Worker classification: types of workers & how to manage them

Employers have as many as two or three types of workers onboard at any given moment...

March 15, 2022

Worker classification: types of workers & how to manage them

Employers have as many as two or three types of workers onboard at any given moment...

Non-standard job titles have emerged

Employers have as many as two or three types of workers onboard at any given moment in an increasingly complex labor market, making classifying workers complicated. However, as a business owner, entrepreneur, CEO, or human resources manager, you should consider the employment status of every worker within your company. Failure to do this could have legal or financial consequences for your business.

Temporary workers are divided into two legal categories, employees and non-employees

Correctly classifying your temporary workforce defines, among other things, how they are managed, compensated, and taxed.

Today, we'll look at how to categorize your staff, what each type of worker entails, and how Worksomes' all-in-one solution may save you time and money.

For more information about worker classification, please read "Legal Worker Classification: Employee vs. Contractor."

  • Contingent workers

Digital economy workers are contingent workers, freelancers, giggsters, independent contractors, and self-employed individuals.

They may be working with multiple companies simultaneously and are usually not employees but provide services for a set period of time in exchange for a predetermined sum.

Contingent workers can be paid by the project, the hour, the week, or the month. However, as non-employees, they are usually not entitled to perks, benefits, and you don't pay their taxes or have a say in how, when, or where they work.

Freelancers

Freelancers fall into "contingent workers" and are self-employed experts. For example, coders, marketers, designers, developers, artists, writers, and photographers use "freelance" to characterize their jobs. They usually work on a project basis and may seek to establish long-term relationships to secure more contracts.

They are specialists at what they do since they typically have worked with various businesses in several industries. With a growing digital economy, freelancers can provide more value for less money overall than employees when it comes to specific projects and have proven to be compelling investments.

For more information about the growing digital economy, read “The Great Resignation, How To Outrun It & Retain Business Growth In 2022.”

How to manage freelancers:

Cultivate your freelancer relationship similarly to how you would treat a helpful friend. Stay mindful of their role as freelancers, the autonomy and freedom they require, and what they value as individuals. Outline the project details and be very clear about what you're trying to accomplish to align with the expectations you are placing upon them.

Be upfront about project deadlines, industry nuances, any legal concerns, and if there will be access to tools like email, Slack, Whatsapp, or Zoom. Most importantly, at the end of the contract, give them feedback.

Ensuring you start your relationship with accurate worker classification plays an essential role because freelance talent is in charge of doing their own taxes, so seasoned freelancers will expect you to send them a Form W-9 and receive a 1099-NEC at the end of every year they work for you.

Read "1099 & W-2 employee payroll and tax reporting" for more in-depth information.

If the management factor seems too much hassle, a freelance management system (FMS) like Worksome allows you to pay freelancers quickly, get them under contract, and provide them with the correct tax forms. Worksome also offers sourcing services to find the talent you need, or feel free to invite your existing freelancer talent to join as trusted contacts.

Consultants

Consultants are usually highly paid due to specific skill sets. This subset of contingent workers determines a client's needs and provides expert advice but does not conduct the work.

How to manage consultants

Because consultants aren't usually employees, they still require an established set of relationship guidelines, payment terms, and contracts put into place. Consultants are highly valued and established individuals; therefore, you should have an unfailing payment system in order, and may want to consider using an FMS to conduct business.  

Independent Contractors

People who work for themselves but provide goods or services for your firm are independent contractors (ICs) like all other contingent workers. ICs can work for the company long-term, a single project, or as-needed. These people are liable for their own taxes and are not eligible for perks provided by their employers, as is typical of the contingent workforce.  

How to manage independent contractors

An FMS will help you manage the sometimes hectic schedule of an independent contractor, guarantee contract terms are set, benchmarks are met, and easy payments are sent upon successful project completion.

  • Tip: Try to resist the temptation to designate common-law employees as independent contractors to save money. Instead, establish boundaries around your working relationship with your actual common-law employees (or independent contractors); that way, you are legally compliant. "Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done," states the Internal Revenue Services (IRS).

Volunteers

According to the Fair Labor Standards Act (FLSA), "Individuals may volunteer time to religious, charitable, civic, humanitarian, or similar non-profit organizations as a public service." However, individuals generally may not volunteer in commercial activities run by a non-profit organization such as a gift shop. So volunteers are not employees if the legal rules are followed.

Typically, volunteers serve part-time and do not displace regularly employed workers or perform work that regular employees otherwise perform. "In addition, paid employees of a non-profit organization cannot volunteer to provide the same type of services to their non-profit organization that they are employed to provide."

How to treat volunteers to keep them coming back

Treat volunteers with the utmost respect, buy their lunch if possible, think about comping their gas, give them tokens of appreciation, and ask them to volunteer again. Since volunteers are unpaid, you can still provide perks to keep them engaged.

Interns

Interns are students or recent graduates who exchange their time for experience, mentorship, or academic credit. Unpaid internships are not always legal unless done for academic credit, and if they are paid, the minimum wage applies. Interns are primarily untrained, keen to learn, and recruited for junior roles but can also be valuable assets when operating new technology and social media.  

How to effectively manage interns

Focus on a positive work environment for your interns, allow them to learn, and they will be incredibly productive. After a few months, you can decide whether to offer an extended internship, part-time, or full-time role with your company, which can be considered at-will employment.

