Texas First Hire

The Independent Contractor vs Employee Test, Explained

By Jeremy Kenerson, Founder and CEO at DeskTeam360

Last updated . Every number on this page was checked October 2, 2026.

For a Texas owner, the independent contractor vs employee test is two tests. The IRS sorts the facts about a worker into three groups and looks at the whole relationship. The Texas Workforce Commission compares an employee and an independent contractor on 20 points. Both ask the same thing: who has the right to direct and control the work.

This page is a plain reading of the rules. It isn't legal or tax advice.

What is the employee vs independent contractor test?

The employee vs independent contractor test is a set of questions about who has the right to control the work. Both the IRS test and the Texas test look at whether the business has the right to direct and control it.

The IRS applies the common-law rules. It looks at the entire relationship and weighs the extent of the right to direct and control the worker. Texas's test is Form C-8, "Employment Status: A Comparative Approach." It says a worker is an employee if the business has the right to direct or control the work. That covers the final results and the details of when, where and how the work is done.

Neither test is a score. The IRS says no set number of factors decides it. Texas says not all 20 points may apply, and the weight of each one can vary with the facts.

The answer changes what a business generally has to withhold and pay in taxes. For the tax forms on each side, see 1099 vs W-2. For what the two are and why it matters, see independent contractor vs employee.

What does the IRS ask in each of its three groups?

The IRS asks about behavior, money and the type of relationship. Here are its questions for each group.

  1. Behavioral. Does the company control, or have the right to control, what the worker does and how the worker does the job?
  2. Financial. Does the payer control the business side of the job? That includes how the worker is paid, whether expenses are paid back, and who supplies the tools.
  3. Type of relationship. Are there written contracts, or employee-type benefits such as a pension plan, insurance or vacation pay? Will the relationship go on? Is the work a key part of the business?

Ask each question about the job you have in mind, before you bring anyone on. The IRS says to look at the entire relationship. It also says a person who works remotely is your employee under these rules if you can control what will be done and how it will be done.

Some jobs don't need a hire of either kind. Production work can go to an outside team, and DeskTeam360, the company that runs this site, has one that works together in one office. A call shows whether it fits the job.

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What are the 20 points in Texas's test?

The 20 points in Texas's test are on Form C-8, and each one sets what an employee looks like next to what an independent contractor looks like. The Texas Workforce Commission uses this 20-point guide to decide if a worker is an employee or an independent contractor.

Table: The 20 points on Form C-8, in this site's own words. The form itself is linked under Sources. Read October 2, 2026.
# Point An employee An independent contractor
1 Instructions Is told when, where and how to do the work Does the job their own way, with few or no instructions on the details
2 Training Is often trained by a more experienced employee, or has to go to meetings or training courses Uses their own methods and needs no training from the business
3 Integration Usually does work that's merged into the business's overall operation Usually does work that's separate from the client's business
4 Services rendered personally Has to do the work personally and can't send a substitute Can assign someone else to do the job
5 Hiring, supervising and paying helpers May lead helpers, but the employer pays them Picks, hires, pays and supervises any helpers
6 Continuing relationship Often works for the same employer month after month Is usually hired for one job, and doesn't expect more work after it
7 Set hours of work May be on call, or may work the hours and days the employer sets Chooses their own days and hours
8 Full time required Ordinarily gives the employer full time, or the employer may have first call on their time Can't be required to work full time for one firm only
9 Location where services are performed The employer has the right to say where the work is done Ordinarily works where they choose
10 Order or sequence set Does tasks in the order the employer sets Sets their own order of work, and is concerned only with the finished product
11 Oral or written reports May have to give regular reports on work in progress Usually doesn't have to give them
12 Payment by the hour, week or month Is typically paid regular amounts at set times, such as by the hour or week Is normally paid by the job, at a flat rate or on a bid
13 Payment of business and travel expense Has expenses paid, or paid back, by the employer Normally pays all their own business and travel expenses
14 Furnishing tools and equipment Gets the tools, materials and equipment from the employer Ordinarily brings their own tools and equipment
15 Significant investment Generally has little or no investment in the business Usually has a large investment in their own business
16 Realize profit or loss Is paid for the work, and doesn't ordinarily make a profit or a loss Can make a profit or take a loss
17 Working for more than one firm at a time Ordinarily works for one employer at a time Often works for more than one client at the same time
18 Making service available to the public Offers services to the public only through the employer's company May advertise, carry business cards or hold a business license
19 Right to discharge without liability Can be let go at any time, with no liability for the employer Can't be fired without liability if the work meets the contract
20 Right to quit without liability May quit at any time, with no liability Is responsible for finishing the job, and is liable for breach of contract on quitting

Don't count the points. The form says not all 20 may apply, and the weight of each one can vary. It also says the name doesn't matter. If an employment relationship exists, the worker can be called contract labor or an independent contractor and still be an employee.

The tax form doesn't settle it either. On its page about classifying workers, the Texas Workforce Commission writes: "A worker who is called contract labor and whose wages are reported using IRS Form 1099 may not be an independent contractor. The form you use does not determine the correct worker classification. The correct worker classification determines which form you should use."

A contract doesn't change it either. The same page says: "A written or oral agreement between you and your worker does not change an employee to an independent contractor."

Control doesn't have to be used. The form says that if the business has the right to control, employment may be shown.

In several rows the form speaks of "a true Independent Contractor". So read the right-hand column as the form's picture of one, to compare a job against. Don't use it as a checklist to tick off.

Points 7 and 8 are about hours. For part-time help either way, see part time employee vs independent contractor.

Who decides when the test isn't clear?

The IRS decides a worker's status for federal taxes when the business or the worker asks it to on Form SS-8. Either one may file the form. The IRS then reviews the facts and decides, and it says that may take at least six months.

On the Texas side, the Texas Workforce Commission uses its 20-point guide to decide.

Both agencies say what a wrong call can mean. The IRS says a business that treats an employee as an independent contractor, with no reasonable basis for doing so, may be held liable for employment taxes for that worker. The Texas Workforce Commission lists what a wrong call can bring: increased taxes, penalties and interest charges.

The federal wage law has its own test, and this page doesn't cover it. The US Department of Labor's Fact Sheet 13 says status under that law is decided by looking at the economic realities of the worker's relationship with the employer. The department proposed a new rule on it in February 2026, so read its page for where that stands.

This page can't score your worker or tell you which one they are. Step 1 of the first-hire steps shows where this question sits among the forms and deadlines. Not legal or tax advice. Ask your accountant.

More on employee or contractor

DeskTeam360 doesn't do payroll, and no payroll, legal or tax help is offered here. If the job is production work, a call shows whether its team fits it.

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Cite this page: Texas First Hire, "The Independent Contractor vs Employee Test, Explained," https://texasfirsthire.com/blog/independent-contractor-vs-employee-test, last updated October 2, 2026.

Sources

All checked October 2, 2026.

This site isn't connected to the State of Texas or any government agency.

What changed

  • October 2, 2026: First version of this page.