The demands of an organization are ever-changing. If you’re a business owner or HR professional, you might be deciding the types of employees to hire to implement your organization’s plans and realize its potentials.
You may opt to hire different types of employees on a full-time, part-time, temporary, or seasonal basis to help with primary responsibilities. Or, if you are crunching through a one-time project, you may enlist specialized help from the contingent workforce, meaning freelancers, contractors or consultants.
Identifying the different employee categories is paramount to understanding the types of staff you need, managing understaffed areas, and fueling organizational growth. Additionally, understanding how to differentiate the types of employees you onboard is crucial for accuracy in tax filing and legal compliance.
In this guide, we will first compare the main employee categories to understand what each entails. Next, we will explore the different types of employees and contingent workers, with examples. Lastly, we will highlight what to keep in mind—contractually and financially—when hiring.
Employees vs Contingent Workers
Before discussing the different types of employees to consider in the recruitment process, let’s first define the two main employee categories: employees and contingent workers (or contingent employees).
An employee is usually salaried and on a company’s payroll. Subsequently, employees of a company have their taxes deducted from or paid for by the employer and qualify for certain benefits. Conversely, contingent workers typically receive wages, file their own taxes as a self-employed individual, and do not receive employee benefits.
Employees are managed more closely by their employers; contingent workers have greater control over their time and process. For instance, whereas employees may need to work specific office hours and follow certain work protocols, contingent workers may work irregular hours and do not have their work supervised until the results stage.
Pros and Cons of Hiring Employees vs Contingent Workers
The key differences between permanent employees and contingent workers lay in costs and their duties.
- Since long-term or ongoing employment is expected, employees may have a higher level of dedication to the job and team. - Employers are also more able to monitor the work performance of employees.
- Since contingent workers are not permanent employees, companies are not responsible for filing their taxes or paying their benefits—alleviating administrative workload. - Contingent workers may work on a project basis rather than on a fixed day-to-day schedule. This means that companies do not have to pay for periods of time when there are lulls in business.
- Employers may need to consider costs from training and salary payments during off-peak periods.
- Contingent workers may lack commitment and can have different expectations over work performance or deliverables.
Different Types of Employees
Below are common employment categories that primarily differ in their number of working hours, roles, and benefits. Note that how you classify or define each employee category may vary depending on labor standards in your country. Consequently, the types of employees you decide to hire will influence the benefits or compensation you are required to provide as an employer.
🧑💻 Full-time employees:
Full-time employees work for 40 hours per week or for the number of hours required to be full-time, according to the company.
They also typically qualify for benefits discussed in employment contracts (e.g. health insurance, pension plans, or paid holiday time).
Examples: A full-time art director who overlooks the art direction of a magazine or a full-time high school math teacher.
🧑💻 Part-time employees:
Part-time employees usually work for under 30 hours per week and may not qualify for full-time benefits.
Part-time employees who work a certain number of hours in a specified period may qualify for benefits depending on the country, despite working under 40 hours per week.
Examples: A part-time editorial assistant who writes reviews for a local news outlet or a part-time customer service representative at a telecommunications company.
🧑💻 Temporary employees:
Temporary employees can work full-time or part-time hours over a set period of time (e.g. 3-6 months).
Temporary employees may qualify for non-permanent employee benefits or even full-time benefits, if they work full-time.
Examples: A temporary part-time sales specialist at an electronics store or a temporary full-time bakery manager substituting for staff on vacation.
🧑💻 Seasonal employees:
Seasonal employees can be full-timers or part-timers who typically work for the course of a season.
Seasonal employees are similar to temporary employees in terms of the benefits they can receive and how they are hired.
Examples: A retail gift-wrapper during the Christmas season at a mall or a seasonal part-time summer lifeguard.
🧑💻 Leased employees:
Leased employees can work on a full-time, part-time, temporary, or seasonal basis over a specified period.
The benefits leased employees receive are also dependent on their role and working hours at the agency, rather than at the organization. Leased employees can work for different organizations but are under the employment of and receive payments from a staffing agency.
Examples: A leased sales manager who sells software products at an engineering company or a temporary leased graphic designer who creates brand identities for clients at a design firm.
Different Types of Contingent Workers
Unlike employees, contingent workers perform tasks that are not typical of the company’s services. Contingent employees may file and pay their own taxes as self-employed entities that outsource their services to a company. The following is a classification of the different types of contingent workers.
