Definitions of Employee Classification

This post on employee classification originally appeared in 2009. Due to its popularity, it has been updated and republished in 2020.

When it comes to classifying employees as full-time, part-time, or temporary, it’s really up to the employer. Federal and state laws do not define these terms, so employers have a lot of flexibility when categorizing employees this way. However, these terms ought to be defined as part of an employment classification policy that is consistent throughout the organization. Clarifying the definitions of employment classifications is important as employees need to understand their employment status and eligibility for benefits.

Employees usually are classified according to the hours worked and the expected duration of the job. Accordingly, they generally fall into three major categories: full-time, part-time, and temporary employees. When designing definitions of employee classification, many employers align classifications to eligibility for health insurance benefit plans. For example, many healthcare plans exclude part-time employees who work less than a specific number of hours a week.

legal requirements

Although full-time, part-time and temporary employee classification are up to the employer to define, exempt and nonexempt classifications are governed by FLSA law, which minimum wage and rules for overtime pay. Nonexempt employees are typically hourly (with some exceptions). Exempt employees are typically executives, managers, professionals, administrative staff, or outside sales whose job descriptions meet criteria for non-exempt status as defined by the U.S Department of Labor. This criteria includes salary minimums, being paid on a salary schedule, or holding job duties defined as exempt, such as being in a supervisory position or performing learned professional or administrative services. See the Wages and the Fair Labor Standards Act for more information.

Employers should also be cognizant of legally mandated benefits required by state and federal law, such as workers’ compensation, unemployment compensation, unpaid family and medical leave, and military leave. The criteria for eligibility for these benefits lies outside the control of the employer regardless of employment classification.

Definition of a Full-Time Employee

A full-time employee generally is defined as one who works a normal work week for an indefinite period of time. Since the FLSA sets 40 hours as the maximum number of hours worked before employers must pay overtime to nonexempt employees, many organizations use that number as their normal work week. Others use 37 1/2 hours or even 35 hours, depending on their workday and meal schedules. Some employers define full-time employment according to their part-time employment hours. For example, if part-time employment is defined as 30 hours or less a week, employees who work more than 30 hours are then considered full-time. Full-time employees generally are eligible for all the benefits the employer offers.

Definition of a Part-Time Employee

Part-time employees also are employed on an ongoing basis and typically receive some benefits, but work fewer hours than the normal full-time schedule. Part-time employment may mean working irregular hours, regularly scheduled hours every workday, or full workdays but fewer than five per week. A common definition of part-time employment is work of 30 hours or less per week.

Many employers provide part-time employees with a pro rata share of benefits, such as vacation, sick leave, and other paid absences, based on the number of hours worked.

Definition of a Temporary or Contract Employee

Temporary employees (or contract workers) may work part-time or full-time hours and may be hired through an agency or directly by the employer. What makes their status “temporary” is that the worker is hired for a particular project or for a finite period of time. As a result of the short-term nature of their employment, temporary employees generally do not receive any benefits, other than those required by temporary employee laws.

Since some employers use temporary workers as an entry pool to screen full-time candidates, these employees may have increased expectations of advancing to regular employment and eligibility for benefits. Therefore, you should make clear to temporary workers that they are being hired for a limited period of time only and are not eligible for benefits. Many employers explain the temporary nature of the job in a letter or other written memorandum. The letter should state an approximate limit for the period that the worker is expected to be employed, such as “approximately 90 days,” and give management the option to extend the contract if needed.

In addition, you should monitor the status of temporary employees so that if the limited duration of their employment changes, you can reclassify them correctly and offer benefits if they are eligible. Otherwise, you may end up with misunderstandings and legal claims.

What About Independent Contractors?

The independent contractor, or freelancer, classification is used for non-employee workers who typically perform specialized work and are retained for a specific period of time. Since they are not considered employees of the organization, these workers are not covered by the laws for minimum wage and overtime, payroll taxes, workers’ compensation, unemployment compensation, or employment discrimination and are not eligible for any benefits.

Meeting criteria for independent contractor status can tricky. The Internal Revenue Service, the Department of Labor, state law, and the courts all impose separate standards for employers to satisfy for classifying independent contractors. As a general rule, independent contractors are “independent,” which means as long as you are not exercising substantial control and direction over their work, these workers are not considered employees. Microsoft found this out the hard way when they were forced to pay over $96 million to settle lawsuits alleging misclassification of workers as temporary employees or independent contractors and, thus, improperly excluding them from participation in its benefits plans.

For more understanding of  independent contractors, take a look at the IRS’s guideline of self employed versus independent contractor versus employee.

What About Volunteers?

Using volunteers is even trickier. Many employers mistakenly believe that they can supplement their workforce by using unpaid volunteers, including current employees who volunteer their services to help fill in during a worker shortage. However, the Department of Labor restricts the definition of nonemployee volunteers. According to the DOL, individuals may volunteer their services without receiving pay only in limited circumstances, typically involving the performance of charitable activities for non-profit groups such as public service, religious, or humanitarian organizations.

Be Consistent with Your Employee classification Criteria

The main importance of employee classification is the effect on eligibility for benefits, such as health insurance and paid time off. While not many laws regulate the definitions (with the exception of the independent contractor), you still must apply your definitions consistently. Accordingly, you should pay close attention to how you classify workers and review your classifications regularly to ensure that they properly match your benefits eligibility requirements. This information should also be documented in an employee classification policy that is accessible to managers and employees who have questions about employment status and employee eligibility for benefits.