Employment Status

What Is Employment Status?

Employment status defines a current or former employee's relationship with the organization they work for.

An individual’s employment status usually reveals important information about how the relationship functions, including how much time the individual works each week and whether the employer withholds income taxes.

Employment Status in the United States

In general, US organizations use employment status to refer to the type of implied or written contract between the employer and employee.

Depending on the nature of the work, an individual can have several employment statuses at the same time:

• Contract Employee: Employed for a predefined period to provide work according to contract terms
• Full-Time Employee: Employed for 40 hours or more per week with salary and benefits
• Independent Contractor: Non-employee providing labor according to contract terms
• Intern or Apprentice: Temporary employee providing labor for educational benefit
• Part-Time Employee: Employed at hourly wage for fewer than 40 hours per week
• Self-Employed: The employer and employee are the same person
• Temporary or Seasonal Employee: Short-term employee or contractor with predefined work dates
• Unemployed: Former employee no longer providing work for the employer
• Volunteer: Non-employee voluntarily providing labor with no expectation of payment

Employers determine the employment status of newly hired personnel. Other employment status classifications exist in the U.S. and are applied depending on the context. For example, full-time employees may be further divided into exempt and non-exempt status to determine their overtime pay eligibility.

Why Does Employment Status Matter?

Employment status is important to ensure that your company is legally compliant.

Employees are entitled to receive certain rights, privileges, and protections at their place of employment based on their status. These may include pay, access to benefits, Social Security, Medicare, FICA, unemployment insurance, and worker’s compensation insurance.

Employment status also defines the responsibility that an employer has to an individual providing labor as well as their tax and compliance obligations to the IRS and other state and federal agencies.

Finally, each company may offer unique benefits to individuals based on their employment status. For example, an employee might have the benefit of maternity leave with pay, while a self-employed contractor will not. Therefore, employers must refer to employment status to ensure their workers are granted the benefits to which they are entitled.

What Does Inactive Employee Status Mean?

Inactive employee status refers to someone whose employment has not been terminated, yet they are not performing any labor for the employer.

In the US, inactive employees may include those using:

• Parental leave
• Disability leave
• Medical leave

This type of leave is usually temporary, and the employee is expected to return to their original employment status.

What Is Casual Employment Status?

Casual employment status is when someone is only hired when needed. For example, businesses may choose to hire casual employees during peak business periods. Casual employees are paid only for their time worked, may leave without notice, and do not expect future work.

Employment Status and the Affordable Care Act

Under the Affordable Care Act, average large employers (ALEs) with 50 or more full-time employees must offer affordable health insurance that meets minimum standards to 95% of their full-time employees and dependents under the age of 26.

In adherence to this mandate, insurance premiums for employee-only coverage cannot exceed 9.12% of the employee’s salary, and minimum coverage must pay out at least 60% of the cost of covered services.

Employment Status and IRS Regulations

In the US, the IRS does not make distinctions among the various employment statuses. They simply classify workers as employees or non-employees for tax purposes. The most common form of non-employee worker is an independent contractor, but there are others.

The distinction between employees and non-employees is based on three criteria:

• Relationship: This refers to the relationship between the individual and the organization. An implied or written contract, benefits, or other elements should explain the employment status of the individual.
• Financial Control: This conveys the amount of financial control an employer has over an individual’s job. The presence of a specific wage or salary would indicate the individual is likely an employee rather than a self-employed contractor (who would likely be paid on a flat fee basis).
• Behavioral Control: Behavioral control illustrates whether the business has control over how the individual’s work is performed. The more behavioral control it has, the more likely the worker is an employee rather than a non-employee.

Employment Status and Medicare Regulations

Under Medicare’s Secondary Payer rules for the “working aged,” Medicare will become the secondary payer for covered healthcare services rendered to beneficiaries 65 and older who have current employment status and non-COBRA employment-based coverage.

People with current employment statuses include those who work as an employee, are self-employed, are in a business partnership, or are on leave from an employer but still on employment rolls.

Employment Status Outside of the US

Beyond the US, many other countries also distinguish between categories of workers, employees, and self-employed individuals.

However, the definitions and rights associated with each may differ. There are some location-based distinctions to be aware of:

• In the UK, workers often receive the same protections as those classified as full employees.
• European countries often rely on more specific categories like fixed-term, indefinite, and part-time employment.
• The hiring and termination processes are more intricate in Asian countries due to strong employment protections.
• Australia uses the casual employment label to refer specifically to flexible workers with no guaranteed work hours.

In most countries, an individual’s employment status determines their rights and the employer’s responsibilities.