "employment," if services are performed for wages or under a contact of hire, the individual "shall be deemed to be in employment subject to this Act unless and until it is shown to the satisfaction of the Commission that such individual has been and will continue to be free from control or direction over the performance of such services both under his contract of service and in fact." This quotation seems to place upon the employing unit the whole burden of proof of the amount of control or direction over the performance of the service. The Commission, in court, might rest its case on a showing of only the first two ingredients - service and wages. Such an administrative practice by the Commission would, however, finally result in a false claim of employment status in a large number of cases since many individuals perform personal services for remuneration under circumstances which leave them free of control and direction over the performance of such services, and are, in fact, independent contractors.

The meaning of control as used in the Act encompasses the right to control even though control is not actually exercised. If the employer controls the manner and means by which the work is performed or has the right to do so, the person performing the work is in employment. If the employer merely has a right to control and determine the extent or quality of the end result of the services, he/she does not have the type of control, which creates an employment relationship. An independent contractor has a right to determine the ways and means and methods of accomplishing a project and is responsible to the person who engages him/her only to the extent of delivering a finished product which meets the agreed specifications.

It is the responsibility of the Commission to determine whether or not a relationship constitutes employment. The statements made by the parties involved should be given due weight, but often they do not know the legal standing of the relationship between the employer and the person performing the work. Details of the relationship will be determined by detailed questioning of the principals, an examination of written documents, both with respect to the terms of the hiring agreement and the manner in which the work has been actually performed.

Under Section 201.042:

In this subtitle, "employment" includes service:

COMMENT: An agent-driver or commission-driver may operate his/her own truck or a truck belonging to his/her employer. The driver serves customers designated by his employer as well as those solicited on his/her own. Compensation is either a commission on sales or the difference between the purchase price for the product and the selling price.

In the case Jearl Thorpe, Inc., doing business as Minutemen Gourmet Foods, decided March 9, 1988, the Commission held that agent-drivers who were engaged in route sales and delivery of frozen meat, poultry, fish, and gourmet food products are in employment. In that case, the Commission rejected the appellant's argument that the same services also fell under Section 201.070 of the Act. Upon reviewing the legislative history of both of these two subsections, one an exemption from the definition of employment and the other an inclusion within the definition of employment, the Commission held that because Section 201.042(1) is the more narrowly drawn statute, its specific terms apply.

Section 201.042

Individuals performing sales services covered by this section of the law are in employment regardless of whether direction or control is exercised. Section 201.042 reads as follows:

In this subtitle 'employment' includes services:

Comment: Traveling or city sales representatives who sell to retailers or to the others specified in the statute and operate away from the premises of the employer, and who are generally compensated on a commission basis, are in employment under Section 201.042(2), regardless of whether they are subject to or are free from control over the details or methods of their work.

Previous Commission decisions have held that "full-time basis" does not pertain to any specific number of hours. Rather, it means substantially all of the business activities of the individual in question.

In order for a traveling or city sales representative to be included within this subsection, his/her principal business activity must be devoted to the solicitation of orders for the employer. Thus, the multiple-line sales representative generally is not within this subsection of the Act. However, if the sales representative solicits orders primarily for one principal, he/she is not excluded from this subsection of the Act solely because of such sideline sales activities on behalf of one or more other persons. In such a case, the sales representative is within Section 201.042(2) with respect to the services performed for the principal or the primary entity for whom he/she solicits orders, and not with respect to the sideline services performed for other persons.

The following examples illustrate the application of Section 201.042(2). Assume, for the sake of these examples, that neither the sales representative nor the wholesaler maintains a regular or seasonal place of business at a trade market facility.

Example 1: Sales representative A's principal business activity is the solicitation of orders from retail pharmacies on behalf of X Wholesale Drug Company. A also occasionally solicits orders for drugs on behalf of the Y and Z Companies. A is within Section 201.042(2) with respect to his services for the X Company but not with respect to his services for either the Y Company or the Z Company.

Example 2: Sales representative B's principal business activity is the solicitation of orders for retail hardware stores on behalf of the R Tool Company and the S Cooking Utensil Company. B regularly solicits orders on behalf of both companies. B is not within this subsection of the Act (traveling or city sales representative) with respect to the services performed for either the R Company or the S Company.

The term "employment contract" as used in Sections 201.042(1)(B) and 201.042(2)(A), means an arrangement, formal or informal, under which the particular services are performed. The requirement that substantially all of such services are to be performed personally means that no material part of the services will be delegated to any other person by the individual who undertakes under the contract to perform such services.

The reference to facilities in Section 201.042(1)(C) and 201.042(2)(B) includes equipment and premises available for the work or enterprise as distinguished from education, training, and experience. The term facilities does not include such tools, instruments, equipment, or clothing, as are commonly or frequently provided by employees. An investment by an individual in an automobile used primarily for transportation in connection with the performance of services for another person has no significance under the sections, since such an investment is comparable to outlays for transportation by an individual performing similar services who does not own an automobile. Moreover, the investment in facilities for transportation of goods or commodities to which the services relate is to be excluded in determining whether the investment is substantial. However, if the individual has a substantial investment in other facilities, he/she is not an employee under either Section 201.042(1) or Section 201.042(2).

