In today’s job market, there are multiple types of worker classifications. Understanding the various types of employment is important to determine whether you have been properly classified. Businesses might have several different types of workers working together. Companies use different employment types to respond to economic and productivity changes. However, if companies misclassify their workers, they can violate the law. The attorneys at Swartz Swidler can help you to determine whether you might have been misclassified.
Why worker classifications are important
How workers are classified is important because their classifications determine whether they are entitled to benefits and overtime pay, whether they enjoy certain types of protection under the law, and how they are taxed, paid, and managed. Workers who are misclassified might not receive some of the benefits and protection to which they are entitled. Employers who intentionally misclassify workers to try to evade payroll taxes and overtime pay may face civil penalties and be liable to pay damages to the affected workers.
People are hired by companies for their expertise and skills. However, people who are classified as employees have the right to pay and benefits that other types of workers do not. Employers are also required to withhold income and FICA taxes from their employees’ paychecks and to pay unemployment taxes on the amounts that they earn. Contingent workers who are not classified as employees are responsible for paying these taxes on their own, and they are ineligible for unemployment compensation if they lose their jobs. This makes it very important to make certain that you have been classified correctly so that you can make certain that you receive the protection and benefits that you deserve. Here are some of the different types of employees and who might be classified as each.
While what constitutes full-time work is not defined under the Fair Labor Standards Act, most employers define full-time work as working from 30 to 40 hours per week. The IRS classifies full-time workers as those who work 130 or more hours during a calendar month. Employers who have 50 or more full-time employees are required to offer health coverage to their full-time employees and their family members under the ACA or to pay a shared-responsibility payment.
Most employers classify employees who work 30 or fewer hours per week as part-time. Typically, part-time employees will not qualify for employer-provided benefits. However, some employers offer benefits to part-time employees to retain them. Employers are still required to pay and withhold taxes for their part-time workers.
Seasonal employees work during peak times during the year, including the summers or holidays. Some seasonal workers are H-2B visa holders who travel to the U.S. to work at amusement parks and in the hospitality and construction industries during peak seasons. If an employer sponsors an H-2B visa worker, the employer must comply with the requirements of the U.S. Department of Labor. Seasonal workers who are not H-2B visa holders are entitled to receive Social Security and unemployment benefits once they have enough work credits.
Temporary employees generally work through staffing agencies and are placed with various companies to work for a set duration or to complete specific projects. If a temporary employee works through a staffing agency, the agency will be responsible for withholdings. If the temporary employee is hired directly by an employer, it will be the employer’s responsibility to withhold taxes from the temp employee’s wages. Temporary employees are entitled to Social Security and unemployment benefits as long as they earn enough work credits.
Independent contractors are not employees of a company. Instead, they are self-employed people who offer their work to others in an independent profession, business, or trade. Independent contractors must pay self-employment taxes if they earn at least $400 during the tax year.
Freelancers are people who offer services to the public and are a type of independent contractor. Some examples of workers who call themselves freelancers include photographers, writers, and artists. However, other professionals who work independently may also refer to themselves as freelancers.
Consultants are another type of independent contractor who typically is retained to provide expert advice to their clients. While they might advise their clients, they do not perform the work.
Classification of employees and independent contractors
The Internal Revenue Services provides a 20-point system to guide employers about how they should classify employees based on three main criteria, including behavioral, financial, and the relationship between the worker and the business. For the behavioral factor, the IRS looks at the degree of control that the employer has over how the worker does his or her job and what the worker does. For the financial factor, the IRS considers the degree of control the employer has over how the worker is paid, who provides the worker’s supplies and tools, and whether they are reimbursed for their expenses. For the relationship factor, the IRS examines whether there is a contractual relationship between the employer and the worker, whether the work is key to the business’s operations, and whether the employer provides employer benefits to the worker.
The Fair Labor Standards Act uses a similar list of conditions to determine the proper classification of workers, including the following:
- Employees perform work that is essential to the company’s operations.
- Workers should likely be classified as employees if they have supervisory skills that present profit opportunities for the company.
- Workers are likely independent contractors when they invest in the company’s facilities and equipment.
- Workers should likely be classified as employees when they have permanent relationships with the employer.
- Workers might either be contingent workers or employees if their work requires them to use special skills.
How contingent workers and employees differ is not always clear. However, workers and employees must be correctly classified. There are additional tests that are used at the state level that should likewise be consulted.
Get help from an experienced employment law attorney at Swartz Swidler
The misclassification of employees is a real problem for many workers in New Jersey and Pennsylvania. If you believe that your employer has misclassified you, you may have legal grounds to file a lawsuit. Contact the attorneys at Swartz Swidler for a free case evaluation by calling us at 856.685.7420 or by completing our online contact form.