2.2     Services Excluded from Employment

This section discusses the aspects of the law that apply to services excluded from employment.

2.2.1     Service Eligible Under Act Of Congress

Under Section 201.061:

In this subtitle, "employment" does not include service  performed by an individual who is covered under an unemployment compensation system established by an act of Congress. The only known example of such is the Railroad Retirement Act.

When the Railroad Retirement Board rules that an employing unit is subject to the provisions of the Railroad Retirement Act, the Commission honors that decision and takes the position that the employees of that employing unit are not in employment. If an employing unit states that it is covered under the Railroad Retirement Act, verify the information by contacting the Railroad Retirement Board. For current telephone numbers please visit  www.rrb.gov.

2.2.2     Other State/Federal UI Agencies

Under Section 201.062:

In this subtitle, "employment" does not include service under an arrangement that is between the commission and the agency that administers another state's or a federal unemployment compensation law and that considers the service for an employing unit during the period covered by the employing unit's approved election to be performed entirely within the agency's state or under the federal law.

Comment: Section 201.062 applies to individuals who are working in Texas and administering the unemployment compensation laws of other state and federal agencies. While the services of these workers may constitute employment in the "home" states, it is not covered employment for Texas purposes.

2.2.3     Certain Government Service 2.2.3.1     Elected Official

Subsection 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
  2. as an elected official;

Comment: This section exempts from the definition of employment and coverage under the Texas Unemployment Compensation Act services performed as an elected official.

This section of the law exempts those who hold an office, which is normally filled as the result of a vote or plebiscite. It does not exclude the deputies of an elected official because they are not elected officials, but are hired or appointed by the elected official to assist in his/her work or to act on his/her behalf. This exemption speaks of the office rather than the individual occupying it. Accordingly, one who is appointed on an interim basis to fill an elective office would also be exempt under this subsection.

2.2.3.2     Member of a Legislative Body

Subsection 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
  2. as a member of a legislative body;

Comment: This subsection exempts services performed by a member of a state legislature or a city council or some other body which has the power to make, promulgate, or pass legislation. This particular exemption, although permitted by federal law, is to some extent redundant because in the state of Texas, all members of legislative bodies are also elected officials.

2.2.3.3     Member of the Judiciary

Subsection 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
  2. as a member of the judiciary;

Comment: This subsection exempts services performed as a member of the judiciary.

This subsection exempts services performed as a justice of the Texas Supreme Court, a justice of the Court of Criminal Appeals, a justice of the Court of Civil Appeals, a judge of a District or County Court, a Justice of the Peace or a judge of a Municipal or Corporation Court. It would also exempt from coverage judges of special district courts such as domestic relations courts or criminal district courts. In addition, it would exempt from coverage services performed as the judge of a county court at law or county criminal court. It would not exempt the clerks or bailiffs of such courts, however.

2.2.3.4     Temporary Employee in Case of Emergency

Subsection 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
  2. as a temporary employee in case of fire, storm, snow, earthquake, flood, or similar emergency;

Comment: This subsection exempts services performed as an employee serving on a temporary basis in case of fire, storm, snow, earthquake, flood or similar emergency. Employees who serve temporarily as a result of the various natural disasters are exempted. The term "similar emergency" does not include heavy loads of routine work such as a "blizzard of paperwork."

2.2.3.5     Nontenured or Advisory Position

Subsection 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
  2. in a position that is designated under law as a major nontenured policy-making or advisory position or a policy-making or advisory position that ordinarily does not require more than eight hours of service each week;

Comment: This subsection exempts services performed in a position which is designated as a major, nontenured policy-making or advisory position, the performance of the duties of which ordinarily does not require more than eight (8) hours per week.

A nontenured position is one which is not covered by merit system or civil service laws or rules with respect to the duration of service or the length of the appointment.

The word "major" in the phrase "major nontenured policy-making or advisory position" refers to high level government positions which are filled by appointment by either the chief executive of a political entity, such as a governor, a mayor, a city council, or a county commissioner's court. A major position would be one which involved responsibilities affecting the entire political entity. The term "policy-making" refers to determining the direction, emphasis, and scope of action in developing and administrating governmental programs.

In instances in which the law or ordinance does not specifically categorize or label a position as a major, nontenured, policy making or advisory position, other pertinent factors may be considered. Such factors as job descriptions, the qualifications of the individuals considered for or appointed to the position, and the responsibilities involved should be taken into account in determining the character of the position for the purpose of applying the exemption.

The term "advisory" refers to a position in which one advises an established government agency officer with respect to policy, programs, and administration without having the authority to implement the recommendation.

Note: School  Superintendents may not come under this exemption.  The burden of proof is on the School District to provide proof (documentation) under their law that the School Superintendent does make policy decisions in order for the wages to be exempt.