What is at-will employment?
  • The United States labor law, at-will employment, gives an employer the ability to dismiss an employee for any reason and without warning, as long as the cause is not illegal. Only some states are "employment-at-will" states - in these states, if there is no employment contract or collective bargaining agreement, an employer can let an employee go for any reason, no reason, and with or without notice.
  • The employment-at-will doctrine reflects the belief that people should be free to enter into employment contracts of a specified duration without obligations attached to either employer or employee. Likewise, an employee is free to leave a job at any time for any reason with no adverse legal consequences.

If there is no potential for advancement beyond the internship, let them know ASAP and offer a letter of recommendation to help them along.

  • Workers on payroll

Workers on payroll may work from home or in the office and are professionals in their fields who fall under several umbrella terms. All have their taxes withheld by their employers and may be eligible for benefits not offered to the contingent workforce.

On-call employees

On-call employees are payroll staff strictly on a need-to-have basis, and this worker is keenly aware that their weekly or monthly hours will vary. It would help if you got worker classification right the first time with this subset to avoid complications.

How to successfully manage on-call employees

Be very clear about the role during the hiring process and do not guarantee hours or pay. Periodically check your working relationship with the on-call employee and consider reclassifying them as freelance if worker classification laws support the reevaluation. It might be better for your business and for this employee to transition into a different category.

Full-time employees

Full-time employees vary significantly from contingent workers. They are on the payroll and have access to perks and benefits not offered to non-staff, like pension plans and stock options. Failure to correctly classify employees as soon as they are onboarded could result in financial penalties. Make it your goal to correctly classify employees as soon as they are hired and update their classification if working conditions change.

Whether an employee is full-time or part-time doesn’t set how they are paid, which can be hourly or salary. The U.S. Department of Labor distinction under federal law ensures that a full-time hourly employee is eligible for overtime pay, and a salary employee’s paycheck cannot be altered based on hours worked.

How to manage full-time employees for long-term retention

Employees work an average of 35-40 hours or more a week, so try not to overwhelm them with work after hours or on the weekends. Manage these employees with friendship, flexibility, and corporate etiquette in mind. These people are more likely to stay with your company for an extended period if you can prioritize them on a personal level.

Part-time employees

Being hired part-time usually means working less than 30 hours per week but can vary by industry under the FLSA definition. "The FLSA does not define full-time employment or part-time employment... A matter generally to be determined by the employer."

However, other state and federal definitions may apply, and the IRS, in conjunction with the Affordable Care Act, states that "a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month."

Part-time employees are usually paid hourly, and if they occasionally work over 40 hours a week, they are also eligible for overtime pay.

How to manage part-time employees

Professional development shouldn't be jeopardized even though part-time employees aren't in the office as much, so investing in training these people will demonstrate how you value their education and growth. Try to incorporate part-time workers into your regular meetings and offer them advancement opportunities if available.

Leased employees, secondment contracts

A leased employee is hired by a temp agency or other employment agency and then "leased" to a corporation for a period of time to execute certain tasks. This can be done using a secondment agreement, which is a legal contract that allows an employer to temporarily transfer an employee to another business location or organization.

The advantage of a leased employee or secondment contract is that it reduces the requirement for human resources to hire directly. It's no secret that making the proper hire is difficult, so it's not just about employing dependable staff and collaborating with experienced freelancers. Sometimes you have to lease employees in the interim.

How to manage leased employees, seconded workers

Focus on utilizing a leased employee's particular skill set and sharing your expertise. Having a mentorship attitude and rolling out detailed training can greatly benefit this situation. Additionally, please make sure any secondment agreement is in writing and make it clear that the seconded employee's original employer retains control over their employment overall.  

Temporary workers

Temporary people frequently become employed with the help of placement agencies to fill in for full-timers on maternity leave or disability, for example, or until the position can be filled permanently. Keep in mind that if a temporary employee's work goes well and you decide to hire them full-time or part-time, their privileges and benefit eligibility will alter.

How to manage temporary workers

Prepare your existing payroll or freelancer workforce to work alongside temporary workers. Make sure your temporary worker knows the scope of their role and whether or not to expect the possibility of an extension.

Seasonal workers

Seasonal employees are hired for full-time or part-time jobs, typically when the workload is high. They're comparable to temporary workers, except their demand spikes during specific months of the year.

How to manage seasonal workers

Training is paramount when hiring seasonal employees, and it is mutually beneficial to provide all of the tools and resources needed by this employee type. If their performance impresses you, you'll likely consider bringing them back next season or keeping them on staff longer.

How to correctly classify your staff and non-staff

Managing a diversified workforce takes patience, resilience, and a good understanding of worker types and how to manage them. It's clear from this list that employee classification isn't a one-size-fits-all endeavor. Without the worries of misclassification, your business will function more smoothly, and your employees and freelancers will better understand their roles within your organization.

Worksome recognizes that the nuances of an evolving workforce can be perplexing, so we've set out to make this process as straightforward as possible. We offer freelance management, worker classification recommendations, and solutions to assist you in deciphering legal jargon while navigating easy contracting, payment, and talent sourcing. Contact us today for a free demonstration.

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