Employee Classification 101 for Small Businesses

Hiring employees is an exciting milestone for business owners. Whether you already have a team or are looking to hire your first employee, it’s crucial to understand the different types of employee classifications to decide what best suits your company.

A few different factors go into classifying workers, including:

• Job expectations.
• Amount of hours worked.
• Level of experience.
• Availability.
• Company needs.

Generally, employees are broken down into five main categories: full-time, temporary full-time, part-time, temporary part-time, and independent contractors. Let’s dive in further and explore what type of employee you should hire. 

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Legal Requirements

The Fair Labor Standards Act works to regulate employment details such as minimum wage, hours worked, overtime, and more. Businesses of all sizes must adhere to the rules laid out in the act to be considered lawful.

This act regulates states on a federal level by laying out basic employment practices like a national minimum wage. These policies serve as a baseline among varying state laws and regulations. The Fair Labor Standards Act recognizes two types of employment:

Non-Exempt Employees

Non-exempt employees must adhere to the Fair Labor Standards Act’s laws for minimum wage, hours worked, and overtime. They are not required or expected to work more than 40 hours a week and must be paid overtime if they do. Traditionally—and most commonly—non-exempt employees work hourly for a specific rate.

Exempt Employees

Exempt employees are exempt from the laws enacted by the Fair Labor Standards Act. They are not entitled to overtime compensation and are traditionally salaried employees. Most commonly, exempt employment is seen among high-level positions such as managers, directors, and executives.

Employment Classifications

Before you publish your job listing, it’s important to understand the position you’ll be hiring for. As mentioned above, there are four common types of employment as classified by companies:

Full-Time

Full-time employees are fully employed by a company and work a minimum number of hours weekly, as specified by their employer. Additionally, full-time employees are eligible for benefits like healthcare, paid time off, sick leave, etc.

When to hire full-time employees: Full-time workers should be considered if your workload demands someone for roughly 40 hours per week. Be sure your company is financially ready and able to pay a full-time employee either hourly or salary. 

Temporary Full-Time

As you probably guessed, temporary full-time employees work as full-time employees for a specified period of time with a company. They’re usually paid hourly and are not often eligible for all full-time benefits, but qualify for benefits required by law.

When to hire temporary full-time employees: Temporary full-time workers may be right for your business if you have a very busy season coming up. You may also consider a temporary full-time employee if none of your existing employees offer a particular skill or specialty that would be useful to you for a given period of time.

Part-Time

Part-time employees are hired by a business and are consistently scheduled less hours than what’s deemed a full week’s worth of work by the company—this is usually 40 hours. Part-time employees are brought on to supplement a workload and are often eligible for benefits allotted by the business. The average part-time employee works 15 to 30 hours per week.

When to hire part-time employees: Part-time workers are great if you have recurring tasks to be done that don’t require a full 40-hour week. Or perhaps your industry allows you to hire solely part-time employees to make up a full staff (e.g. restaurants). Hiring part-time workers often allows you more flexibility in hiring and scheduling.

Temporary Part-Time

Temporary part-time employees are hired on to supplement short-term needs of a company. Often, they serve as temporary replacements (temps) or are called in on a needed basis. They are not usually eligible for all full-time benefits, but qualify for those required by law.

When to hire temporary part-time employees: Temporary part-time workers should be hired if your company has a short-term need that can be fulfilled in less than 40 hours a week. Seasonal employees are great examples of temporary part-time employees.

Independent Contractors

Contracted workers are specialists in their field. They work as third-party entities for companies seeking their specific services. Hours of commitment, pay, and duration of the partnership are all details specified in their written contract with a company. They are not technically employed by the company and therefore are usually ineligible for any company benefits.

When to hire independent contractors: Independent contractors may be one of the best bets for your small business if you’re looking for specialized work or a specific project. You’re not required to provide benefits to contracted workers and may also specify in their contract whether they’ll be paid hourly or on a per-project basis. Depending on the agreement you work out, investing in contractors tends to be fiscally beneficial—especially if your company is just getting off the ground.

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