An employment status describes the relationship between an employee and their employer.
The formal classification covers the rights and protections for the employee in the workplace, describing the responsibilities the employer has to the employee (and vice versa).
What is employment status?
Employees' employment status outlines their legal status and employment rights in the workplace. When hiring new team members, hiring managers should choose an employment status that best fits the working relationship.
Both employers and employees must be aware of their rights and responsibilities to reduce friction, cost implications, and misunderstandings.
What types of employment statuses are there?
The kind of work the candidate does, the desired dynamic between employer and employee, and what the business is willing to offer employees all determine the employment status.
There are three different types of employment status.
Worker
A worker’s employment status is casual, and they follow a relatively flexible working structure. The work is less ordered and irregular, without guaranteed hours. Common types of workers include casual workers, agency workers, freelance workers, and zero-hour contract workers.
Workers have little obligation to make themselves available, but they are liable to complete work based on an agreement. They are not permitted to subcontract their work.
Employee
An employee works under a contract of employment. Employees are offered all the protections of a worker with additional rights and protections. Working as an employee is a stable worker status and offers the most security, often with secure employment packages.
Full-time employees keep a regular work schedule outside of being on leave or paid holiday (which is an employment right). They are subject to redundancy procedures should their position become expendable (along with stipulated redundancy pay requirements).
Employees differ from independent contractors and are required to work a minimum number of hours, and they are forbidden from subcontracting their work.
In some instances, workers can be misclassified, and employees are assumed to be independent contractors. In turn, this impacts the dynamics and benefits of the working relationship.
Self-Employed
The self-employed individual operates their own business and is solely responsible for the organization’s success. A self-employed employment status offers the most freedom and flexibility but also the least amount of protection. For example, a self-employed person doesn’t receive holiday pay or sick leave.
Self-employed individuals use contracts to determine obligations and payments with businesses in exchange for work, using quotes and invoices to orchestrate business. In this way, self-employed individuals also work as contractors.
Employment status in the US vs. other countries
The term “employment status” is not used equally worldwide but can carry different meanings depending on the country.
Employment status in the US
In the United States, the term “employment status” is less defined and mostly used to describe the contract between employee and employer.
For example:
- Full-time employment
- Part-time employment
- Temporary or contract employment
- Internship or apprenticeship
For tax purposes, the IRS simply classifies workers as employees and non-employees (such as independent contractors). Three criteria contribute to the differentiation;
- Relational — written contract, specific benefits, etc
- Financial — the stipulation of a specific wage or salary
- Behavioral — the degree of the employer’s control
Although loosely defined in the US, the employee status does impact whether or not the organization offers healthcare according to the ACA, as stipulated by the government.
Employment status around the world
In other countries, employment status not only describes the relationship between employer and employee, but it also determines the guaranteed rights of an individual, as well as their condition of employment.
In some instances, the employment status also determines the employer's responsibilities to the working individual. When working with a global team, ensure a mutual understanding of the term.
How to determine your worker’s employment status
In the modern working world, with increased flexibility and remote operations, it can be difficult to determine a worker’s employment status.
Understanding the types of employees within your organization ensures that all contract requirements are up to date and compliant. There are various interactive tests to determine worker classification, helping businesses remain compliant with employment law.
Whether you’re a small business onboarding a new hire or assessing a worker’s request for parental leave, Deel can help.