Finally, if the services are not performed as part of a continuing relationship with the service-recipient, but are instead in the nature of a single transaction, the individual performing services is not in employment. The fact that services are not performed on consecutive workdays does not negate the existence of a continuing relationship. However, if the services are part of a single transaction then the worker is not in employment.

Section 201.043 of the Act details the performance of service both within and outside the state of Texas.

If service is performed entirely within Texas, the service is said to be localized within Texas. The person performing the service is not engaged in multi-state employment, and Texas is the state of jurisdiction.

If a person performs service both within Texas and outside of Texas, but the service performed outside of Texas is incidental to the service performed within Texas (for example, is temporary or transitory in nature or consists of isolated transactions), the person's service is said to be localized in Texas. Again, the person is not engaged in multi-state employment, and Texas is the state of jurisdiction.

If service is not localized in Texas or in any other state, and the person performed services both in Texas and outside of Texas, the person is said to be in multi-state employment.

If a person is engaged in multi-state employment, as defined above, the service is considered employment under the jurisdiction of Texas if the employer's base of operations is located in this state. The base of operations is considered to be where the worker returns after performing the work, where the worker receives instructions from the employer, or where the worker receives remuneration for the service performed.

In the situation described above, except that the employee does not have a base of operations (such as a traveling salesman), the fact, which determines jurisdiction, is the location of the place from which the employee's service is directed or controlled. If such location is in Texas, Texas has jurisdiction. However, if the base of operations and the place from which the service is directed or controlled is not in any state in which some part of the service is performed, the location of the employee's residence determines the state of jurisdiction. The employee's residence is construed to be the permanent residence rather than temporary addresses while traveling.

If an employee's services are not localized in any state, and the worker belongs to a class of employees who are required to travel in performance of their duties and the employee's base of operations is in Texas, Section 201.043 authorizes services to be Texas employment even though all of the employee's services are performed outside of Texas (but within the United States). This is likewise true for an employee in this category if the employee does not work from a base of operations but is directed, or controlled from a location, which is in Texas.

If the service of an individual is not covered by a provision of Section 201.043 of the Act, and it is not service performed on or in connection with an American vessel or an American aircraft, the service is Texas employment if contributions are not required under the unemployment compensation law of any other state, provided:

Section 201.044 and Section 211.001 of the Act authorize the Commission to enter into agreements with other states to determine the state of jurisdiction of services performed by individuals who customarily perform service in more than one state. Texas has entered into two such agreements: The Interstate Reciprocal Coverage Arrangement and the Interstate Maritime Reciprocal Arrangement. These agreements and arrangements were designed to simplify an employer's problem regarding where to report wages. It is the Commission's position that an application filed by an employer under one of these arrangements with respect to the specified type of services should be considered on its merits and approved or disapproved under the terms of the reciprocal agreement with other states and supersedes the standard test of employment outlined in Section 201.043. However, some states are not subscribers to the interstate agreements, and some of those who are subscribers will not honor applications filed under the interstate arrangement if a state of jurisdiction can be determined by application of the standard test of employment.

For a complete understanding of the Interstate Reciprocal Coverage Arrangement, read Commission Rule 815.114, the wording of which is taken from the actual agreement which Texas entered into with the other states who are subscribers. All states are subscribers to the arrangement with the following exceptions:

The agreement known as the Interstate Maritime Reciprocal Arrangement was entered into between Texas and other states under the authority of Section 211.003 of the Act. Under this arrangement, an employer may report wages of maritime employees to the state in which the company's operating office is located. That is, the office which supervises, manages, directs, and controls the vessels on which the employees perform service. Applications by employers under this arrangement are submitted to the State Office Status Section for handling and approval, and inquiries about the arrangement should also be directed to this office. The subscribers to the Interstate Maritime Reciprocal Arrangement are as follows:

Section 201.045 of the Act pertains to service performed on or in connection with an American vessel or an American aircraft under a contract of service which is entered into within the United States or during the performance of the service if the vessel or aircraft touches at a port in the United States. Services performed in connection with such vessel or aircraft when outside the United States, provided the vessel or aircraft is ordinarily and regularly supervised, managed, directed, and controlled from an operating office located in Texas, are considered Texas employment. This statutory provision is very similar to the terms of the Interstate Maritime Reciprocal Arrangement.

Under Section 201.046:

Under Section 201.047:

Services performed after 1971 in a foreign country by a United States citizen as an employee of an American employer is defined as employment. The term 'American employer' is specifically defined in section 201.043. The term 'United States' is specifically defined in section 201.011. The conditions of such coverage are outlined in detail in Section 201.043. The foreign countries to which these sections of the law are not applicable are the Virgin Islands and Canada.

It is not known why the provision does not pertain to the Virgin Islands. It does not pertain to Canada because Canada is a country contiguous to the United States with which we have an agreement relating to unemployment compensation. Mexico is a country contiguous to the United States, but we do not have an agreement with that country relating to unemployment compensation. Regarding service in Guam; amounts paid to Guamanian citizens, not otherwise citizens of the United States, for services performed on the island of Guam for an American employer are not subject to the TUC Act.