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Overview
The Texas Workforce Commission uses three employment categories: regular, domestic and agricultural. Employer tax liability differs for each type of employment.
The Texas Unemployment Compensation Act (TUCA) establishes the provisions of the Unemployment Insurance (UI) system in Texas, defines employment and establishes which types of employers participate in the unemployment tax system. These employers are referred to as “liable employers.” Liable Texas employers include sole proprietorships, partnerships, Limited Liability Companies (LLC), Professional Limited Liability Companies (PLLC), Limited Partnerships (LP), Limited Liability Partnerships (LLP), Professional Corporations (PC), Professional Associations (PA), corporations and foundations, associations, trusts, estates, banking institutions, political subdivisions and government agencies.
Definition of Employment
Employment is any service performed for payment or compensation. This definition applies to any hiring contract, whether written, oral or implied. Under TUCA, most services individuals perform for wages are taxable unless TWC deems otherwise. If you are uncertain of whether your employees’ wages are subject to TUCA, contact the TWC Tax Department.
The three essential elements to the definition of employment are service, wages, and direction and control.
Service
The agreement under which a person agrees to perform a service is known as a contract of hire. Employment begins when service starts and continues until it is discontinued by discharge, death, resignation or an alteration in the terms of the employment agreement.
Wages
A person who receives wages or non-cash compensation for services is said to be employed. An example of non-cash compensation is room and board for live-in domestic help. Taxes are calculated on the basis of wages paid for employment. Unemployment benefits to claimants are determined by wages received from liable employers.
Direction & Control
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 employed. For more information regarding direction and control, see Employment Status – A Comparative Approach
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Services Excluded from the Definition of Employment
Examples of services excluded from the definition of employment include those performed:
- In the employ of a church or organization operated primarily for religious purposes
- By the minor child (under age 21), the spouse, or the parents of a sole proprietor (a sole proprietor is a self-employed individual)
- As part of an unemployment work relief or work training program assisted or financed by a federal or state agency
- By a student for a school, college or university if earning credit for a class while enrolled and regularly attending classes
For a complete list of covered and exempt services, refer to the Texas Unemployment Compensation Act (TUCA).
Types of Employment
There are three types of employment:
- Regular employment includes occupations that are not domestic or agricultural, as explained below.
- Domestic employment applies to work in the home such as nannies, gardeners, housekeepers or personal care staff.
- Agricultural employment includes working with livestock and crop production, or the operation, management, conservation or maintenance of a farm or ranch.
Regular Employment
Under any of the following circumstances, employers become liable to pay unemployment taxes if they:
- Have Texas employees and are subject to the Federal Unemployment Tax Act (FUTA) in Texas or another state
- Pay at least $1,500 in total gross wages to employees in any calendar quarter
- Pay at least one employee for a minimum of one hour a day during 20 different weeks in a calendar year
- Have been designated as a 501(c)(3) organization by the IRS and have at least four full- or part-time employees for 20 different weeks in a calendar year
- Acquire or take over, through any means, the total or partial assets of a business, trade, organization or workforce that is liable for the UI tax
Domestic Employers
Under any of the following circumstances, employers become liable to pay unemployment taxes if they:
- Pay $1,000 or more in total gross wages in a calendar quarter
- Take over the domestic employees from another household that is liable for the UI tax (for example, due to divorce or other change in circumstances)
- For more information, see Domestic Employment.
Agricultural Employment
Under any of the following circumstances, employers become liable to pay unemployment taxes if they:
- Employ at least three employees for a minimum of one hour a day for 20 weeks in a calendar year
- Pay at least $6,250 in total gross cash wages to employees in a calendar quarter
- Employ a seasonal worker on a truck farm, orchard or vineyard
- Employ a migrant or seasonal workers who works for a farmer, ranch operator or labor agent
- Acquire or take over, through any means, the total or partial assets of the business, trade, organization or workforce that is liable for the UI tax
