Leveraging different types of employees and workers—such as full-time employees, part-time employees, contractors, and freelancers—allows employers to maximize productivity while building a diverse workforce. More specifically, a varied workforce composition enables businesses to better adapt to changing market conditions, workloads, and projects; to hire a more specialized workforce; and to optimize cost efficiency.
Payscale’s real-time data and cutting-edge HR software are here to help companies like yours build strong, diverse teams and maintain a thriving workforce. In this article, we’ll dive into employment contracts, types of employment, employment classification law, and how to use workforce diversity to your company’s advantage.
To take full advantage of the benefits of a diverse workforce and avoid possible legal trouble, it’s crucial for employers to possess a solid understanding of what distinguishes different types of employment. Employment contracts are an effective tool to facilitate that understanding.
What is an employment contract?
To answer the question, “What is an employment contract?” you also answer the question, “What is employment?” An employment contract is a legal agreement between an employer and an employee, freelancer, or contractor that outlines the employer-employee relationship in order to establish mutual clarity, understanding, and trust.
Not only does an employment contract provide a strong foundation for a healthy relationship between an employer and employee, but it also protects the interests of both parties, outlines clear expectations, helps both sides abide by the law, and contributes to a positive work environment.
The basic components that an employment contract includes are terms of employment and a comprehensive overview of what is expected of both the employer and employee. Terms of employment are the specific conditions of a job that an employer and employee agree on, such as the title and description, type of work model, compensation and benefits, schedule, and termination policy.
Likewise, an outline of expectations might cover job responsibilities, performance standards, compliance with company policies, and more.
Why is it important to understand the different employment types?
The long list of advantages of using different staffing models is a huge appeal for employers for obvious reasons. However, several factors are important for employers to understand before seeking to diversify the workforce: legal and compliance, recruiting advantages, and relationship clarity.
The first factor, legal and compliance, refers to employers’ comprehension of the legal obligations associated with each of their employees’ job classifications and the consequences if those obligations aren’t met.
As an example, employers must recognize which employees are eligible for overtime pay, which are entitled to federal healthcare benefits, and which require different tax forms and employment protections. Understanding this first factor is key to conducting legally sound business.
The second factor effective employers understand when aiming to diversify the workforce is recruiting advantages. Companies that offer a range of employment options gain a competitive edge when recruiting candidates seeking temporary or flexible jobs. By hiring various employment types, businesses effectively appeal to a broader pool of candidates.
The third factor for employers to consider when introducing diversity into the office is clarity in employment relationships. It’s essential for employers and employees to have a clear understanding of the benefits and responsibilities that are part of their specific type of employment.
For instance, contractors often expect total control over their work schedule so it’s an employer’s duty to let them know what type of schedule they have to reach a mutual agreement during the hiring process and maintain transparency and trust.
8 types of employment and employees
Classifying employees and workers correctly is crucial for businesses to avoid legal penalties associated with misclassification. By accurately classifying employees, businesses are able to comply with legal requirements regarding minimum wage, overtime, taxes, benefits, and more.
Here’s a list of eight types of employment and employees for organizations to familiarize themselves with:
Full-time
The most commonly advertised type of employment, full-time positions, usually have consistent schedules with specific hours each week, receive a standardized salary, and accrue employee benefits such as healthcare, retirement savings, parental leave, sick leave, and paid time off for vacations and public holidays.
According to the U.S. Internal Revenue Service (IRS), full-time employees work 130 hours in one month or 30 to 40 per week. However, the Fair Labor Standards Act (FLSA) states that it’s up to employers to decide what numbers of hours are considered full-time.
Part-time
Part-time employees generally work less than 30 hours in a workweek. Otherwise, the conditions of part-time employment are largely the same as full-time, including overtime pay, taxes, leave entitlements, bonuses, and beyond. However, they may not receive all of the same employee benefits, such as health insurance.
Part-time employees are paid by the hour and are usually eligible to have some input regarding their schedule. For employees, a major draw of part-time work is that it grants increased flexibility.
Internship
The unique type of employment known as an internship is common in career-oriented professions. Internships are akin to temporary jobs that private and public companies and organizations offer to recent university graduates or other junior candidates looking to gain experience and training in a particular sector. The number of hours they work often equate to a certain number of hours for classwork or class credits.
Although interns’ salary levels are typically lower than regular employees (and some are unpaid), internships are often a step toward securing full-time employment.
Seasonal
Like an internship, a seasonal employment arrangement is temporary. Seasonal employees usually work for around three to four months or one season out of the calendar year.
Employers typically hire seasonal workers to help fill labor supply gaps during increased demand in industries such as retail, administration, housekeeping, and tourism. Seasonal employees work full-time or part-time.
Leased
Also known as temporary employees, “leased employees” are hired as contractors by a staffing agency and assigned to work for other companies in need of specialized work or additional labor. The staffing agency employing a leased employee is responsible for compensation, benefits provision, and other employment terms. It’s important for staffing agencies to be aware of the fact that employment laws governing leased employees differ across jurisdictions.
