With the changing business landscape, the labor market has become more diverse and has been classified into different categories. Employers should understand this classification of types of employment to onboard appropriate resources as per their business needs.
This is important because the type of employment that employers consider for their business operations affects the organization’s work culture, budget, and work paradigm.
So, check this blog to dive deeper into the types of employment and the characteristics of each employment type so you can decide which one can cater to your needs and help you cut down your resource costs.
Types of Employment
Full-time employment is the most popular type of employment, where the employees work 35-40 hours per week as per the agreement. Though the workweek mostly entails 40 hours, the limit of daily work hours can at times extend up to nine hours, making it a 48-hour workweek.
These employees have regular work schedules of specific hours (such as 8 hours) and get consistent pay cheques at the end of the month.
Most businesses require full-time employees so that business operations can run smoothly, as other employments don’t ensure consistency and regularity at work. Such employees get additional perks such as paid time off, retirement plans, bonuses, medical insurance, and more.
However, full-time employees should have regular attendance and notify their employers earlier of their absence when they want to take time off.
On the other hand, employers are required to provide a pre-notice or put them into PIP (Performance Improvement Plan) before terminating them, unless they violate any code of conduct. However, employers can also opt to provide redundancy pay when terminating a full time employee without any prior notice.
Also, if a business has 50 or more employees, the employer must offer these employees healthcare coverage under the Affordable Care Act.
Employees hired under part-time employment work less than 30 hours per week. Such part-time employees help businesses take care of varying needs and fluctuating workloads.
Young parents, students, and people with health conditions frequently prefer this type of employment as they can’t devote long hours to full-time jobs.
Part-time employees may or may not get benefits that full-time employees avail. However, nowadays, employers are providing those benefits to attract part-time employees. Like full-time employees, employers have to pay taxes for employing part-time workers.
Part-time employees get pro-rated paid leaves, depending on the total hours they work every day. They also get public holiday pay if a holiday falls on a workday.
Like full-time employees, part-time workers should also be regular at work and must request time off in advance. Also, employers are expected to give advance notice before dismissing any part-time employee.
Businesses hire interns to help them gain experience in their respective fields of interest. The internships can be paid or unpaid, but employers are advised to check the FLSA regulations regarding overtime pay and minimum wage to stay compliant with the laws.
Internships can last from a few weeks to months, depending on the field. Internship programs help participants understand their field of interest and decide which career path to choose. In addition, internships allow companies to find the best talent for permanent roles in their organization where they require minimal experience.
This type of employment is for those who are new to trade industries and looking for practical experience in this field. Simply put, many companies provide apprenticeship opportunities of a fixed duration to help novice employees learn on the job under experienced professionals with structured training programs.
Employers pay apprentices at the rates specified at the time of agreement. However, payroll taxes aren’t deducted from employees’ apprenticeship salaries.
After the apprenticeship, the apprentices with good performance receive full-time employment contracts from the same employer.
Apprenticeship vs. Internship
Apprenticeships are paid work opportunities through which beginners get practical work experience and can receive full-time employment. However, internships can be paid or unpaid opportunities to help beginners understand the work, but these may not lead to a full-time job.
Also, apprenticeships are of longer durations, spanning 1-4 years, while internships hardly last for a few months.
Traineeship employment is similar to an apprenticeship, as employees gain practical work experience in a particular field. Employees are trained to get the skills required to do a particular job successfully. Trainees get a wage or stipend agreed upon between employer and employee. However, employers don’t have to pay taxes on the trainee wage. Additionally, these trainees may also receive employee benefits such as paid time off and insurance.
In traineeship, managers or employers closely supervise employees’ work and train them during the initial stage. Trainees can learn the skills while contributing to the work in the training program.
Employers mostly use this type of employment when they need employees on a short-term basis for less skilled tasks. In return, trainees get practical knowledge for their certification and qualification.
Traineeship vs. Apprenticeship
A traineeship program is mostly restricted to industry-specific qualifications, such as health, IT, and hospitality. The length of the traineeship program can vary from 12 months to 2 years.
On the other hand, apprenticeship programs mostly provide hands-on experience in industry areas such as electrical or automotive, and the program can last for 3-4 years.
Casual employment suits businesses that don’t require a fixed hours schedule. Students who prefer to work along with their studies find it most suitable. Casual employees must check their rosters and work on their assigned shifts. However, they get the flexibility to swap shifts with each other to adjust their work hours as per their routine.
During the peak season of business, employers can ask these employees to fill in for extra shifts. However, casual workers have the right to accept or reject this request.
Contract employees work as freelancers or independent contractors unlike a company’s full-time workforce. Organizations mostly hire them for specific projects that need particular prowess in a domain for a fixed period.
These contractors work for a fixed period; that is, they have clear start and end dates of their contracts. In addition, employers can also hire people on a contractual basis to handle the workload during peak season.
