“The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area.” – Bill Gates, Founder of Microsoft. 

 

When classifying workers, consider what’s best for growing your business while maintaining compliance with the Fair Labor Standards Act (FLSA). Also, keep in mind that by offering different employee classification types to your employees, you can potentially attract more qualified applicants. Some workers prefer the flexibility of being an independent contractor, while others enjoy the benefits that come with full-time employment.  

 

For instance, you might be able to recruit the talent you need if you’re open to part-time employment, as that classification could be attractive to retirees and students. 32% of Americans 65 and over are working, according to the Minneapolis Fed. 

 

In this article, we’ll explore the pros and cons of the different employment classification types. Keep in mind that each classification has different rules and regulations that can impact wages, hours, and the work requirements you can place on employees. The employee classifications you choose can even have Affordable Care Act (ACA) implications.  

 

For expert compliance guidance at a fraction of the cost of a full-time HR employee, connect with an HR expert.  

 
 

What are the Employee Classification Types? 

Here are the most common employee types to consider: 

• Full-time Employees 

• Part-time Employees 

• Independent contractors 

• Seasonal and Temporary Employees 

• Interns 

• Per Diem 

 
Types of Employee Classification  

1 – Full-Time  

A full-time worker is one that meets your required number of hours to be considered full-time. Typically, this is 35 to 40 hours per week. But there is no minimum number of hours required. What is required is that you ensure the same threshold applies to all of your employees. Full-time employees can be either salaried or hourly. 

 

Don’t confuse full-time with “exempt.” Exempt employees are exempt from FLSA rules for minimum wage, overtime, etc. The FLSA has strict requirements to classify an employee as exempt. Another pitfall to avoid is miscounting your number of Full-Time employees for the ACA. Once you have 50 full-time employees, you are bound to ACA rules and potential penalties. Under the ACA, an employee is considered full-time if they work 30 hours per week or 130 hours per month.  

 

See our article about ACA for employers for more information. 

 

Pros and Cons of Hiring Full-Time Employees 

Pros: 

• Enjoy greater employee engagement and productivity because you’re typically offering benefits workers appreciate, such as health insurance, retirement plans, and paid time off. 

• Experience greater employee retention because it may be more difficult for employees to find another full-time job as opposed to another part-time job. 

• Enhance your work culture and productivity. Full-time workers are, by definition, working more hours for your business, and thus, they have the opportunity to exert greater influence and provide more value. Other types of workers may view themselves more as “hired guns.” 

Cons: 

• Higher labor costs due to benefits and higher salaries. 

• It can be more difficult to terminate employment if productivity lags. 

 

Full-Time employees require payroll expertise. Learn more about Asure’s cost-effective payroll solution that easily integrates with your existing software. 

 

2 – Part-Time Employment 

Part-time employees work fewer hours than full-time workers. The difference in hours is up to the business owner. Usually, part-time workers are paid by the hour, but you can choose to offer a salary. Typically, part-time employees don’t receive all the benefits that full-time employees receive. 

 
Offering part-time employment benefits businesses by opening up different talent pools. Not everyone desires a 40-hour per-week commitment. By creating part-time positions, you can expect more applications from  

• students 

• retirees 

• stay-at-home parents 

• people caring for elderly parents 

 
 

And other individuals who are looking to supplement their income with a less demanding work schedule. 

 

Pros and Cons of Part-Time Employment 

Pros:

• Potentially more job applicants 

• Potentially save on costs of employee benefits  

• Greater schedule flexibility because hours aren’t guaranteed 

Cons:

• Potentially less engaged workers 

• Potentially more mistakes and lower productivity from lack of repetition due to fewer hours on the job  

 

3 – Independent Contractors  

An independent contractor is a self-employed person or entity. You can contract an independent contractor to provide services for your business. Independent contractors are responsible for paying their own social security and Medicare taxes. 

 
There is no requirement to provide independent contractors with employment benefits such as health insurance. It’s critical that businesses not misclassify workers as independent contractors. Penalties can be severe.  

 

For instance, Servant’s Quest, a company that provides at-home healthcare services, violated Fair Labor Standards Act requirements by failing to pay overtime rates. Caregivers were misclassified as independent contractors rather than employees by Servant’s Quest to get around FLSA overtime rules. The company was ordered to pay $358,675 in back wages. 