2.2.3.6 Election Workers

Section 201.063(a) states:

“In this subtitle, “employment” does not include:

  1. service in the employ of a political subdivision or an instrumentality of a political subdivision that is wholly owned by one or more political subdivisions:
    F) as an election official or worker if the remuneration received by the individual during the calendar year is less than $1,000; (effective 9/1/2013)

Background: A precedent-setting Rule 13 Hearing decision dated January 23, 1990, TD-89-123-0589, held that the services of election workers were exempt from “employment”. In 2013, the 83rd legislature amended Section 201.063(a)(1) of the Texas Unemployment Compensation Act (TUCA) with the passage of HB 983, which states that “employment” does not include service as an election official or worker if the remuneration received by the individual during the calendar year is less than $1000.

COMMENT: Because the law is effective September 1, 2013, only wages paid September 1, 2013 through December 31, 2013 will be used to determine if an election official or worker should be reported for calendar year 2013. Starting January 1, 2014, all wages paid during a calendar year will be used to determine if an election official or worker meets the definition of “employment” under Section 201.063(a)(1).

This subsection exempts services performed by an election official or election workers when the remuneration received for these services is less than $1000 in the calendar year. Elections officials/workers can include by are not limited to: election judges, associate election judges, voting clerks, or other personnel used during a regular/special election, etc.

Regular or administrative employees employed by an election authority (state, county, school district, etc.,) holding the election are in employment.

2.2.3.7     Service for Foreign Governments

Under 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of a foreign government, including service as a consular or other officer or employee or as a nondiplomatic representative;
  2. service in the employ of an instrumentality wholly owned by a foreign government if:
  3. the service is similar to service performed in a foreign country by an employee of the United States government or an instrumentality of that government;
  4. the United States secretary of state has certified to the United States secretary of the treasury that the foreign government grants an equivalent exemption for similar services performed in the foreign country by an employee of the United States government or an instrumentality of the United States government; or"

For specific details regarding this exclusion, refer to Section 201.063. Any inquiry concerning employment status of this nature should be directed to the State Office Status Section for a determination.

2.2.3.8     Service for the United States Government

Section 201.063(a) states:

In this subtitle, "employment" does not include:

  1. service in the employ of the United State government or an instrumentality of the United States exempt under the United States Constitution from the contributions imposed by this subtitle.

Comment: Under Section 201.063(a)(4), service performed in the employ of the United States Government is excluded from the definition of employment.

Texas has no authority to levy unemployment compensation taxes against an instrumentality of the United States without specific statutory permission by the Congress of the United States.

Although National Banks are federal instrumentalities, they are not wholly owned by the United States nor are there any provisions of law exempting service for such banks. Services for Production Credit Associations are also included.

Although officer's dining facilities and military exchanges, as they are ordinarily operated at military and naval bases, are instrumentalities of the federal government, no exclusion is applicable to concerns or business establishments which are privately operated on military bases. Such exclusion does not apply to establishments directly under the control and direction of the Armed Forces and to those owned either by branches of the Federal Government or by the various officers in the Armed Forces who are stationed at a particular military or naval base and who own membership in the Club or Officer's Mess. Should a representative encounter any type of establishment or employing unit at a military or naval base that is different from Officer's Messes as they are ordinarily operated, a statement as to the manner of operation should be submitted to the State Office Status Section for an opinion.

2.2.4     Domestic Service

Section 201.064:

In this subtitle, 'employment' does not include domestic service in a private home, local college club, or local chapter of a college fraternity or sorority, except as performed for an employer under Section 201.027.

Domestic employment is defined as:

Work performed in a private home by a baby sitter, butler, caretaker, chauffeur, companion, cook, footman, furnaceman, gardener, governess, groom, handyman, housekeeper, houseman, janitor, laundress, maid, nursemaid, seamstress, sitter, waiter, watchman, or valet.

COMMENT: The term 'private home' as used in Section 201.064 is defined as the place of abode of an individual or family. If the home is utilized primarily for the purpose of supplying board and/or lodging to the public as a business enterprise, such as a bed and breakfast operation, it ceases to be a private home.

Such services as those described above, although excluded from regular employment, are included in domestic employment as described in Section 201.027.

Concerning Nurses in private household:

Nurses working in a private home under the direction and control of the homeowner would be considered "domestic employment." However, a nurse taking care of a resident in a nursing home would not be considered domestic employment.

2.2.5     Relative, Service by
  • service of an individual in the employ of the individual's son, daughter, or spouse; or
  • service of an individual younger than 21 years of age in the employ of the individual's father or mother.
2.2.5.1    Father or Mother, Service by

Under Section 201.065, service performed by an individual for their child is excluded from the definition of employment. This exclusion exempts services performed by the parent of an individual employing unit. The exclusion is likewise applicable to services performed by a parent for a partnership if all of the partners are the children of the parent who performs the service.

This exclusion from the definition of employment has been extended to cover service performed by a stepparent for a stepchild or stepchildren. It is a common practice to consider the relationship between a stepparent and a stepchild as though there were a blood relationship.

