Types of Employment Broken Down
Understanding types of employment in modern day labor markets is critical for organizations that employ a variety of workers. Leveraging different types or classifications of workers can allow employers to strategically staff their labor to create as much productivity as possible.
Given the options, it is very important for employers to understand the difference between workers and be able to properly classify their legal status to avoid breaking the law.
Below we will go over some basics you need to know then dive into the different types of employment.
What is an employment contract?
An employment contract is a binding document between an employer and an employee, freelancer, independent contractor, or subcontractor. The agreement should include the terms of employment and ensure that parties to the agreement understand what is expected of them.
Examples of various employment agreements:
- Employment contract
- Independent contractor agreement
- Consulting agreement
What is an employment status?
Someone’s employment status is defined and dictated by the employer, and is the legal ‘status’ that defines the protections and rights a worker is entitled to. The employment status is also influenced by legal definitions and regulations set by labor laws. These rights become obligations for the employer in the relationship with the employee. There are two types of employment status:
- Employee
- Self-employed
What is an employee?
An employee is hired individual that is paid wages to for the benefit of the employer. Compensation can include hourly wages or annual salaries for a specific job. One thing to keep in mind is not all hourly wage earners are employees and it is important for an employer to determine the worker’s classification.
An employer must abide by minimum wage requirements, overtime regulations, and other rights and protections that employees are entitled to.
Types of Employee
- Full-Time – As set by IRS standards, full-time employees at organizations are typically working 40 hours a week.
- Part-Time – Employees working less than 30 hours in a work week for an employer are typically classified as part-time employees.
- Temporary – Temporary employees are typically hired by employers for a specific length of time or a specific project that has a defined end date.
- Seasonal – Seasonal employees are typically hired by employers during peak seasons for certain industries.
- Leased – Leased employees are hired through staffing agencies and are on the employer’s payroll.
What is a contingent worker?
Contingent workers are non-permanent and non-employee professionals that are typically hired to perform a specific duty. Contingent workers are not considered employees of the company they are performing service for and are typically experts in their field completing specific tasks. Contingent workers may not receive the same benefits as employees, but they can still negotiate compensations and may receive a salary or hourly rate for their service. Examples of contingent workers are freelancers, consultants, and independent contractors.
The key ways that make contingent workers different are:
- Contingent workers have no access to benefits
- Contingent workers have no salary
- Contingent workers file their own taxes
- Contingent workers in full control over the delivery of their work (how, where, when)
Contingent workers are typically under contract with a business through one of the below:
- Independent Contractor Agreement
- Consulting Agreement
- Freelance Contract
Types of Contingent Workers
- Freelancer - Contingent workers, such as creatives, like to use the word ‘freelancer’ to describe themselves. Freelancer, however, does not have distinguishable differences.
- Temp Workers - Contingent workers are sometimes referred to as ‘temporary’ workers.
- Consultants – As discussed above, employers will often hire experts in their field to help. These service providers are commonly referred to as consultants.
Image via Pexels by Aleksey
Classifying employees vs. contingent workers
The Internal Revenue Service has a system to help determine employee classification based on the below items:
- Behavioral – The employer dictates how the worker does their job.
- Financial – The employer controls how the worker is paid and provides tools for them.
- Type of Relationship – There is a written contract, the work performed is key to the business, employer provides benefits, etc.
The Fair Labor Standards Act (FLSA) also has a system for classifying employment, which is outlined below:
- Essential work - Workers are considered employees if they perform work that is essential to the success of the business.
- Managerial skills - Workers are probably employees if their managerial skills present profit-or-loss opportunities for business
- Invest in equipment - Workers are likely contingent if they buy their own equipment. However, this depends on the specific situation.
- Special abilities - Workers could either be employees or contingent workers if the work requires special abilities
- Permanent relationship - Workers are likely employees if their relationship with the employer is or seems permanent
- Control - Workers are likely employees if the employer has or retains control over them
If you have any additional questions about employment status or hiring employees, it is wise to consult an employment lawyer to make sure you are covered.
