Understanding the 4 main types of employees
Federal law defines different types of employees. These definitions are not set in stone, so it can sometimes be hard to know how to classify a worker.
Not all workers at a company are necessarily employees. Before looking at the types of employees, it’s a good idea to understand what makes a worker an employee.
An employee is somebody who works for another person or a company and has little control over the job. The employer has the power and responsibility to:
- Set the worker’s schedule
- Tell the worker what to do and how to do it
- Supply the equipment and tools to get the job done
This is not set in stone. When there’s a question about a worker’s status, courts make decisions based on the situation as a whole, not any specific part.
What are full-time employees?
Under the law, companies can define full-time as they see fit. Usually, 35 to 40 hours per week.
Traditionally full-time employees get a range of benefits:
- Health insurance
- Retirement plan
- Vacation and/or sick days
- Dental and/or vision insurance
In most cases, the law does not require employers to offer any benefits, although the Affordable Care Act does include a provision to assess an “employer shared responsibility” payment for certain employers who don’t offer coverage or whose coverage doesn’t meet the act’s standards.
Many companies use benefits to attract and retain good employees.
What are part-time employees?
Part-time employees, work fewer hours than full-time employees. Again, the number of hours is up to individual employers.
Companies vary in how they offer benefits to part-time employees. Many offer fewer or no benefits. Others may offer all employees the same or similar benefits but require part-timers to work longer before the benefits kick in.
One exception is retirement plans, for which the IRS has specific rules. It defines part time as working less than 1000 hours in a 12-month period. Employers who offer retirement plans must allow anyone who works at least 1000 hours per year to participate. Also, part-time employees who regularly work at least 30 hours each week may be eligible to participate in the same health plan as full-time employees.
What is self-employment?
Workers who work for themselves rather than an employer are considered self-employed. A wide range of activities can be considered self-employment:
- Starting a business offering a service or selling a physical product
- Contracting with a company like Uber that connects workers with people who need their service.
- Offering services through online marketplaces like Elance or Guru.
- Setting up a website to sell something you’ve created, like e-books, artwork, or crafts.
When you’re self-employed you must track your own income and business expenses. You also pay the full amount of social security and medicare taxes and make quarterly estimated tax payments as needed.
What are independent contractors?
Independent contracting is a form of self-employment. You may work in your client’s place of business or remotely, but you’re not an employee of the company.
Unlike an employee you are free to decide when to work, how to do the job, and what equipment to use. You also are not entitled to employee benefits like health insurance or paid vacation days.
You are also responsible for calculating your income in order to file taxes.
Understanding the different types of employees (and non-employees) can be confusing. If you have questions about your situation, a business lawyer can help you figure it out.