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HR’s Guide to Different Employee Work Classifications

Navigating the different types & what should be noted from an HR perspective

by Elle Mason

Work classifications can get complicated – quickly. They help determine how employees are managed, compensated, and taxed – amongst other things. Depending on the business needs, there can be half a dozen different types of employees working alongside another!

HR is often tasked with managing a variety of different employment types, and with that comes a whole lot of different legislation, paperwork, time-tracking rules, benefits, and onboarding rules. We want to create a comprehensive guide to navigating the different types as well as what should be noted from an HR perspective.

Let’s first make a differentiation between “employees” and “contingent workers.”

Employees are on the business payroll as a permanent member of the staff. Employers must withhold income taxes from their wages, as well as withhold and pay unemployment taxes, Social Security taxes, and Medicare taxes. Employees can be full-time, part-time, temporary or seasonal.

Contingent workers are not permanent staff members and employers are generally not subject to the same withholding and benefit requirements. Contingent workers can be independent contractors, consultants and other work arrangements.

Next, let’s make a differentiation between “exempt employees” and “non-exempt” employees.

Exempt & Non-Exempt Employees 

An exempt employee is an employee who is exempt from the rules of minimum wage and overtime pay. This is typically referred to as “salaried.” This classification is typically for employees who meet a duties test (executives, learned professionals, etc.), are paid a salary, and earn a minimum of $35,568 per year.

A non-exempt employee, according to US law, is any employee who does not meet certain criteria that exempts them from the federal wage and hour laws. Under this law, employees are eligible for overtime and also have the right to breaks. If you are a non-exempt employee, you are entitled to get paid time-and-a-half if you work more than 40 hours in a week. This is typically referred to as “hourly.”

Full-Time & Part-Time Employees

A full-time employee in the United States is someone who works between 30-40 hours a week or 130 hours a month. A part-time employee in the United States is someone who works fewer than 30 hours a week. A part-time employee can be hourly or salaried. This type of employee is usually not entitled to any benefits and may not receive any type of paid time off. However, employers are responsible for paying taxes for both types of employees.

Hourly Employees & Salaried Employees

According to the Fair Labor Standards Act, hourly employees are classified as “an employee who is employed on a salary, wage, commission or piecework basis and paid at least once per month.” Hourly employees receive their earnings according to the number of hours they work. Hourly employees in the United States need to be classified as such according to the Fair Labor Standards Act. Those that fall under this category are those who earn only on a salary, wage, commission or piecework basis and are paid at least once per month.

Salaried employees are usually employed full-time and receive a fixed salary each pay period. For salaried nonexempt workers, their salary is for a fixed number of hours per week, and they are eligible for over-time pay if they exceed that number. 

Temporary & Seasonal Workers 

A person is classified as temporary or seasonal by HR, if they work for the company for 3 months or less in a year.  Temporary or seasonal employees are a cost-effective way for companies to fill gaps in their workforce. If an employer hires a temporary or seasonal worker directly, instead of through an agency, the employer is responsible for tax withholdings. Seasonal workers are entitled to unemployment and Social Security benefits.

Contractors & Other Contingent Workers (e.g. Freelancers and Consultants)

If you have a worker classified as an independent contractor, the company is not required to provide them with benefits such as health or disability insurance. Contractors, consultants, freelancers and similar classifications often differ in the type of work they perform or the way they perform it.

An independent contractor is defined by the IRS (Internal Revenue Service) as someone who operates in a business that they own and offer services in an independent way, rather than being associated with one company. However, there are many complications in classifying an individual independent contractor. We typically recommend that employers consult with their state and local laws to ensure compliance.

In the US, contractors can be classified as either 1099 or W-2. These two classifications deal with two different tax methods. 1099 contractors are usually self-employed and considered independent workers while W-2 contractors are employees of the hiring company and subject to social security contributions.

Interns

An intern is an employee of a company who has not yet been classified as a regular employee and has no benefits. Interns are people who want to get a taste of what working in a company is like. It’s a short-term work opportunity that gives interns the chance to learn, grow, and explore their interests outside of the classroom.

Internships are often unpaid but they can be great for gaining experience and knowledge about a particular career field. Many internships require students to enroll in classes at local colleges or universities, which make them appealing for students who need credits, not jobs.

To be classified as an intern in the US, one must work fewer than 8 hours per day and have no authority to make a final decision on behalf of the company. There are stipulations around what an intern’s duties can be, particularly unpaid ones, so employers should consult with local and state guidance.

How GoCo Can Help 

Despite the best effort of these classifications, many employees still find work classifications confusing or unclear. Consulting with your state and local law is always recommended, and both the IRS and the FLSA have lists for classifying workers.

The IRS uses a 20-point classification system based on behavioral considerations, financial considerations and the type of relationship. These common law rules include:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? This includes things like how the worker is paid, whether expenses are reimbursed, and who provides the tools.
  • Type of Relationship: Are there written contracts or employee type benefits such as pension plans, insurance, vacation pay, etc.? Will the relationship continue and is the work performed a key aspect of the business?

The FLSA uses a 6-point list of conditions.

  • Workers are employees if the work they perform is essential to the business.
  • Workers are probably employees if their managerial skills present profit-or-loss opportunities for the business.
  • Workers are likely contingent if they invest in the employer’s equipment and facilities.
  • Workers could be either employees or contingent workers if special abilities are required to perform the work?
  • Workers are likely employees if their relationship with the employer is or seems permanent.
  • Workers are likely employees if the employer has or retains control over them?

Once you have your workers properly classified, GoCo can support your administration.  

• Payroll – Take the mystery out of managing company’s payroll withholdings for different types of employees. You receive guidance, and we allow you to either bring your own payroll or use our embedded payroll option which helps manage all employee changes, benefit deductions, final paychecks, for different employee classifications.

• Benefits – With GoCo, you don’t have to worry about constantly changing regulations and legislation, and you can handle benefits deductions with ease, regardless of employee type. Benefits are kept in sync with payroll & insurance carriers, and in compliance to avoid costly mistakes.

• Rehiring employees and managing temporary employees – If you need to hire or rehire a temporary employee, contractor, or different employee types, our HRIS makes it easy by allowing for re-activation of original files, with the same flexibility as normal new hires.

See how GoCo can simplify your HR