Employee Status: Part-time, Full-time, Temporary or Contractor?
An employee’s status as full-time, part-time or temporary can be confusing for employers. Not only does the company have its own idea of what a full-time or part-time employee is, there are other outside influences that define the status of an employee. Sometimes, those influences don’t define employee status but instead look at the number of hours worked per year.
Applicable Laws Based on Hours Worked
- Affordable Care Act (ACA) defines full-time as employees who work 30 or more hours per week. That seems straight-forward but it’s not. Employees who work variable hours, seasonal employees, and temporary employees all have to be evaluated to determine whether or not they meet the eligibility standards to be considered a full-time employee under ACA. The IRS has published a guide (opens in a new window) that companies may find helpful in determining who is considered full-time for purposes of your group health insurance benefits. Additionally, EAF members have access to a Health Care Reform Hotline available from the members-only section of the website.
- Employee Retirement Income Security Act (ERISA) looks at the total number of hours an employee works in a year in order to determine eligibility for participation in your pension/retirement plan benefits. ERISA says that employees who work 1000 or more hours per year (approximately 20 hours per week) should receive any pension/retirement plan benefits you may have. There may be exceptions defined in your summary plan description/plan document that may exclude temporary employees from participating in this benefit. Typically, the employee must also be at least 21 years of age to participate in the plan. It is recommended that you review your plan documents to ensure you have identified all eligible employees.
- Family & Medical Leave Act (FMLA) applies to companies with 50 or more employees. Employees who are eligible to take leave under the FMLA must have worked at least 1250 hours (approximately 25 hours a week) within the immediate 12 month period prior to the beginning of the leave, regardless of whether you have classified the individual as part-time or temporary.
- Sick Leave Laws – Beginning January 1, 2017, federal contractors and sub-contractors will be required to provide 1 hour of sick leave benefits for every 30 hours an employee works. These employers are required to allow the employee to accrue up to at least 7 days of sick leave. Some states have implemented similar laws that apply to all employers regardless of whether or not they are federal contractors or subcontractors.
Other laws that apply to employees regardless of their status or number of hours worked include the Americans with Disabilities Act (opens in a new window), Title VII of the Civil Rights Act of 1964 (opens in a new window), Fair Labor Standards Act (opens in a new window), and many others.
In addition to the laws that define employee status, your insurance contracts also define who is eligible to participate in your various insurance benefits. As previously discussed, ACA requires large employers to provide health insurance to employees working 30 or more hours per week. However, other insurance products you may provide to employees (life, dental, short term disability, etc.) may establish different hourly thresholds to meet the eligibility requirements for coverage.
Depending on the state in which you operate, most companies are able to define who is eligible (part-time, full-time, etc.) for benefits such as vacation, sick leave (other than the exceptions referenced above), bereavement leave, etc.
Establishing Parameters
It is important for companies to define the status of employees within their own organizations. Generally, part-time and full-time employees are hired as regular employees or as temporary employees. Part-time and full-time status identify whether or not the person is expected to work a full or partial schedule.
Temporary employees are generally those individuals who are hired for a specific period of time or for a specific project. Unless the project is long-term, it is typically recommended that temporary employment should last no longer than 6 months. Companies frequently contract with an agency to provide temporary employees. However, that’s not always the case. Some employers choose to hire the temporary workers directly without using an agency. Depending on the circumstance, your temporary employees may be eligible for benefits.
Contractors
The topic of independent contractors or contract employees cannot be ignored when discussing employee status. All too often employers mistakenly treat what should be temporary employees as independent contractors. Typically, they will “1099” the worker and not withhold employment taxes or require them to fill out a time sheet.
There are a number of laws that define the employment relationship (including state workers’ compensation laws) and there are specific guidelines that define what it takes to be an independent contractor. However, there are two agencies that set the standards for evaluating the employment relationship, the Department of Labor’s (DOL) Wage & Hour Division and the Internal Revenue Service (IRS).
The Department of Labor (DOL) recently issued an Administrator’s Interpretation (opens in a new window) memo explaining how the DOL will interpret the employment relationship under the Fair Labor Standards Act. In this memo, the DOL has focused on what it terms the “economic realities” factors. This includes an evaluation of whether the worker is an independent business or is in fact economically dependent upon the employer. Such factors as whether or not the work requires a special skill or initiative, the worker’s investment compared to the employer’s investment and whether the worker’s relationship to the employer is permanent or indefinite must be considered in determining whether an individual is an employee or independent contractor.
The IRS explains its definition of independent contractors (opens in a new window) on their website and in a brochure (opens in a new window) that can be downloaded. The IRS looks at the degree of control and independence in three areas: Behavioral, Financial and Type of Relationship.
In short, both agencies look at such things as the individual’s opportunity to gain a profit or suffer a loss, who provides the equipment and whether or not the work is an integral part of the company’s business. The bottom line boils down to who controls the job…the individual or the company?
Regardless of the size of employer, it’s important for the organization to understand their employees’ status and to communicate that status to their workers.
If you have any questions about this article, please contact EAF at 407.260.6556 or [email protected]
EAF responds to hundreds of hotline calls and emails monthly. We would be happy to answer any interesting questions you may have too! Contacts us at [email protected] or 407.260.6556
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