The exclusion from employment has also been extended to cover service performed by a foster parent for a foster child. The foster parent stands in "loco parentis" to the natural parent, i.e., in place of the natural parent. Both the foster parent and the foster child have the same (or some) of the rights that would exist if the relationship was natural, regardless of whether or not there have been legal adoption proceedings.

This exclusion from the definition of employment has likewise been extended to service performed by a parent-in-law of the individual employing unit or to a partnership composed of two or more individuals who are children-in-law of the person performing the service. This is due to the provisions of the community property laws of Texas. For example, the parent-in-law who performs service for their children-in-law is in reality performing part of his service for their child-in-law who owns an interest in the community property and business of the spouse.

2.2.5.2     Spouse, Service by

Ordinarily this exclusion applies only to an individual employing unit. However, service performed for a partnership is excluded if an exclusion applies to all of the partners. For example, service performed by a woman for a partnership composed of her spouse and their children.

2.2.5.3     Son or Daughter, Service by

Services by a son or daughter under the age of 21 years are excluded from employment. This exclusion generally extends only to an individual employing unit. In some circumstances, however, it is possible under the Texas law for two individuals to create a valid partnership. In such a situation, service performed for the two-member partnership by a son or daughter under the age of 21 years is exempt.

The exemption has not been extended to service performed by a minor child for his or her parent-in-law for the reason that there is no provision in the community property laws which would justify such an interpretation.

2.2.6     Partners
[ 2.2.6.1 - Payments Made To A Partner ]
This section discusses the aspects of the law that apply to partners.
2.2.6.1     Payments Made To A Partner
Are payments made to partners (guaranteed or otherwise) considered "wages" for purposes of the Texas Unemployment Compensation Act?

Since amounts due under the Act are based on "Wages,” it is necessary to first define the term. Section 201.081 of the Texas Unemployment Compensation Act provides, in part: “Wages” means all remuneration paid for personal services, including the cash value of all remuneration paid in any medium other than cash and gratuities received by any employee in the course of employment...

It then becomes necessary to define employment: Section 201.041 of the Texas Unemployment Compensation Act provides, in part: ''Employment" means a service, including service in interstate commerce, performed by an individual for wages or under an express or implied contract of hire....

Therefore, persons who do not provide services described as employment are not employees. Since partners do not operate under a contract of hire and are free from direction and control, they are not employees and payments to them do not constitute wages.

Payments to partners fall into two categories. In the case of a net profit for a given period of time, a distribution will constitute a share of the profits, the reward for managerial success. On the other hand, assuming no net profit, a distribution constitutes a return of capital, simply giving back something that was already his to begin with.

Since neither of these types of payments are "Wages" neither are subject to tax.

Therefore, since service provided by a partner does not meet the definition of employment as defined under section 201.041 of the Act and payments are not contained in the definition of Wages under section 201.081 of the Act, the payments (guaranteed or otherwise) are not reportable to the commission.

The IRS does allow guaranteed payments to be deducted from gross revenue to determine partnership income. However, this is to insure that only one partner bears the tax liability of those amounts. The balance of the distributive share of the net income (or loss) is distributed out to the partner on Form K-1, and is carried to the Form 1040. In the event of a net loss by the partnership, the partner guaranteed payments will be reduced by his share of the loss. The IRS does not require nor even allow such guaranteed payments to be reported on Form 941 nor 940. On the contrary, guaranteed payments are subject to Schedule SE, Self-employment tax. At any rate, the Commission is not bound by any ruling of the Internal Revenue Service unless by not doing so would cause the Commission to be out of conformity with DOL requirements or the Federal Unemployment Tax Act.

In summation, payments to partners guaranteed or otherwise, are not "Wages" as defined by the Act and therefore not reportable.
2.2.7     Religious Service
[ 2.2.7.1 - Churches & Religious Organizations ] [ 2.2.7.2 - Ministers ]

This section discusses the aspects of the law that apply to religious service.

2.2.7.1     Churches & Religious Organizations

Section 201.066:

In this subtitle, "employment" does not include:

  1. service in the employ of:
  1. a church;
  2. a convention or association of churches; or
  3. an organization that is operated primarily for religious purposes and that is operated, supervised, controlled, or principally supported by a church or convention or association of churches;
  1. service performed by an ordained, commissioned, or licensed minister of a church in the exercise of the individual's ministry; or

  2. service performed by a member of a religious order as required by the order.

Comment: Section 201.066 of the Act contains two separate and distinct provisions. Service performed in the employ of a church, convention, or association of churches is excluded from the definition of employment. This is true even though the activity may ordinarily be considered a commercial activity, such as the operation of a used clothing store. If, however, the activity is being performed by a separate legal entity, that is supported or sponsored by a church, this separate organization must stand on its own regarding the status of its workers.

