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THRESHOLDS FOR COVERAGE UNDER EMPLOYMENT-RELATED LAWS

 

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 worker (employee or independent 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 Fair Labor Standards Act minimum wage/overtime
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 minimum wage, overtime, timely wages, illegal deductions
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 territorial 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 ..." 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 http://www.uscis.gov/files/form/m-274.pdf). The USCIS regulation regarding § 1324a offers more guidance on the relevant definitions:

8 C.F.R. § 274a.1:

  1. The term employee means an individual who provides services or labor for an employer for wages or other remuneration, but does not mean independent contractors as defined in paragraph (j) of this section or those engaged in casual domestic employment as stated in paragraph (h) of this section;
  2. The term employer means a person or entity, including an agent or anyone acting directly or indirectly in the interest thereof, who engages the services or labor of an employee to be performed in the United States for wages or other remuneration. In the case of an independent contractor or contract labor or services, the term employer shall mean the independent contractor or contractor and not the person or entity using the contract labor;
  3. The term employment means any service or labor performed by an employee for an employer within the United States, including service or labor performed on a vessel or aircraft that has arrived in the United States and has been inspected, or otherwise included within the provisions of the Anti-Reflagging Act codified at 46 U.S.C. 8704, but not including duties performed by nonimmigrant crewmen defined in sections 101(a)(10) and (a)(15)(D) of the Act. However, employment does not include casual employment by individuals who provide domestic service in a private home that is sporadic, irregular, or intermittent;
  4. ...
  5. The term independent contractor includes individuals or entities who carry on independent business, contract to do a piece of work according to their own means and methods, and are subject to control only as to results. Whether an individual or entity is an independent contractor, regardless of what the individual or entity calls itself, will be determined on a case-by-case basis. Factors to be considered in that determination include, but are not limited to, whether the individual or entity: supplies the tools or materials; makes services available to the general public; works for a number of clients at the same time; has an opportunity for profit or loss as a result of labor or services provided; invests in the facilities for work; directs the order or sequence in which the work is to be done; and determines the hours during which the work is to be done. The use of labor or services of an independent contractor are subject to the restrictions in section 274A(a)(4) of the Act and § 274a.5 of this part;

 

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) - (not yet codified in U.S. Code):    Top of Page

§§ 201(2)(B)(i) and 201(2)(A)(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 six months) - 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 28 T.A.C. § 3.505(b). For more on Texas and federal COBRA requirements, click here.

 

Texas Commission on Human Rights Act (same discrimination categories covered by EEOC laws) - Texas Labor Code, Chapter 21 - § 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.

 

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.

 

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