March 23, 2026

Common characteristics and misconceptions of independent contractors

As your workers’ compensation partner, we want to make sure employers have coverage they can count on. That starts with an accurate quote. Because quotes are partially determined by the number of employees and their associated payroll, it’s important to provide correct information.

We know that determining who to consider as an employee can be a complex task, especially considering that classifying employees for a workers’ compensation policy may differ from other business tasks like taxes. And even employment agreements, including DWC forms, may not always give an accurate classification.

To help employers avoid unwelcome premium and loss surprises, this article covers the key differences between employees and independent contractors including common misconceptions, definitions and characteristics.

Common misconceptions

The standard workers’ comp policy states that premium is determined by using payroll and other compensation for individuals that could receive benefits if an injury or illness occurs on the job.

Here are three clarifications on common misconceptions we hear when it comes to determining employment status:

Misconception #1: Method of payment or tax-reporting basis alone determines whether an individual is an employee or independent contractor.

Clarification: While many employers issue 1099 forms to their independent contractors, a 1099 alone does not confirm that someone is an independent contractor. 

Misconception #2: Employment contracts and workers’ comp agreement forms from the Texas Department of Insurance, Division of Workers’ Compensation alone determine independent contractor status. 

Clarification: Other factors, such as the employer's degree of control over the individual, can classify them as employees for workers’ compensation purposes.

Misconception #3: Employers can insure some employees and exclude others. 

Clarification: Generally, when an employer purchases workers’ compensation, it covers all employees.

• Most commonly, business owners and executives may be excluded from workers’ comp coverage.
• There are also several types of employees that are exempt from workers’ comp coverage but can be included by endorsement. Exempt employments include certain farm or ranch workers, domestic workers, licensed real estate salespersons compensated solely by commissions, and individuals subject to federal compensation laws (such as master or seaman of a vessel).

Employee and independent contractor definitions

Determining if an individual is an independent contractor has to do with the nature of their relationship with the employer.

An employee provides services on behalf of an employer who has the right to provide direction and control over them. Employees receive time-based compensation, resources and tools needed to perform their service. They might also receive company benefits such as health insurance and access to retirement plans. 

An independent contractor presents themselves as a business to the public. Independent contractors are free to perform tasks in the time and manner they deem appropriate. They also provide their own tools, equipment and supplies needed to perform their services.

Common characteristics of independent contractors

The Texas Workforce Commission (TWC) offers an Independent Contractor Test to help determine if someone is an employee or independent contractor. Texas Mutual uses this test as one part of our evaluation to help interpret the Texas Labor Code provisions.

Below you’ll find a quick reference of the common characteristics of independent contractors from the TWC test to help you recognize the differences. It’s important to note that no single factor makes the determination, and not every situation will involve each factor.

Typically, an independent contractor:

• Does not receive instructions and does not need to receive training
• Has significant investment in their independent business
• Is hired for a specific job and there is no continuous relationship
• Sets their own hours of work and supplies their own tools
• Receives payment per job and can realize profit or loss
• Can advertise their business as available to the public and works for multiple companies
• Is liable for non-completion or breach of contract

You can also find definitions for independent contractors as it relates to workers’ compensation in sections 406.121 and 406.141 of the Texas Labor Code.

Common characteristics of employees

As with independent contractors, no single factor makes the determination that an individual should be classified as an employee. Typically, an employee:

• Is more likely to receive instructions on when, where and how to perform the job
• Is often trained by a more experienced person, or is required to attend meetings and take training courses
• Does not have an investment in the business
• Is dependent on the employer for the work
• Is often subject to non-competition rules and can be let go at will

Following these common characteristics and using TWC’s Independent Contractor Test should help more accurately classify employees on a workers’ comp policy. For any additional questions, we encourage employers to speak with their insurance agent, and agents to speak with their Texas Mutual underwriter.