Church: There is no definition of a church in the TUC Act. It is the position of the Commission that the word does not pertain to a church building, but rather to the membership which collectively constitutes a church. Black's Law Dictionary, in quoting from various court decisions, defines a church as "a body of communicants gathered into church order", "body or community of Christians, united under one form of government by the profession of the same faith, and the observation of the same ritual and ceremonies", either of which we consider to be a valid definition of a church.

Convention or Association of Churches: This phrase refers to an organization in which more than one church are members.

Religious Organizations: The second part of Section 201.066 excludes from the definition of employment

  1. services performed for an organization:which is operated primarily for religious purposes and,
  2. which is operated, supervised, controlled, or primarily supported by a church, convention or association of churches.

Operated Primarily for Religious Purposes: A religious purpose is considered to be an activity required by a religion that refers to man's relationship to a Divinity. A religious purpose should be distinguished from a charitable or moral purpose.

In order for the service performed for an organization other than a church, convention or association of churches to be exempt, the organization must be operated primarily for religious purposes and, in addition, the organization must be operated, supervised, controlled, or principally supported by a church, convention or association of churches. This criteria is not met simply by the presence of the word Methodist, Baptist, Catholic, etc., in the name of the organization.

This exclusion from employment is applicable to service for a theological seminary whose curriculum is composed primarily of religious subjects or courses and is owned or operated by a convention or association of churches. The exclusion is not applicable to a college which offers degrees in fields other than religion and is only partially supported by a church, convention or association of churches.

The Salvation Army is considered to be a church.

In a Status investigation involving Section 201.066, it is often helpful to obtain answers to the following questions:

  1. Is service performed in the employ of a church, convention or association of churches?
  2. Is it an organization which is operated primarily for religious purposes?
  3. Is it operated by a church or convention or association of churches?
  4. Is it supervised by a church or convention or association of churches?
  5. Is it controlled by a church or convention or association of churches?
  6. Is it principally supported by a church or convention or association of churches?

An affirmative answer to Question 1 entitles the organization to exemption. Questions 2 - 6 are then unimportant and need not be investigated.

If the answer to Question 1 is "No," Question 2 must be answered. If the answer to Question 2 is "No," the organization is not exempt. If the answer to Question 2 is "Yes," Question 3 - 6 must be answered. A "Yes" answer to Question 2 plus a "Yes" answer to either Question 3, Question 4, Question 5 or Question 6 entitles the organization to exemption.

2.2.7.2    Ministers

Section 201.066:

In this subtitle, "employment" does not include

  1. Service performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order.

Comment: Service of a licensed or ordained minister as a salaried chaplain on a hospital payroll who performs religious functions is exempt. It is not necessary for a minister to exercise his religious duties as pastor of a church.

2.2.8     Rehabilitation Organization

Under Section 201.067:

*** In this subtitle, "employment" does not include:

  1. service performed by an individual receiving rehabilitative or paying work in the employ of a facility that is conducted for the purpose of carrying out a program of rehabilitation for individuals whose earning capacity is impaired by age, physical or mental deficiency or injury or that provides paying work for individuals who, because of their impaired physical or mental capacity, cannot be readily absorbed in the competitive labor market;"

Comment: This exclusion from employment is not applicable to an employee of such an organization unless the employee is likewise receiving rehabilitative service.

*** Effective January 1, 2016 this section will read as follows:

  1. In this subtitle, "employment" does not include service performed
    1. by an individual whose earning capacity is impaired by age, physical impairment, developmental disability, while the individual is in training at a sheltered workshop or other facility operated by a charitable organization under a rehabilitation program that includes:
      1. an individual plan for employment as required by 29 U.S.C. Section 722, as amended by the Workforce Innovation and Opportunity Act (Pub. L. No. 113-128);
      2. a timeline for completion of the training; and
      3. a planned employment outcome; or
    2. by an individual who receives work relief or work training as a part of an unemployment work-relief or work-training program assisted or financed in whole or in part by a federal agency, an agency of a state, a political subdivision of a state, or an Indian tribe.
  2. Notwithstanding Subsection (a)(1) , in this subtitle "employment" includes service performed by an individual whose earning capacity is impaired by age, physical impairment, developmental disability, mental illness, or intellectual disability or injury, other than an individual compensated as  provided by Section 62.057,  and who, after training, is working for a sheltered workshop or other facility operated by a charitable organization:
    1. temporarily while awaiting placement in a position of employment in the competitive labor market; or 
    2. permanently because the individual is unable to compete in the competitive labor market.
2.2.9     Work-Relief/Work-Training Program

Section 201.067:

"In this subtitle, "employment" does not include:

  1. service performed as part of an unemployment work-relief or work-training program assisted or financed in whole or in part by a federal agency, an agency of a state, or a political subdivision of a state by an individual receiving the work relief or work training."

