Types of Employment and How They Differ

What is an employee?

In general, not all employment situations involve “employees.” An employee is a legal term used to describe someone who is officially hired by a business to perform work for the employer. The Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) indicate that a person is an employee if the employer has a certain amount of control over the work being performed. There are many additional factors that make someone an employee, including:

• The individual receives a specific salary or wage
• The individual is on the company’s payroll
• The individual is eligible for benefits and perks
• There is a written or implied employment contract
• The individual has employment rights protected by law

Some businesses try to avoid creating an employer-employee relationship. However, if the company has significant control over when, where, and how work is performed, that relationship may be formed, regardless of the business’ desire not to.

Types of employees businesses may hire.

There are several classifications of employees that companies may use. Businesses should carefully consider their own needs, as well as those of employees, when determining what type of employment situation is best.

Full-time employees.

Full-time employees are most considered during employment situations. They typically work 40 hours per week, but may be required to put in overtime, for which they are compensated for either with a salary or at an hourly rate.

Full-time employees typically receive benefits and perks in addition to a wage. In fact, the Fair Labor Standards Act (FLSA) states that employers with 50 or more full-time employees must offer health care coverage to full-time employees and their dependents.

Part-time employees.

Part-time employees are typically those who work less than 40 hours per week. However, some employers define them as working less than 35 hours per week. They are usually paid hourly, rather than salaried. They are actual employees of the company, but they may not be eligible for some or all of the extra benefits that full-time employees enjoy.

Seasonal employees

Seasonal employees are hired based on the needs of a company during a specific time of year when they are extraordinarily busy. For example, a greenhouse company may hire 10 seasonal employees to cover increased business during peak seasons such as the spring and summer months. These employees are not considered permanent employees, but they may be either full-time or part-time. They may or may not be eligible for benefits depending on the offerings of the business.

Temporary employees

Temporary employees are hired for a specific period of time, such as six months or until a certain project is completed. They stop working for the company when that situation elapses. They are typically paid hourly and may or may not be eligible for other benefits and perks. Employers may hire temporary employees directly or they often go through a staffing agency to help them find temporary employees to fit their needs.

Leased employees

A leased employee may be hired by a staffing agency and “leased out” to a business to complete a specific project or for a certain amount of time. Leased employees are not employees of the company, but rather the staffing agency. They typically get an hourly rate and receive benefits from the employment agency.

What is a contingent worker?

In today’s gig economy, contingent workers are very common. A contingent worker is different from an employee in that they take outsourced work from a business and perform specific duties on a non-permanent and non-employee basis. They may be remote, hybrid, or in-office workers.

Contingent workers are often experts who are sourced for their experience and skill set. They perform work based on an agreement with the company that should be set out formally. Once a project is complete, the contingent worker will no longer work for the company. However, the business may utilize some contingent workers on a recurring basis.

In general, contingent workers:

• Do not get fringe benefits like health insurance from a company.
• Do not receive perks like other employees.
• Do not receive a salary.
• Must pay their own income taxes with the IRS.

Additionally, contingent workers generally control how, when, and where they work. The more control the business retains, the more likely there is an employment relationship.

Types of contingent workers businesses may use.

There are multiple types of contingent workers that a business might use. It’s important to remember that contingent workers are not employees.

Contract workers

A contract worker is an individual who is hired by a business for a set period of time or for a specific project or duty. A contract will establish how much the individual is paid and other expectations on both sides. Contract workers do not receive benefits or perks from the hiring company.

Independent contractors or freelancers.

Independent contractors, also called “freelancers,” are often a highly skilled group of individuals who work for businesses. They are not employees and do not receive salaries or benefits. While businesses get the benefit of an advanced worker without having to train and onboard them, they also do not have control over the individual’s behavior, finances, or working relationship.Some companies intend to hire a freelancer and actually treat the individual as a part-time employee, exerting control over where, how, and when they work. This can be complex if legal issues arise involving taxes, benefits, unemployment, and workers’ compensation.

Interns

Interns are similar to contract workers and often have a formal agreement with the company. They may work on an unpaid, paid, or partially-paid basis in exchange for work experience. High school and college students often opt for internships over traditional employment relationships. Internships may last for a few months, or they may become permanent employees over time.

Consultants

A consultant is similar to an independent contractor. They are self-employed and handle all their own taxes and benefits. They are highly skilled and offer professional advice in the area of their expertise. Consultants are typically temporary, but may be utilized on a repeated or ongoing basis depending on the organization’s needs.

Volunteers

Volunteer positions may look like many other positions listed in this article, but they do not typically offer any type of compensation. The volunteer may be working to build their resume or gain experience in their field. Volunteers usually have a lot of control over their own schedules and work availability.