What is employee classification?
Currently, the labor market is undergoing a period of transition that affects all of those involved, including employers, independent contractors, and employees. Businesses and organizations must adjust to a more complicated workforce with new responsibilities and demands as more people find novel methods of making a living. It may be necessary for your company to reconsider how it classifies its employees.
Let’s examine the principles of employee classification, the most popular employee categories, non-exempt and exempt workers, and the differences between contingency workers and regular employees. By the time you finish reading this article, you will know how to create an effective employee categorization policy that benefits your company as well as the function and value of each type of employee.
Why should you rethink your employee classification?
The pandemic is to blame for the increased complexity of navigating the workforce. In truth, though, the changes that have occurred over the previous few decades have strengthened the trends that we observe now.
In addition, unexpected job opportunities were made possible by the swift growth of high-speed internet and the proliferation of portable devices.
The job market is currently vast and offers many possibilities to suit every need as a consequence. As a result, businesses struggle to attract talent and live up to the expectations of their current workforce. However, not everybody faces difficulties.
Some businesses managed to persevere in the face of numerous obstacles that emerged in the last few years.
So what is their approach?
Successful companies embrace a diversified workforce that comprises full-time, part-time, and remote workers in addition to utilizing cutting-edge technology to increase productivity and decrease time spent on repetitive chores (just one example).
In this case, it is essential to make sure that your personnel classification is accurate. In this way, you can reap the benefits of a diverse workforce without experiencing any interruptions to operations or declines in output. Furthermore, choosing the type or types of employees that best suit the requirements of your company is made simpler when you are aware of employee classifications.
Furthermore, you’ll see that many reviewers value their employers’ consistency and transparency—including how they classify employees—if you visit websites where employers post reviews, such as JobSage or Glassdoor. That’s because it gives them a sense of trustworthiness and confidence.
What kinds of employees are there?
Most businesses will categorize their workers into five groups, plus one more category, depending on the number of hours worked, job responsibilities, and anticipated duration of the position:
- Full-time workers
- Part-time workers
- Temporary Workers
- Interns
- Temporary employees
- Leased personnel (the supplemental kind)
Currently, neither state nor federal legislation in the US provide a precise definition for these phrases. Each organization has some leeway when it comes to personnel classification policies. But once established, the organization as a whole must follow the same policy.
This allows employees to better understand if they’re eligible for benefits. Additionally, they are entitled to a fair evaluation of their pay based on the amount of hours worked each day.
Let’s take a closer look at each kind of employee.
- Full-time workers
Full-time workers often put in 40 hours a week on average, are entitled to benefits, and can have indefinite employment agreements. These are the so-called long-term workers. Additionally, if a company or organization employs more than 50 people full-time in the US, it is required to provide health insurance to the staff members and their dependents.
Because full-time companies provide a regular wage in addition to overtime compensation (calculated by the hour), full-time employment is frequently regarded as one of the most dependable and safe work environments.
Full-time employment, however, might be disadvantageous in a position that just pays minimum wage, making it challenging for companies to retain talent.
- Part-time workers
These workers typically receive hourly compensation and put in less than 40 hours each week. However, depending on the business, some part-timers prefer a wage basis.
Also, if there is no end date specified in the contract, part-time workers may be hired on a permanent basis. These people might not qualify for benefits, though.
- Temporary workers
Temporary workers, or temps as they are sometimes called, are employed for a specific amount of time and have a fixed deadline for leaving. These people frequently spend anywhere from six months to a year or two working for an organization. Furthermore, some workers are employed just for the length of a project. After the project is finished, their contract expires.
You can now have temporary full-time workers and temporary part-time workers, based on the number of hours worked per week. In general, temporary employees are great for short-term tasks and can increase output during hectic periods.
In addition, employing temporary workers is an excellent method to assess candidates’ qualifications without having to provide a permanent position.
- Interns
Typically, interns are recruited for a few months at most, and they may be paid in full, in part, or not at all. Most of them are college or high school students trying to get their first job. An internship could result in a job offer from your employer.
- Seasonal employees
Seasonal workers are another non-permanent job type that is used to handle a company’s peak seasonal demand. This demand typically occurs during a particular time of year, most commonly during the summer and winter breaks.
- Leased staff
This kind of worker or employee does not appear on your company’s payroll, yet they are still considered salaried employees and not independent contractors.
As the term implies, a business might lease workers from a staffing agency—which pays them—to finish a project or add more workers during peak times.
Employee classification: exempt versus non-exempt
The Fair Labor Standards Act (FLSA) regulates whether or not an employee is exempt, but the employee classification system is left up to the employers. We will briefly discuss the definitions of exempt and non-exempt workers but won’t go into great length regarding the rules themselves. See the FLSA website for further information.
To put it briefly, an exempt employee is a person who is not subject to the FLSA’s overtime regulations. Thus, they are not eligible for overtime compensation. The majority of exempt workers are paid salaries and fall into one of the following categories: outside sales, executive, professional, or administrative.
Hourly wages are the norm for non-exempt workers, who also qualify for overtime compensation.
Of course, there are more differences to take into account, but if you are a business owner dealing with this kind of employee categorization, it is better to seek assistance from a labor law expert.
What are contingent employees?
Contingent workers include consultants, independent contractors, freelancers, and any other kind of worker not engaged under an employment contract. These individuals are collaborators who can assist with a range of jobs and projects, but they are distinct entities from your company.
You, as the company owner, don’t have to bother about paying contingent workers’ benefits, getting them health insurance, or taking care of any other matters that would typically fall under the purview of a regular employee when you hire them.
Independent contractors versus remote workers
Remote workers aren’t physically present in the workplace or office by definition. Rather, they work from a distance (either from home or another location worldwide).
During the pandemic, the use of remote work, or work from home, increased. But it’s also a result of the rapid advancement in technology that we’ve seen in recent years.
Companies today have access to a worldwide talent pool because of portable devices and numerous platforms that facilitate teamwork between in-office and remote personnel.
But it’s critical for business owners to realize that remote employees aren’t always contingent workers (also known as independent contractors).
You can have remote staff members who are independent contractors as well as full-time, part-time, or temporary employees.
The distinction is that the former is categorized as a regular employee, but the latter operates remotely as a collaborator and manages their own time, devices, and taxes.
Since it is the simplest approach to get individuals on board without having to deal with various labor and business rules across several countries, many remote-first firms hire workers as independent contractors.
Strategies for handling a complex workforce
The diversity of personnel in your staff allows your company to be adaptable and nimble. You can act more quickly to meet your company’s needs.
Businesses need to understand how to manage an employee pool that consists of both in-person and remote workers, as well as a few collaborators and possibly some leased workers.
If you want to increase retention, you must first figure out better ways to invest in your present workforce. To benefit both parties, you must, however, also understand how to draw in gig workers and effectively manage their time and responsibilities.
In the future, businesses will encounter such situations more frequently. Businesses that don’t change will eventually collapse, while their rivals will survive and thrive.
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