COMMENT: This exclusion from employment does not pertain to an instructor unless he or she is receiving work-relief or work training. The exclusion applies to someone who is both an employee of the organization and who is enrolled as a work-relief measure or as a work-training measure. The exclusion is aimed at the 'sheltered work shop' type of establishment, which pays the trainees for the work they do although this provision could have broader applications. A provision in the Revenue Act of 1971 offers an income tax credit to employers who employ individuals enrolled in the WIN Program. When the individual is hired by the employer, the worker no longer performs service under the Win Program but becomes an employee of the employer to the same extent as any other regular employee. The services, therefore, constitute employment and the wages paid by the employer are taxable. For Job Training Partnership Act (J.T.P.A.) details, see Tax Supplement 3-85.

2.2.10     Student Nurses and Interns

201.068 states:

"In this subtitle, "employment" does not include:

  1. service as a student nurse who is:
  1. employed by a hospital or a nurses' training school; and
  2. enrolled and regularly attending classes in a nurses' training school chartered or approved under state law;
  1. service as an intern in the employ of a hospital by an individual who has completed a four-year course in a medical school chartered or approved under state law;

Comment: The services of a student nurse are excluded from employment under Section 201.068 if the nurse is employed by a hospital or a nurses' training school and is enrolled and regularly attending classes in a nurses' training school, chartered or approved pursuant to State law. The nurses' training school where the student nurse is employed need not be the same nurses' training school where the nurse is enrolled.

The service performed by an intern in the employ of a hospital is excluded from the definition of employment if the intern has completed a four-year course in a medical school chartered or approved pursuant to State law. Intern is an obsolete term in the medical world according to the Accreditation Council for Graduate Medical Education. No longer used by the AMA or ACGME; replaced by "resident" or "resident physician." Historically, "Intern" was used to designate individuals in the first post-MD year of hospital training; less commonly, it designated individuals in the first year of any residency program. After graduation from an accredited medical school, a doctor usually continues in a training program called residency. The residency can last anywhere from three to eight years depending on the individual's specialty. After completion of the required internship, the doctor may continue to work at the hospital as a salaried resident physician. Services as a resident physician constitute employment.

Effective January 1997, the Tax Department interprets the term "intern" to mean service performed during the first year of residency and thus exempt under Section 201.068 of the TUCA. Wages paid to physicians during subsequent years of training will be taxable for TUCA purposes.

A medical fellowship is an award to a postgraduate student who may be doing research or engaged in a course of study, which requires the student to do some practice teaching. Fellowship grants received by a person who is not a candidate for a degree constitute gross income, but are neither wages subject to employment taxes nor self-employment income.

2.2.11     Hospital-Patient

Section 201.068 states:

"In this subtitle, "employment" does not include

  1. service in the employ of a hospital by a patient of the hospital."
2.2.12     Student of a College

Subsection 201.069 states:

"In this subtitle, "employment" does not include:

  1. service performed in the employ of a school, college, or university by a student who is enrolled and regularly attending classes at the school, college, or university."

Comment: A student is a "Work Study Student" if they are employed by an institution of higher education and are enrolled at and regularly attending classes at that institution.

Services performed by a student in a work study program are exempt.

"Regularly" has been interpreted as having at least 12 hours of academics, except for graduate students who should be carrying at least six (6) hours.

2.2.13     "DE" or "VOE" Students

Section 201.069:

"In this subtitle, "employment" does not include:

  1. service performed by an individual who is enrolled as a student in a full-time program that combines academic instruction with work experience and that is taken for credit at a nonprofit or public educational institution normally maintaining a regular faculty and curriculum and having a regularly organized body of students in attendance at the place where its educational activities are conducted, if the service is an integral part of the program, and the institution has so certified to the employing unit, except:
  1. Service performed in a program established for an employer or a group of employers;
  2. service in an apprenticeship training program; or
  3. service performed by a teaching assistant";

Comment: These programs are commonly referred to as Distributive Education (DE) and Vocational Office Education (VOE) Programs. Services performed between academic years are not included in this exemption.

2.2.14     Full-time Student for an Organized Camp

Section 201.069 states:

"In this subtitle, "employment" does not include

  1. service by a student in the employ of an organized camp if:
  1. the camp:
  1. did not operate for more than seven months in the current calendar year and did not operate for more than seven months in the preceding calendar year, or
  2. had average gross receipts for any six months in the preceding calendar year which were not more than 33 1/3 percent of its average gross receipts for the other six months in the preceding calendar year; and
  1. the student performed services for the camp for less than 13 calendar weeks in the calendar year and the student:
  1. is enrolled as a full-time student at an educational institution, or
  2. is between academic terms or years and:
  1. the student was enrolled as a full-time student at an educational institution for the preceding academic term or year, and
  2. there is reasonable assurance that the student will be so enrolled for the immediately succeeding academic term or year.

Comment: This subsection is effective August 31, 1987.