🙋 Independent contractors:
Decide how they will perform their work on their own schedule for a company that typically hires them under a contract.
Examples: Independent contractors may include trade professionals who work on a per need basis, such as plumbers and electricians who fix pipes or circuits for common household repairs. They could also work on a project at a time, such as an interior designer who is involved in a home renovation.
Are a type of self-employed independent contractor who may work multiple projects at the same time for several clients. Freelancers can work on their own time and location.
Examples: An example could be a photographer who shoots photos for the duration of a wedding or concert. Another example could be a remote web designer who creates a website for a pet food business that may only need a site update every few years.
🙋 Temporary workers:
Are similar to temporary employees, in that they are hired temporarily, and sometimes both names are used interchangeably. However, contingent temporary workers are not on a company’s payroll, meaning the employer doesn’t have to pay their taxes or offer benefits.
Examples: A self-employed accountant who is hired by a biscuits company to work for the duration of the tax season or a warehouse associate who helps with inventory and stockpiling for a store opening.
Differ from other contingent workers in the sense that they are hired as experts primarily to offer advice.
Examples: Independent consultants could include legal consultants, strategy consultants, or marketing consultants. An example could be a UX strategy consultant who conducts user interviews to provide solutions for a company’s website goals, without changing the site itself.
Are a type of contingent worker who work to gain experience, meaning that compensation could be non-monetary in some cases. Examples of non-financial compensation could be course credits, paid travel, or training experience. Internships could span weeks to months and can prove valuable to employers who use them as trial periods to scope potential employees.
Examples: Culinary students on a paid travel internship or a business student on a stipend as a corporate strategy intern.
What to Consider When Hiring
Depending on the type of employment you deploy, be aware of the different employee contract types you may use, for tax filing accuracy:
If you are hiring with long-term employment in mind, such as for a full-time or part-time employee, you may use a permanent contract. This type of employee contract may include benefits and terms for termination instead of a definite end date. Depending on the country, you may have to file a relevant employer-employee income tax form (e.g. W-2 in the US, T4 in Canada) and withhold necessary taxes.
Temporary, Leased, and Seasonal Employees:
If you are hiring a temporary, leased, or seasonal employee, the type of contract you might use is a fixed-term employee contract, which includes a clear end date and/or an extension clause. Depending on hours worked and relevant labor standards in your country, an employer may still be obligated to pay certain benefits or taxes.
If you are hiring an independent contractor, a freelancer, a consultant, or a leased temporary worker from a third-party agency, you are not hiring them as an employee and would not be responsible for paying their taxes. The type of employee contract used in this case may be a fixed-term contract, which sets fixed dates and payment for a certain project or length of time. In some cases, you would issue a non-employer income tax form to the contractor or freelancer.
Under certain labor standards, which vary by country, interns may or may not be considered an employee of a company. In such a case, an employer may need to consider implications in terms of finance and extent of work.
2. Salary vs Hourly
Employees are typically paid monthly salaries, while contingent workers tend to be paid hourly. However, some employees (e.g. part-time) could receive hourly pay. Salaries are set in agreements and paid periodically (e.g. bimonthly, monthly), irrespective of fluctuations in working time.
In the same pay period, for instance, a contingent worker who receives hourly pay could earn more or less than a salaried employee with a fixed base pay in the same week.
3. Exempt vs Nonexempt
Depending on the position, hours worked, and schedule regularity, employees could be categorized as nonexempt employees receiving hourly pay or as exempt employees receiving salary pay.
Since exempt employees receive a fixed salary, they may not qualify for overtime pay. Nonexempt employees may be compensated for their overtime hours since their pay is determined by hours worked. Contingent workers could be exempt or nonexempt depending on their occupation, working hours or rate, and relevant labor standards.
🔑 Key Takeaways
Identifying different employee categories is important for recognizing the types of staff needed to support a company’s productivity in terms of time, resources, and skills.
Employers who need more control in work processes for long-term employment may consider hiring permanent employees. Recruiters who want to save costs on a one-time project may hire contingent workers who can offer an immediate specialized set of skills for selective time periods.
Permanent employees and contingent workers generally differ in the kinds of tasks they perform. While permanent employees are responsible for tasks central to the company, contingent workers offer their own expertise that may not be directly representative of the company’s services.
Depending on relevant labor standards, working hours, and the type of employment, how you categorize employees can have contractual implications in terms of tax payments, benefits, and overtime compensation.
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