Understanding different types of employees is an essential component of employment law for business owners. Depending on the types of employees, taxes and wages change dramatically. In the modern economy, most businesses use a mix of the four different types of employees: full-time, part-time, temporary, and independent contractors. Read on to learn the similarities and differences of the types of employees.
Type One: Full-Time Employees
Full-time employees work a minimum of 40 hours a week, operating on a set schedule. To clarify, that schedule typically looks something like 9:00 a.m. to 5:00 p.m., Monday through Friday. They follow the directives and instructions given to them by the company. However, the level of independence that a full-time employee usually has grows as they rise through the ranks of the company. For example, a manager has more decision making power than a new hire.
Full-time employees must prepare a W-4 Form, which authorizes the employer to withhold federal income tax from their paycheck.
Full-time employees get a paycheck weekly, bi-monthly, or monthly. Usually these employees have an agreed-upon annual salary. Their employment status typically qualifies them for benefits as well as potential bonuses. Possible benefits for full-time employees vary from company to company, but usually they are similar.
- Health plans and/or medical insurance plans.
- Paid vacation time.
- Retirement benefits. Usually, full-time employees earn retirement benefits after a certain amount of time spent in the company.
Type Two: Part-Time Employees
Part-time employees work a maximum of 30 hours a week. Sometimes their schedule is a regular. However, many times, part-time employees do not have a set schedule, instead their hours shift around every week.
In the same vein as full-time employees, part-time employees must prepare a W-4 form. This form authorizes the employer to withhold federal income tax from their paycheck.
Part-time employees get a paycheck bi-monthly or monthly. Usually, part-time employees have an hourly rate of pay. As a result, their paycheck might vary week-to-week, depending on the exact number of hours that they work. It is certainly important to note that part-time employees do not qualify for benefits like full-time employees do. Although, companies might offer partial benefits. They often have the potential to earn bonuses through goals set by the company or employee discounts.
Type Three: Temporary Employees
Temporary employees only work on one project or for a certain period of time. For instance, the most common examples of temporary employees are the seasonal employees that retail ventures hire to help with holiday season boom. Their hours vary depending on how much the company needs them. Above all, temporary employees differ from the first two types because their job has time limits.
Typically, temporary employees must prepare a W-4 form, which authorizes the employer to withhold federal income tax from their paycheck. However, some employers treat temporary employees more as independent contractors.
Temporary employees get a paycheck bi-monthly or monthly. Usually, temporary employees have an hourly rate of pay. Subsequently, their paycheck varies week-to-week, depending on the exact number of hours that they work. In addition, temporary employees almost never earn benefits or bonuses.
Type Four: Independent Contractors
Independent contractors fulfill a specific role or work on a specific project. Instead of an employer/subordinate relationship, the contractor is almost an independent business while the business the project is for acts as the client. To this end, contractors do not have to follow the directions of the client exactly. Oftentimes, they have more control over their work or project than other types of employees.
Independent contractors must use the W-9 form. The employer sends the contractor a 1099 form. Above all, it is important to note that there is no federal income tax withheld from an independent contractor’s paycheck. They must pay that tax when they file their annual taxes.
Companies pay independent contractors once the work or project is done.