Exempt employment includes service performed by a full-time student in the employ of an organized camp for less than 13 weeks in a year if the camp did not operate more than seven months in the current or preceding year, or the camp had average gross receipts for any six months in the preceding year which were not more than 33 1/3 percent of its average gross for the other six months. An individual is a full-time student if enrolled for a minimum of twelve hours at an educational institution, or if the student is between academic years or terms, was enrolled at an educational institution for the immediately preceding term and there is reasonable assurance of enrollment the following year or term.

2.2.15     Product Demonstrators

Section 201.070 states:

"In this subtitle, "employment" does not include:

  1. service by an individual as a product demonstrator if:
  1. the service is performed under a written contract between the individual performing the service and a person whose principal business is obtaining the service of a demonstrator for a third person for product demonstration purposes; and
  2. in contract and in fact the individual;
  1. is not treated as an employee with respect to that service for federal unemployment tax purposes;
  2. is compensated for each demonstration or is compensated based on factors that relate to the work performed;
  3. determines the method of performing the service;
  4. provides each vehicle used to perform the service;
  5. is responsible for the completion of a specific job and is liable for any failure to complete the job;
  6. may accept or reject a job from a product demonstrator business;
  7. is free from control by the principal business as to where the individual works;
  8. controls solely opportunity for profit or loss; and
  9. pays all expenses and operating costs, including fuel, repairs, supplies, and motor vehicle insurance."
2.2.16     Direct Seller

Federal and state law provide that an individual working as a direct seller of consumer products shall not be treated as an employee, and the person for whom the services are performed shall not be treated as an employer if ALL of the conditions listed below are met.

Section 201.070 states:

"In this subtitle, "employment" does not include:

  1. Services by an individual as a direct seller if:
  1. the individual is engaged in the business of:
  1. in person sales of consumer products to a buyer on a a buy-sell basis, a deposit-commission basis, or a similar basis for resale in a home or in a place other than, and not affiliated with, a permanent retail establishment; or
  2. sales of consumer products in a home or in a place other than, and not affiliated with, a permanent retail establishment;
  1. substantially all remuneration for the service, whether in cash or other form of payment, is directly related to sales or other output, including the performance of the service, and not to the number of hours worked; and

  2. the service is performed under a written contract between the individual and the person for whom the service is performed, and the contract provides that the individual is not treated as an employee with respect to the service for federal tax purposes";

Comment: These services are excluded if the following conditions are met:

  1. Sales must be performed by an individual in a place other than a permanent retail establishment, and
  2. Remuneration must be based on sales, rather than the number of hours worked, and
  3. A written contract must exist between the individual and the person for whom the services are performed, providing that the individual is not an employee for Federal tax purposes.

The individual may provide these services by in-person sales of consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis for resale in the home, or any place other than a permanent retail establishment or place affiliated with a permanent retail establishment.

Definition of "CONSUMER PRODUCTS" -- The term "consumer products" is not defined in the Act. However, the Commissioners may take official notice of the definition contained in the Texas Business and Commerce code which states in part, that goods are "consumer goods" if they are used or bought for use primarily for personal, family, or household purposes. Similarly, Black's Law Dictionary, 6th Edition (1990) defines a consumer product as "any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes including any such property intended to be attached to or installed in any real property without regard to whether it is attached or installed."

The requirement that the sale be in a home or in a place other than a permanent retail establishment has been interpreted by the Commission to mean that the exemption does not apply if any sales are made at a place which is or is affiliated with a permanent retail establishment. See generally the Commission's decision in American Remodeling, Inc., decided January 25, 1988. (Sales representatives engaged in the sale of aluminum siding are not exempt from the definition of employment under Section 201.070(2) of the Act because of an affiliation with Sears, a permanent retail establishment.)

In order for the exemption to apply, the sales representatives must be paid based upon their sales or other output rather than upon the number of hours worked. Sales representatives who are paid by the hour are not exempt. The Act requires that the services must be performed pursuant to a written contract between the individual and the person for whom the services are performed and that the contract must contain an express provision stating that the individual is not treated as an employee with respect to those services for Federal Tax purposes. Such an agreement must be in writing.

In Mr. Happiness Corporation, decided February 13, 1990, the Commission held that Section 201.070(2) did not apply because there was no written agreement between the workers and the corporation which contained the express statement that the individual is not treated as an employee with respect to those services for Federal Tax purposes. In short, if there is no written agreement, or if there is a written agreement but it does not contain the necessary statement -- that the worker is not treated as an employee with respect to those services for Federal Tax purposes -- the exemption for direct sales of consumer products in a home contained in Section 201.070(2) does not apply.

2.2.17     Trademart, Services Performed at

Section 201.070(3) states:

"In this subtitle, "employment" does not include:

  1. service performed by an individual at a trade market for a wholesaler or sales representative of a wholesaler or manufacturer of consumer goods under a written contract, or as a salesman for a wholesaler consumer goods, if the wholesaler or sales representative maintains a regular or seasonal place of business at a trade market facility in a municipality with a population of more than 750,000."