Contingent
Contingent workers are non-permanent or short-term workers that are not technically considered employees of a company but are contracted to lend their expertise to a specific task or project. Some examples of contingent workers are freelancers, temporary workers, independent contractors, and consultants.
Unlike regular employees, contingent workers have no benefits like holiday pay or fixed salary. They control the schedule and delivery of their specific project and file their own taxes. They may also set their own pay rate or working hours.
Traineeship
A traineeship is a special type of employment that combines on-the-job training with classroom instruction in order to provide workers, or trainees, with specialized skills, knowledge, and experience. They are commonly available for students, especially those in high school.
Traineeships typically last one to two years, depending on the industry and role. Pay depends in part on the age of the trainee.
Apprenticeship
Similar to a traineeship, an apprenticeship combines work-based training with paid education. Individuals who pursue apprenticeships, known as apprentices, do so to gain practical skills, knowledge, and qualifications for a specific trade.
Apprenticeships usually last around three to four years. Many electricians, hairdressers, and mechanics complete part-time or full-time apprenticeships before they are considered qualified tradespeople. Pay depends on age, the type and length of apprenticeship, and industry.
Classifying employees
The IRS and FLSA identify certain criteria that help inform how employers determine worker classification. Businesses score workers based on a 20-point set of characteristics identified by the IRS and a six-point system provided by the FLSA to decide which of the eight aforementioned types of employment is the best fit. One of the most important reasons to classify employees is to determine their exemption status (whether they are exempt from the minimum wage).
To properly categorize a worker using IRS criteria, an employee must consider the behavioral nature of the work (scheduling, control, and performance evaluation), the financial aspects of the work (payment and reimbursement), and the type of relationship between the employer and worker (contracts and benefits).
On the other hand, the FLSA recommends businesses seeking to classify a worker consider whether that worker is performing essential or non-essential work, presenting profit-or-loss opportunities, investing in the employer’s equipment and facilities, contributing unique or specialized abilities, maintaining a seemingly-permanent relationship with the employer, and working under the employer’s control.
How do you know what employee types you need?
A blended workforce composition has the potential to offer your company flexibility, essential skills, and cost savings if you approach the hiring process strategically. To accurately decide what type of employees your company likely will benefit from hiring, Payscale suggests considering the following four factors.
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Assess the nature of the work your company needs
The first step toward deciding what type of employee to hire is analyzing the work your company urgently needs help with. Once you have an idea of whether the work requires company-specific training and specialization, it’s easier to decide how to maximize cost efficiency. (Training a full-time employee makes more financial sense in the long run than investing that time in a part-time, temporary worker.)
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Determine if your business needs are ongoing or occasional
Are your company’s business needs consistent and ongoing? If so, that type of support likely requires the engagement of a part-time or full-time employee rather than a contingent or seasonal worker. Opting to hire employees who anticipate the demands of a regular schedule often results in more dedication and, ultimately, a more effective team.
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Understand the scope of the work to be performed
Determining whether a temporary or permanent employee best fulfills the work that your company needs is another important factor when hiring. If your company needs work for a one-time project, for example, you might want to look into hiring a temporary, seasonal, or leased worker. Hiring based on the term of employment often helps your company avoid mismanaging candidates’ expectations for the future, as well.
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Consider if the work you need is core or peripheral
Assess whether the work your business needs is integral to core operations or of lesser importance. One way to evaluate the urgency of the work is by considering whether an external expert is able to handle the work on a project basis at a lower cost. If your company is able to outsource rather than hiring and retaining new internal talent, you just might save time and money down the road.
Embracing workforce diversity: Maximizing productivity and building strong teams
Understanding and leveraging different employment types is a cornerstone of a successful HR department. HR professionals must be able to distinguish between types of employees in order to successfully achieve: recruitment and talent acquisition, workforce planning and management, compliance with labor laws and regulations, employee engagement and retention, workforce flexibility, and budgeting and cost management.
An understanding of the different employment types enables HR professionals to:
- Achieve recruitment and talent acquisition by tailoring the hiring process to attract and hire top talent.
- Oversee workforce planning and management by adapting the workforce to meet changing demands and ensure efficient operations.
- Comply with labor laws by managing relevant legal risks.
- Engage and retain employees by crafting effective benefits packages.
- Establish workforce flexibility by designing stable and adaptable work arrangements.
- Manage budgeting and costs by effectively allocating resources.
Overall, comprehending different employment types empowers HR to make informed decisions that align HR strategy with organizational goals.
Embracing workforce diversity and leveraging various employee categories by understanding employment classification benefits a business’s productivity and performance. That’s because a diverse workforce with varied types of employment brings together individuals with different backgrounds, perspectives, and experiences and gives them a voice in the organization’s day-to-day operations.
When you’re managing a varied workforce, it can be complex to track compensation. If you’re looking for compensation planning software to assist you, schedule a demo to learn how Payscale can help.