  

Pros and Cons of Independent Contractors  

Pros:

• The worker doesn’t count toward ACA requirements, potentially lowering costs 

• Relatively easy to terminate the relationship 

• It can be a “try-before-you-buy” relationship, partnering in an independent contractor relationship before offering full-time employment 

• Potential cost savings as independent contractors are not eligible for unemployment insurance 

• Potential savings as independent contractors are not protected by FLSA rules, such as overtime pay 

Cons: 

• Legally, you can’t dictate the manner in which an independent contractor completes work 

• Legally, you can’t dictate during which hours an independent contractor must work 

• Independent contractors can charge whatever price they want and can raise their prices  

 

Properly classifying workers can be tricky. You can speak with a friendly Asure HR representative here. 

 
4 – Seasonal or Temporary  

Seasonal or temporary employees can help businesses that experience expected periods of greater demand. You might also choose to offer temporary employment to complete a one-time project or to temporarily replace an employee who is on leave. Check out this article for more tips on how to find and recruit the best seasonal employees.  

 

Pros and Cons of Seasonal or Temporary Workers for Employers 

Pros: 

• Flexibility to expand or contract your workforce as needed 

• Cost savings because you don’t typically offer benefits to these employees 

Cons: 

• Potentially greater cost and energy training workers because you may not get the same people each time 

• Workers will have limited knowledge of your processes and culture 

 
5 – Interns 

The FLSA requires “for-profit” employers to pay employees for their work. Interns, however, may not be classified as “employees” under the FLSA, depending on various factors. So, this would mean the FLSA doesn’t require compensation for their work. An intern is typically a student seeking real-world experience at your company.  

 

Pros and Cons of Hiring Interns 

Pros:  

• Find and nurture future prospective full-time employees  

• Reduce the workload of other employees 

• Gain fresh perspectives and access the latest knowledge being taught at their educational institution  

 
Cons: 

• Interns may work for no money or less money, but they require management, structure, and guidance 

• Interns may not return to work for you, causing a need to re-train each new set of interns 

6 – Per Diem 

You can hire a per diem employee on a daily basis. Oftentimes this is to fill a last-minute need. Common per diem employees are nurses, laborers, and substitute teachers. Per diem employees work on an as-needed basis. You don’t typically offer a per diem worker a set schedule. Per diem workers usually aren’t eligible for benefits. They are paid per diem rates for the days they work, as opposed to an hourly wage or salary. Businesses may find per diem workers helpful when other employees are out.  

  

Per diem workers are employees and receive a W-2. Being an employee, your per diem workers are entitled to FLSA protections such as minimum wage and overtime pay. 

 

Pros and Cons of Hiring Per Diem Employees 

Pros:  

• Flexibility to get extra help as needed 

• No long-term employment commitment needed  

• Potential cost savings as typically per diem employees aren’t offered benefits 

• This can serve as a test to see if you’d like to hire this person full-time 

Cons: 

• Per diem workers may cost more per day than other employees 

• Per diem workers can decline shifts, creating uncertainty 

 

Tips for Selecting Employee Classifications 

1 – Stay in compliance with the FLSA and ACA by using their legal definitions for classification 

These federal laws impact minimum wage, overtime pay, health benefits, and more. You can choose whether to hire a full-time employee or an independent contractor, but you can’t simply label an employee however you choose. They are federal guidelines you must follow. Non-compliance penalties are severe. 

 
Learn more about ACA penalties going up in 2023.  

 

2 – Weigh your business needs 

Contract workers come with fewer employment rules, but as an employer, you have less say over how and when they perform their duties. Full-time employees can be more expensive overall than other types of workers, but they can potentially contribute more to your organization in the long run regarding productivity and culture. These are the types of decisions a business owner must make. 

 

3 – Never damage your brand 

Customers likely don’t know or care about your internal choices. If your business hires seasonal employees who are poorly trained and deliver subpar service, customers are more inclined to blame your company than the workers. This can work the other way around as well. An understaffed business can gain a reputation for having slow service. Hiring per diem employees or temporary workers can keep your operation running smoothly and protect your brand reputation. 

 

Conclusion  

Employers have a variety of employment classification types from which to choose. Most importantly, be sure to stay in compliance with labor laws. Each classification type offers distinct advantages and drawbacks.  

 
When selecting employment types, think about what will most benefit your business. Take the following into account: 

• Overtime, minimum wage, and ACA ramifications 

• How flexible or limited-hour positions can widen the talent pool 

• Ways to keep your business running smoothly when employees are out 

 

You’re focused on what you do best, growing your business. Learn more about how outsourcing HR compliance to Asure can save you time and money.