Unlike regular employees, they don’t get any benefits such as insurance, bonuses, retirement plans, etc. Businesses can occasionally use contract employment to fulfill their project needs without hiring full-time employees, thus helping them minimize costs.
On the last day of the contract, the employer can renew the contract if they wish to or end the contract after the expiry date.
Employment on Commission
In this type of employment, companies pay their employees based on their performance or the revenue they generate. Also called piece rate employment, it’s commonly required in businesses with sales and marketing domains.
This employment type benefits employers in a way that employers need to pay employees only when they generate some revenue or profits. Thus, remuneration costs are directly proportional to employee performance.
Suppose Acme Inc. hires Brendan, a salesperson, to sell a pharmaceutical product. The employer will decide his total remuneration based on the number of sales he can close rather than the hours worked on the job.
Mostly, employees working on a commission basis have flexible working conditions, i.e., they have the liberty to decide their own work hours. However, they’re expected to deliver the outcome within the stipulated time frame.
During the peak season, businesses can hire seasonal employees to help them with the increased workload. Seasonal employment provides an opportunity to easily manage fluctuating demands without hiring a large full-time workforce. Small firms and startups that can’t afford to hire employees on a long-term basis can benefit from this employment type.
When businesses hire third-party agencies to hire and manage employees, that’s known as leased employment. Here, the third-party agencies hire the leased employees and are responsible for managing and paying them. The third-party agency sends the leased employees to different recipient companies to fulfill their temporary needs or work on a specific project.
This type of employment is mostly preferred by companies that don’t have ample resources or staff to take care of payroll processing, recruitment, onboarding, and other administration-related responsibilities and need some third-party agency to take care of them. With leased employment, businesses can focus on their core work by handing over the administrative work to a third party.
Probation is more like a trial period for new joiners in which they’re assessed as per their performance, and the employees on probation can turn into full-time/part-time employees or may be terminated after this period. However, employers still classify probation as a separate employment type for payroll purposes.
Companies familiarize probationary employees with the business operations, company culture, and associated roles and responsibilities during this phase.
Based on the business requirements, the probation period can vary from 3 weeks to a few months. Employees in probationary employment may not get all the benefits as full-time employees, as they’re under the employer’s surveillance. Still, their contract can extend into full or part-time employment if their performance is up to the mark, and eventually, they’ll receive all the benefits.
However, employers can terminate an employee from the probation phase or not extend their probation period into full-time employment without any prior notice if they find that the employee isn’t doing justice to the job or not following the code of conduct.
Note: Probationary employment ensures that only candidates who are the right fit for the company get hired permanently.
Contingent employees aren’t part of any organization but provide services to different organizations for a definite period. These employees file their own taxes and render services to companies that need them. The contingent employees can be freelancers, consultants, or even temporary employees.
They’re hired to complete a certain amount of work within a stipulated time frame. These freelancers usually work for multiple employers/businesses simultaneously. Freelancing is mostly popular in creative industries, such as website designing, photography, graphic designing, content writing, and web development.
Independent contractors are self-employed individuals who offer their services to businesses as per their expertise. These contractors have to pay taxes if they earn above $400 during the tax year and don’t get the benefits that full-time employees enjoy.
Consultants are employees who provide expert advice on a specific subject in which they hold expertise but don’t perform the actual work. They may advise businesses about improving in particular areas or help them with a high-level strategy for better output.
Classification of Employees Based on Exemption
As per FLSA, exempt employees are those who don’t receive overtime pay or qualify for minimum wage. Workers can be classified as exempt employees if they fulfill the following criteria:
- Get paid more than $684 per week
- Are skilled employees who work in executive, administrative, professional, and outside sales roles
Non-exempt employees are the ones who qualify to earn minimum wage and overtime pay. As per FLSA, non-exempt workers are employees are the ones who:
- Mostly do labor and repetitive work, such as cashiers, artisans, bookkeepers, plumbers and electricians
- Get overtime pay at the rate of time and a half for working above 40 hours
To figure out whether an employee is exempt or non-exempt, employers can consider using the three evaluation tests, namely, salary level test, salary basis test, and duties test.
Check our detailed blog to know more about these evaluation tests:
Why Is It Important to Understand the Types of Employment and How to Choose the Right One for Your Organization?
Understanding employment classification is necessary to stay compliant with labor laws. It also helps ensure that business needs are matched with the right type of employment without causing any budget overruns.
Hiring the Right Employees for Different Projects
Having a better understanding of the types of employment helps you choose the right employees to pursue a particular job. For example, you can have full-time employees to have a dedicated workforce for your ongoing projects.
On the other hand, you can hire interns if some of your projects involve basic job duties so that less skilled workers can learn those skills while working. At the same time you can identify the right people out of these workers who are capable enough to join your full-time workforce in the near future.