Comment: This section exempts services performed by individuals for a wholesaler or sales representative of a wholesaler or manufacturer of consumer products or services performed by a salesman for a wholesaler of consumer products if the wholesaler maintains a regular or seasonal place of business at a trade market in a city with a population of 750,000 or more.

There is nothing in the language of this section which limits the trade market facility to a Texas city. Rather, any trade market facility in any city of the requisite size or larger will trigger the application of this exemption, if the other criteria are met. For example, a trade market facility in Chicago, New York City, or even Hong Kong will trigger the exemption.

2.2.18     Sales Persons, Provisions Relating to

There are four separate provisions in the Texas Unemployment Compensation Act which are or may be applicable in determining the status of sales persons. They are:

  1. Section 201.070(2) (direct sales);
  2. Section 201.070(3) (trade market facility).
  3. Section 201.042(1) (agent-drivers or commission-drivers);
  4. Section 201.042(2) (traveling or city salesmen);

If the sales persons or those working on a commission basis are not covered by one of the provisions listed above, the employment status is determined by the general definitions of employment in Section 201.041 which references three specific requirements:

  1. The performance of services;
  2. the payment of wages for those services;
  3. the right to control or direct the workers as to the performance of those services.

The last requirement incorporates the common law factors of direction and control. The determination can be simplified by asking who the seller is, what is sold, where the sale takes place, and to whom the sale is made.

2.2.19     Insurance Agents

Section 201.071 states:

"In this subtitle, "employment" does not include service as an insurance agent for which the only remuneration for the service is a commission."

Comment: An insurance agent or an insurance solicitor is not in employment under Section 201.071 if all services are performed for remuneration solely on a commission basis. The exclusion does not apply if the agent or solicitor receives a fixed compensation and commission. A guaranteed salary is indicative of covered employment. For the purposes of this subsection, advances against commissions are considered the same as commissions. Most all insurance agents and solicitors perform services under a written contract of hire. If the terms of the contract present any question regarding the basis of compensation, submit the contract submitted to the State Office Status Section for a ruling.

2.2.20     Real Estate Professionals
[ 2.2.20.1 - Real Estate License Act ] [ 2.2.20.2 - Real Estate Broker and / or Salesman (Agent) ] [ 2.2.20.3 - Real Estate Instructor ]

This section discusses the aspects of the law that apply to real estate professionals.

2.2.20.1     Real Estate License Act

Definitions related to the Texas Real Estate License Act, appearing in Section 201.072:

"Real estate broker" means a person who, for another person and for a fee, commission, or other valuable consideration, or with the intention or in the expectation or on the promise of receiving or collecting a fee, commission, or other valuable consideration from another person:

  1. sells, exchanges, purchases, rents, or leases real estate;
  2. offers to sell, exchange, purchase, rent, or lease real estate;
  3. negotiates or attempts to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate;
  4. lists or offers or attempts or agrees to list real estate for sale, rental, lease, exchange, or trade;
  5. appraises or offers or attempts or agrees to appraise real estate;
  6. auctions, or offers or attempts or agrees to auction, real estate;
  7. buys or sells or offers to buy or sell, or otherwise deals in options on real estate;
  8. aids, attempts, or offers to aid in locating or obtaining for purchase, rent, or lease any real estate;
  9. procures or assists in the procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate; or
  10. procures or assists in the procuring of properties for the purpose of effecting the sale, exchange, lease or rental or real estate.

"Broker" also includes a person employed by or on behalf of the owner or owners of lots or other parcels of real estate, at a salary, fee, commission, or any other valuable consideration, to sell the real estate or any part thereof, in lots or parcels of other disposition thereof. It also includes a person who engages in the business of charging an advance fee or contracting for collection of a fee in connection with a contract whereby he undertakes primarily to promote the sale of real estate either through its listing in a publication issued primarily for such purpose, or for referral of information concerning the real estate to brokers, or both.

"Real estate salesman" means a person associated with a Texas licensed real estate broker for the purposes of performing acts or transactions comprehended by the definition of "real estate broker" as defined in this Act.

2.2.20.2     Real Estate Broker and/or Salesman (Agent)

Section 201.072:

"In this subtitle, "employment" does not include:

  1. service performed by an individual as a real estate broker or salesman if:
  1. the individual engages in activity described by the definition of "real estate broker" in Section 2, The Real Estate License Act (Article 6573a, Vernon's Texas Civil Statutes);
  2. the individual is licensed as a real estate broker or salesman by the Texas Real Estate Commission;
  3. substantially all the remuneration for the performance of the service, whether in cash or other form of payment, is directly related to sales or other output, including the performance of the service, and not to the number of hours worked: and
  4. the service is performed under a written contract between the individual and the person for whom the service is performed, and the contract provides that the individual is not treated as an employee with respect to the service for federal tax purpose";

Comment: A person who appraises or offers or attempts or agrees to appraise real estate is within the definition of a "real estate broker." Real estate appraisers must be licensed under the Real Estate License Act. Real estate appraisal, along with all the other above-listed activities, is exempt from the term "employment" under Section 201.072(1), if all of the conditions of subsections A) to D) of that statute are also met.

