Employee Type

What Are Employee Types—and Why Do They Matter?

Employee types are the different classifications or categories of workers based on their employment status and relationship with their employers in the United States. There are several employee types that are recognized and defined by laws and regulations, and these classifications of employees help determine the various rights, benefits, and obligations of both employees and employers.

Determining employee types is primarily the responsibility of government agencies and labor laws. For instance, the US Department of Labor and the Internal Revenue Service (IRS) play a significant role in defining and enforcing employee classifications.

One main reason for this system is to ensure that employees receive certain protections and benefits, such as minimum wage, overtime pay, and access to certain benefits like health insurance and retirement plans. It also helps employers understand their responsibilities and obligations towards their employees, such as paying payroll taxes and providing a safe working environment.

While some federal laws and regulations apply to all employee types across the United States, it’s important to note that certain aspects of employee classification may vary by state. Some states have other labor laws and regulations that provide additional protections or requirements for employees and employers. Therefore, businesses need to be aware of and comply with federal and state-specific employment laws to properly classify their employees and fulfill their legal obligations.

The 12 Most Common Types of Employees

1. Full-Time Employees

• Full-time employees work minimum hours established by the employer.
• In the United States, a full-time employee is commonly considered any employee who works a minimum of 36 hours per week, but employers have latitude in defining full-time employment. Be sure you understand the laws in your state about full-time employment.
• Full-time employees can be either salaried or on hourly pay.
• Full-time employees receive benefits more often than other employee types. Benefits may include healthcare, paid time off, 401Ks, etc.
• Federal and state laws require you to offer certain benefits to full-time employees. For example, you must comply with the Federal Family and Medical Leave (FMLA) Act, and some states require companies to offer paid maternity and paternity leave.

2. Part-Time Employees

• Part-time employees typically work less than 36 hours total each week.
• Part-time employees can sometimes choose their own hours, but not always.
• Seasonal employees may still be considered part-time, even if they work 40 hours per week, because of the temporary nature of their position.
• Part-time employees generally do not receive employee benefits. Employers are not typically required to provide benefits for part-time employees, although companies are increasingly offering benefits to their part-time workers.

3. Independent Contractors

• These employees are under contract to provide a specified good or service to individuals, companies, or corporations.
• They are expected to work according to the needs of their employer.
• No taxes are withheld from an independent contractor’s pay. They must file their own taxes using an IRS Form 1099-MISC. Be sure you understand the IRS definition of an independent contractor, as the IRS can impose heavy fines for misclassification.
• Independent contractors are also responsible for their benefits and supplies. These are typically eligible as tax deductions.

4. Temporary Employees

• Temporary employees are only hired to work for a determined length of time.
• Employee benefits are not typically required for temporary employees.
• They are often hired through agencies for temporary positions. However, some temporary employees may be hired on probation with the possibility of a permanent position after their temp position is over.

5. Subcontractors

• These employees are individuals (working for themselves or through a company) that help other companies (contractors) fulfill their contracts. Subcontractors are obligated to fulfill tasks based on the work the contractor assigns them.

6. Tenured Employees

• This term usually refers to employees in an academic setting, such as a tenured professor or teacher.
• Tenured employees are contracted individuals who can’t be terminated without just cause.
• Tenure was implemented to create a sense of job security for academics and ensure they could present controversial subject matter or findings or pursue controversial research without fear of termination.

7. At-Will Employees

• At-will employees include most full-time and part-time employees in the United States.
• They can be dismissed at any time for any legal reason without warning, except in Montana.
• At-will employees also have rights, including the right to quit a job or go on strike without prior notice to their employer.

8. Leased Employees

• Leased employees are employed by a PEO (professional employer organization).
• They perform work for the companies who lease them.
• They work for a period of time that could be fairly short or last over a year.
• The PEO handles payroll, fees, and taxes for leased employees, but management is the responsibility of the company leasing the employees.

9. Job-Share Employees

• In a job-share situation, a full-time position is split between two or more employees.
• Employees in this situation can receive employee benefits prorated according to their job-share situation.

10. Apprenticed Employees

• Apprenticed employees learn a trade or skill from a more experienced journeyman.
• Journeymen teach apprentices the skills needed for their trade and how to get the necessary licenses to operate in their trade.

11. Journeyman/Master

• Once an apprenticed employee completes their apprenticeship and obtains all required and necessary certifications, they are considered a journeyman or master.
• Journeymen and masters work in industries requiring license certifications and highly specialized training. Electricians, for example, must be licensed by local state and city municipalities.

12. Interns

• While akin to apprentices, interns are usually focused on white-collar career paths instead of trades.
• Interns work under higher-level management and may be full- or part-time.
• Internships may be paid or unpaid; however, there are federal regulations regarding who qualifies as an unpaid intern, with some states having additional requirements.
• Check your Fair Labor Standards Act (FLSA) regulations to ensure you’re compliant when hiring paid or unpaid interns.

How to Avoid Employee Classification Mistakes

Employee classification refers to the process of correctly categorizing workers based on their employment status. Misclassifying employees can have serious ramifications—it is important for employers to accurately classify their employees to comply with labor laws and avoid potential risks and consequences.

Misclassification can result in legal trouble for employers. This often comes as misclassifying employees as independent contractors while defining schedules and hours worked. This is a problem when workers are entitled to overtime or healthcare benefits and aren’t receiving them because of how they’re classified.

Classification has made news in the past years as state governments work to define gig workers for companies like Uber, DoorDash, and Instacart. These companies hire drivers as independent contractors, but they are subject to termination without notice since they fulfill the core functions of the business. Because the contractors were being treated as employees and not contractors, they were entitled to the full protections and benefits that come with being classified as employees and have to comply with company policies to avoid termination.

Companies that are found to have misclassified employees could be liable for paying back wages, unpaid taxes, and additional penalties. These costs can be substantial.

To avoid employee classification mistakes, here are some actionable tips to keep in mind:

• Take time to understand the different employee classifications and the criteria that define them. Familiarize yourself with federal and state labor laws to ensure compliance.
• Review job descriptions and duties carefully. Ensure that the job responsibilities align with the appropriate employee classification.
• When in doubt, seek professional advice. Legal experts or human resources specialists can provide guidance and help you avoid classification errors.
• Keep accurate records of employee hours, wages, and benefits provided. Maintain proper documentation to support your employee classifications.
• Regularly review and update employee classifications as needed. Changes in job roles or responsibilities may warrant a re-evaluation of employee classifications.