Employment Type

What does type of employment mean?

The term employment type covers the different classifications or categories of workers in the United States, based on their employment status and relationship with their employers. Employment type can also be seen as a legal agreement between the employee and the employer.

What are the different employment types?

There are several employee types that are recognized and defined by laws and regulations. These classifications of employees help determine the various rights, benefits, and obligations of both employees and employers.

1. W-2 employee

A W-2 worker is an employee who is paid an annual salary or hourly wage. They can be either full- or part-time employees. They are known as W-2 workers as the W-2 form is a document each employer needs to send in January to both Internal Revenue Service (IRS) and their employees. W-2 employees are entitled to several employer responsibilities, including:

• Paying employment taxes
• Offering company benefits, such as sick leave, parental leave, health insurance and other perks of the job.

1. 1099 employee

A 1099-NEC form is sent to IRS stating how much you paid a contingent worker, or non-employee worker. These are individuals hired to carry out a specific type of work or a project. Their contract will outline exactly what they’ve been employed to do. A 1099 worker can be:

• Independent contractors
• Consultants and freelancers
• Temporary workers employed and assigned to your business by a staffing agency or other third party

Why do we have employee classification categories?

One main reason for categorizing employee types is to ensure that employees receive certain protections and benefits, such as minimum wage, overtime pay, and access to benefits 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.

What are the different types of workers?

1. Full-time

• Full-time employees work minimum hours established by the employer and can be paid both salaried or hourly.
• In the United States, a full-time employee works a minimum of 36 hours each week. Take some time to understand the different laws in your state surrounding full-time employees.
• Full-time workers are more likely to receive benefits than other employee types. Such as healthcare, paid time off, 401ks, etc.
• You must comply with federal and state laws regarding benefits. For example, for the Federal Family and Medical Leave Act (FMLA), some states require companies to offer paid maternity and paternity leave.

2. Part-time

• Part-time means working less than 35 hours a week.
• Seasonal employees could still be part-time, if they work over 35 hours ‌a week, because of the temporary nature of their job.
• Part-time workers don't always receive benefits from their employer.

3. Independent contractors

• These types of employees are under contract to provide a specific service.
• No taxes are withheld from an independent contractor’s pay. They must file their own taxes using an IRS Form 1099. Be sure you understand the IRS definition of an independent contractor, as the IRS can impose heavy fines for misclassification.
• While independent contractors are responsible what benefits and supplies they get, these can be eligible for tax deductions.

4. Temporary workers

• Temp workers are employed to work for a set length of time.
• Temporary employees typically don’t receive employee benefits.
• They are typically employed through an agency. However, a temporary employees could be hired on probation with the aim of becoming a permanent employee once their temp contract is over.

5. Subcontractors

• Subcontractors 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 workers

• 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 staff

• 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 workforce

• These are employed by a professional employer organization (PEO).
• They work for a set length of time. It could be short or over 12 months.
• While the PEO handles payroll, fees, and taxes for leased employees, managing the employee is the responsibility of the company that has leased the employees.

9. Job-Share

• 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. Apprentices/Journeymen

• Apprenticed workers learn a skill or trade from a journeyman who's more skilled. They teach apprentices the essential skills and explain how the apprentice can access the necessary licenses to operate in their trade.
• Once the apprentice has completed their apprenticeship, obtained the essential and necessary certifications, they are now also considered a journeyman or master.
• Journeymen and masters work in industries that require licenses and certifications. They also have highly specialized training in their respective areas.

11. Interns

• Similar to apprentices, interns are usually tailored to white-collar career paths rather than trades.
• Interns work under higher-level management and there can be full- or part-time positions.
• Internships can be paid or unpaid. But bear in mind that there are federal rules and regulations around who qualifies as an unpaid intern.
• Be sure to 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’s 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.

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.