An employee is a worker that performs a specific job for an employer in exchange for payment. The working arrangement is governed by a contract.
A company hires an employee to perform a service and compensates the employee for their efforts by paying a regular wage (and employee benefits).
What is an employee?
An employee has a business relationship with a company, governed by an employment contract.
Employees negotiate a salary, working terms, and additional benefits before working in a full-time or part-time capacity. These benefits include overtime pay, retirement plans, vacation time off, and health insurance.
According to the Internal Revenue Service (IRS), the definition of a (common law) employee is governed by three main standards, qualifying an individual as an employee:
Control of finances — the company has control over the financial and business aspects of the worker’s job
Control of behavior — the company has control over the worker’s responsibilities
Business relationship — there is a written contract describing the relationship, along with benefits and performance
Working as an employee qualifies an individual for overtime pay, entitlement to Medicare and health insurance, specific tax status, and legal protections. Income taxes are calculated based on an employee’s compensation, and the employee is partly responsible for paying employment tax.
What does an employee do?
An employee’s specific responsibilities are outlined in their job description.
At the bare minimum, an employer should provide the necessary tools and equipment needed to perform the job successfully. Progressive organizations also offer incentives and regular performance feedback which helps to boost retention, reduce employee turnover and improve work-life balance.
Responsibilities range depending on the types of employees in the organization. Types of employee status include exempt, non-exempt, temporary, part-time, and full-time employees. For example, a salesperson is responsible for making a certain number of sales each month, while a designer creates content according to a brief and a deadline.
In the workplace, an employee is expected to:
Do the work hired to do
Perform responsibilities with care and consideration
Avoid putting themselves or others in danger
Follow employer’s instructions (on the condition that the instruction describes a legal activity)
Practice loyalty and honesty
Failure to carry themselves in this way could lead to disciplinary action and even legal repercussions on behalf of business owners.
Employee vs. employer
Employers hire the employee, taking on the financial risk of the venture. In exchange, they have more control over the employee’s work.
Together with the human resources department, an employer executes the hiring process which includes application, interview, and onboarding. The written contract of employment outlines details of the relationship, including compensation, employee benefits, and terms of employment.
Once hired, the employer controls what the employee does (and how). The employer is also primarily responsible for the company’s finances, and the employee’s work is key to the business's growth.
It is the employer’s responsibility to remain compliant and follow local employment law. For example, adhering to the Fair Labor Standards Act, paying minimum wage, and meeting social security tax requirements.
Employee vs. contractor
An independent contractor is a self-employed individual that offers their services to a company on their own terms. In some instances, contractors are described as freelancers.
Unlike an employee, which is largely controlled by the employer, a contractor has more independence. The contractor determines their behavior, they are primarily responsible for finances, and their work is not key to the business. They also pay their own taxes.
With globalization, independent contractors and remote employees are becoming increasingly popular. Companies should consider the differences in the hiring process, and stay on top of local laws and market rates. Deel’s global hiring toolkit offers a set of robust tools to help navigate global hiring.