2.2.20.3     Real Estate Instructor

Section 201.072:

"In this subtitle, "employment" does not include

  1. service performed by an individual as an instructor of person licensed or seeking license as real estate broker or salesman if:
  1. the individual instructs in an educational program or course approved by the Texas Real Estate Commission; and
  2. the service performed under a written contract between the individual and the person for whom the service is performed, and the contract provides that the individual is not treated as an employee with respect to the service for federal tax purposes."
2.2.21     For Delivery/Courier Service

Section 201.073:

"In this subtitle, "employment" does not include:

  1. service performed for compensation by an individual for a private for-profit delivery service if the individual:
  1. may accept or reject a job from the delivery service;
  2. is free from control by the delivery service as to when the individual works;
  3. is compensated for each delivery or is compensated based on factors relating to the work performed, including receipt of a percentage of a rate schedule;
  4. controls solely the opportunity for profit or loss;
  5. pays all expenses and operating costs, including fuel, repairs, supplies, and motor vehicle insurance;
  6. determines the method of performing the service, including selection of routes and order of deliveries;
  7. is responsible for the completion of a specific job and is liable for failure to complete the job;
  8. enters into a contract that specifies the relationship of the individual to the delivery service to be that of an independent contractor and not that of an employee; and
  9. provides the vehicle used to perform the service;"

Comment: This section deals with service performed for compensation by an individual for a private for-profit delivery service. Services under Section 201.073 are excluded from the definition of employment if all of the conditions are met.

2.2.22     Newspaper Delivery Service

Section 201.073 states:

"In this subtitle, "employment" does not include:

  1. service by an individual younger than 18 years of age in the delivery or distribution of newspapers or shopping news, except delivery or distribution to any location for subsequent delivery or distribution."

Comments: Under Section 201.073(2), an exclusion applies when an individual under the age of eighteen (18) years delivers newspapers or shopping news to their ultimate point of reading consumption. The exclusion does not apply if there must be subsequent delivery or distribution in order for the material to reach the final point of distribution.

2.2.23     Inmates, Service by

Section 201.074 states:

"In this subtitle, "employment" does not include service performed by an inmate of a custodial or penal institution."

Section 201.074 of the TUCA, was amended in 1999, clarifying that the service provided by an inmate of any prison, public or private, is ineligible for unemployment insurance benefits, based upon service provided while an inmate.

"Inmate" is defined as an individual actually incarcerated in a prison. Once an individual has been released on parole, probation or to a halfway house they are no longer considered an inmate. An individual is still considered an inmate even though they may leave the prison during the day to perform services elsewhere. The key factor is that they must return to the prison facility at the end of each workday. This definition is consistent with IRS interpretation.

Comment: Before it was amended in 1999, section 201.074 read as follows: "employment does not include services performed by an inmate of a custodial or penal institution that is owned or operated by the state or a political subdivision of the state."

2.2.24     Fishing Vessels, Service On

Subsection 201.075:

"In this subtitle, "employment" does not include service performed on a fishing vessel normally having a crew of fewer than 10 members if:

  1. the crew member's payment is a share of the catch; and
  2. the service is not employment under the Federal Unemployment Tax Act (26 U.S.C. Section 3301 et seq.)."

Comment: This subsection would appear to exempt services performed on commercial fishing vessels, such as shrimp boats, as the latter usually have a crew of only two to four individuals. However, the Federal Unemployment Tax Act also adds another requirement to the exemption, i.e., that the service must be performed aboard a vessel of less than ten (10) tons displacement. As many of the aforementioned vessels are larger than ten (10) tons displacement, services performed aboard them would be covered under the Federal Unemployment Tax Act and, by virtue of the wording of Section 201.075, they would also be covered under the Texas Unemployment Tax Act.

2.2.25     Drivers as Independent Contractors

As enacted by the 85th Texas Legislative Session:

Section 1. Subtitle C, Title 14, Occupations Code, is amended by adding Chapter 2402.114 to read as follows:

A driver who is authorized to log in to a transportation network company's digital network is considered an independent contractor for all purposes, and not an employee of the company in any manner, if:

  1. the company does not:
    1. prescribe the specific hours during which the driver is required to be logged in to the company's digital network;
    2. impose restrictions on the driver's ability to use other transportation network companies' digital networks;
    3. limit the territory within which the driver may provide digitally prearranged rides; or
    4. restrict the driver from engaging in another occupation or business; and
  2. the company and the driver agree in writing that the driver is an independent contractor.

Note: No updates were made to the Texas Unemployment Compensation Act.

 

 

 

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