Why is Employment Status Important?
Employment status is important because it ensures that companies are compliant with employment law, employees understand job expectations and HR professionals can attract the best talent through recruiting efforts. Employment status matters a great deal for the workers in understanding their rights and for employers in understanding their obligations to those workers. US business entities classify workers according to their employment positions, with several main categories. These include:
- Internships (paid or unpaid)
- Contract workers
- Contingent workers
- Apprentices
- Full-time workers
- Part-time workers
- Temporary workers
One’s employment situation not only characterizes the relationship between employers and workers. Employment status is also used in Medicare provisions.
Employment status is a term that means different things in different countries, and we will touch on that later in the article.
What Does Employment Status Mean?
Employment status means the legal status and classification of someone in employment as either an employee or working on their own account (self-employed). Usually, US companies rely on employment status to characterize contracts among employers and workers. As mentioned, there are multiple categories of employment roles in the US, from internships to temporary workers to full-time employees.
Many entrepreneurs and small business owners wonder why employment status is not rigidly defined in the US, unlike other countries. The country’s flexibility stems from the fact that all employees in the US enjoy the same basic rights, regardless of their employment situation.
However, there is one exception to this blanket rule: when businesses employ over fifty full-time workers, the company must give the workers a healthcare option. This ruling is by the ACA, which dramatically changed healthcare policies in the US.
How Does Employment Status Impact Medicare?
Many Medicare recipients and families of those recipients want to know how individuals’ employment situations impact Medicare. When Medicare is regulated, employment status influences whether Medicare pays for the person’s health claims primarily or the individual is primarily responsible, and Medicare becomes the secondary payer.
How Does Employment Status Impact Paying Taxes?
Another aspect of employment status that many taxpayers are curious about is the relationship between one’s employment role and the Internal Revenue Service (IRS).
The IRS does not make specific classifications among the various employment situations, for example, internships and apprenticeships. Instead, the IRS distinguishes between non-employees, independent contractors, and employees. The IRS identifies these two groups because they each pay taxes in different manners.
How does the IRS classify employee status? The IRS identifies contractors and full-time employees in three ways:
- Financial: the IRS checks on the worker’s salary or hourly payment amount
- Interpersonal: The IRS examines contracts (implied or written), employee benefits, or other concrete links between the company and the worker
- Interactive: The IRS examines the behavior of the employee. For example, does the worker control how the work is completed or does the employer?
Sometimes, the IRS decides that the individual is a “non-employee,” such as an independent contractor or freelancer. However, if the IRS decides that the person is a contract worker, they will tax them as such.
How is Employment Status in Other Countries Different Than in the US?
Employment status and how companies utilize this identifying trait are fairly straightforward in the US. However, in other countries, employment situations dictate individuals’ workplace rights. For example, in Canada, an employee’s status changes what rights they are guaranteed based on their specific job duties.
The employee categories in many other countries are more simplistic and include the following:
- Employee
- Self-Employed Worker
- Worker
In these countries, the responsibilities of companies to their workers depend on employment status. Therefore, businesses must understand the guidelines that dictate a worker’s employment status.
Relationships with employers dictate employment status, as well. For example, employees must have signed contracts and perform their duties instead of outsourcing them.
Additionally, the company must control how the person completes the work.
What is Meant by Worker Status?
Fundamental employment status is akin to “worker status.” Worker status refers to any person who performs duties for an organization or individual. For example, if an individual casually sells some lemonade for their friend’s lemonade stand and makes $20, this is worker status.
The above contract is implied, but worker status can also involve a written contract.
Workers’ rights are more simple employee’s rights but more complex than the rights of a self-employed person, such as an independent contractor.
Self-employed workers receive the least rights because they are self-reliant. Contract workers, for example, essentially act as the employer and workers of their own small companies.
Self-employed workers can work under contract in other countries, such as Canada, but the person paying their bills cannot control the work or how workers perform their duties and tasks.
How Can Employees Choose Their Employment Status?
Employment status is important for workers since it dictates their legal rights in and out of the workplace. Employees should base their status on the following:
- How much they depend on the company for their work
- How much authority the company has over them in terms of their work
- How much the company expects them to work by themselves and carry out tasks solo
It is integral for employers to understand employment status and where companies derive it from and are able to classify themselves knowledgeably and confidently.
How Can Nakase Wade Help with Employment Status?
As noted, a worker’s employment situation determines the nature of the protections and rights their company provides. The status also dictates the worker’s responsibilities. When a new company, for example, begins its hiring process, it must decide what employment status its workers will be.
For questions or concerns about employment status classifications, contact our skilled legal team at Nakase Wade. We have helped many individual workers and employers figure out how best to classify themselves and their employees. In addition, we offer free consultations, so please contact our California business lawyers today.
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