Being an employer is a big responsibility. The moment you start providing professionals with paychecks for work hours, you are responsible for the livelihoods of your employees. This is one of the reasons it's so important to classify your employees correctly. Each classification defines a lifestyle based on how compensation is calculated and provided. Correctly classifying employees ensures that they will be paid and taken care of and all the right paperwork and taxes are filed.
As an employer, you'll need to know how to classify each type of employee and provide for them within the bounds of the law and industry standards. There are six types of employee classification.
Contractor
Employee
Exempt Employee
Temporary Employees
Interns
Volunteers
Contractor
A contractor is a person or team that provides results, not hours. The most important thing to know about classifying contractors is that they are not your employees and you cannot/do not treat them like employees. You don't manage their hours or days off, but you also don't worry about their insurance, retirement, or standard wages.
Contractors negotiate deliverables, a time-table, and compensation for milestones and completed projects. However, extending too much control over a contractor can change their classification to an employee.
Employee
A wage-earning employee is the most protected employee classification. Most of the employment rights defined by the nation and individual states relate to the rights of part-time and full-time employees. An employee is someone who is contractually employed for up to 40 hours before overtime. Employees can be paid hourly or on a salary. You must legally provide benefits in addition to compensation including income taxes, social security, and unemployment payments.
In most situations, it's safest to assume that someone who works for you is legally an employee with all the associated rights and compensations. All other states of employment are a defined variation.
Exempt Employee
Being "exempt" is a special classification for high-level employees that have a reasonably high degree of independence. Exempt employees are usually salaried, with the understanding that they will work as many (or as few) hours necessary to get the job done. An exempt employee is not paid overtime, but they are given more freedom and authority as a rule.
Exempt employees must:
Earn greater than a minimum salary or wages (defined by the state)
Freedom to define their tasks and schedule to complete objectives
Are not paid overtime
Exempt employees also:
Manage two or more employees or
50% or a greater compensation from commissions or
Operate as an in-the-field salesperson
It is necessary to define employees as exempt when they qualify (check your state employment laws). It is also illegal to misclassify someone as exempt to avoid paying them overtime. Precision is important.
Temporary Employees
Many industries include seasonal work, whether it's based on storm season or tax season. If you tend to need an increase in labor during a short section of the year, it's smart to approach employment as a temporary arrangement. Often, the easiest method is to hire through an agency that cultivates temporary professionals in the fields you require.
Interns
Another great approach to getting short-term employees is through internships. Internships are special paid or unpaid arrangements with young professionals who need early experience. Interns tend to come from colleges, organizations, and career programs that your business will partner with to receive candidates.
Interns require special rules based on your state when it comes to what you can ask them to do and what you must provide for them. Taking interns into your business should be done with care and consideration for the young careers you are helping to start.
Volunteers
Depending on the type of business you run, temporary or long-term volunteers may be a normal part of operations. Volunteers usually come from charitable and community works and are sometimes paid. Volunteers also fall under unique rules based on your state, and your business may need to be classified correctly in order to ask for and receive volunteer labor.
One of the best ways to keep your employment classifications straight is to work with a recruitment agency. You don't have to have in-house HR to handle your business’s human resource needs. By outsourcing with an experienced agency, you can ensure that your business is professionally run and that every employee position is correctly classified from the start. The Hire Standard offers a range of services to suit your hiring needs. Contact us to discuss classifying employees for your circumstances.