Staying Compliant and Avoiding Litigation
Suppose you don’t understand the classification of employment, and due to this, you deprive some employees of the benefits they’re entitled to; this can lead to heavy penalties or lawsuits. Thus, employers must understand the classification of employment and related rules & regulations by the U.S. Department of Labor.
Employers need to keep a tab on their budget while making a call on hiring new employees in the organization. For example, small startups may not have enough budget to hire a full-time workforce for all job roles so they can try a mix of full-time and part-time employees based on the work type.
They can hire dedicated full-time employees for major projects, and for performing tasks with shorter duration tasks or administrative work, they can consider going for contract basis or contingent employment. This way, they can reduce the hiring and remuneration costs to a great extent.
What Employee Type Does Your Organization Need?
While deciding the type of employment that can cater to your requirements, you need to consider the nature of your business, budget, and types of projects undertaken. You can consider the following scenarios to understand the employment type you should go for.
- If your business is project-based and your organization runs remotely, you can hire freelancers to complete the projects within a specified time and budget.
- If your business faces a surge in the peak seasons, you can go for a mix of full-time and seasonal employees. You can hire full-time employees to handle daily flow of customers, while you can hire some additional seasonal employees during the peak season.
- Suppose you need some particular area of work, such as administrative duties, to be handled by a third party. In that case, you can go for leased employment so they can take care of a specific part of your business without needing your attention.
- If some of your projects require specific skills that aren’t available in your current workforce, and you need a specialized workforce to help you get that work done, then you can go for contract employment or hire a consultant. Contract employees will work to complete a specific part of the project in which they hold expertise. However, consultants don’t work on the project but give expert advice or create strategies to help you improve the business operations.
- If you’re the owner of a sales-oriented firm, opting for employment on commission can fit the bill, as you’ll pay employees only when they make a sale and generate some revenue.
However, irrespective of the employment type you opt for in your organization, check the FLSA laws to abide by the regulations and avoid any litigations related to employees’ rights.
Steps to Hire the Right Employees
Assess Your Business Needs
Before embarking on the recruitment process, understand the needs of your business and accordingly determine the employment type that can work for you.
For a better assessment, consider the following points-
- Does the job require resources for an indefinite or definite period?
- Will the resources employed in the current project be required in the near future?
- For how many hours do you need the resources?
- Does the project need some expertise to be completed efficiently?
- Does your business need additional resources during seasonal peak periods?
- Do you need to hire interns for short periods but also want to assess their performance for long-term hiring?
Such questions will help you gain better clarity on your business and project needs, thus helping you choose the right employment type for your organization.
Create an Employee-Specific Contract
When you hire an employee for a job role, create a contract that spells out the role, job and responsibilities, expectations, and benefits clearly and concisely, irrespective of their employment type.
In the contract, make sure you include all the details to leave no room for confusion or conflict:
- Duration of employment (effective start and end date of the employment in case of contract basis employment)
- Schedule and total working hours for each day
- Compensation breakdown structure
- How will the employee be paid, and when
- Job title and designation
- Job description mentioning role and responsibilities
- The perks and benefits, such as insurance and retirement plans
- The paid leaves and vacation policy
- Probation period
- Conditions for overtime pay and rate of overtime pay
- Bonuses, reimbursements, and incentive plans
- Notice period to serve
Your contract should also clearly mention that if a role is temporary and for a stipulated period, you’ll not take care of the extra cost incurred beyond the contract.
Mentioning details thoroughly is imperative, as this employment contract can serve as proof during conflict.
Check the Guidelines and Laws
Once you hire employees, ensure you know the rules and regulations stated by FLSA (Fair Labor Standards Act), IRS (Internal Revenue Service), and DOL (Department of Labor) associated with their employment type. Based on that, find out the benefits to which they’re entitled and the policies that you must abide by.
For instance, the IRS uses a unique classification approach to distinguish employees from contingent workers based on three parameters:
The employer has the right to control what workers do and guide them on how they should perform their jobs.
The employer decides how and when the workers will be paid, their compensation, and if they should be provided with some tools or equipment to perform their jobs.
The employer creates a written contract between the employer and employee, in which they mention the benefits, policy for employees, and the employment period.
Thus, if an employer has the above-mentioned control over workers, they’ll be classified as an employee rather than a contingent employee.
As an employer, you can go for any of the abovementioned employment types that can better serve your business and help you minimize the resource cost. You can even choose to go for a mix of employment types so that you can have a full-time workforce dedicated to day-to-day tasks.
You can also hire contractors or consultants for some projects or work that requires specific expertise, as hiring full-time employees that your project doesn’t need regularly may incur additional costs.
Regardless of the employment type you choose to go with, make sure that you check the FLSA and DOL guidelines regarding the benefits and policies corresponding to each employment type so you don’t have to face litigation or penalties.