Simply put, work status or employment status is a term that helps decide how your taxes are paid and what laws you are protected under. Moreover, it defines the legal boundaries between an Employer (the person or institute offering the work for compensation) and a Talent (the person providing a skill to earn compensation from employer).   

Terms that describe employment status  

Full-Time or Part-Time = refers to the number of hours in a work week you work 

Internship or Apprenticeship = lets people know you are learning on the job 

Exempt = means your job doesn’t require compliance with time-related work laws  

Non-Exempt = obviously means the opposite 

You can be a contract part-time intern, contract full time, an intern who is an employee, full-time exempt employee. But, you cannot be a part-time non-exempt contractor. Confused? Exempt and nonexempt are terms reserved for employees only.  This is because they are terms that require compliance for employees. 

The DOL says that you are an employer if you dictate where and when a person works. When that happens any laws governing that relationship are in play.  That does not mean that the government is dictating your labor agreements. In fact, I think they are encouraging employers and job seekers to think about the terms they use in employment.  The types of employment and labor contracts are at the discretion of the employer and the talent.  

 Work Status: Contractor or Employee? 

Contractor 

Employee 

Pay 

Minimum set by the contractor Minimum set by Federal and State governing body 

Overtime pay 

None, unless negotiated Must comply with Federal and State governing body laws 

Taxes 

Contractor manages the payment and must pay all self-employment tax (Social Security and Medicare) and income tax. Employer manages the payment and shares half the cost of your Social Security and Medicare taxes (known is to as FICA Federal Insurance Contributions Act) and income tax (both federal and state) 

Medical/Health Benefits 

None *see notes below Minimum requirements set by Federal and State governing body laws 

Legal Rights to own your Work Efforts 

Only activities and produced work related to the scope of agreed tasks are the ownership of the employer, all other work efforts related to that persons skills are owned by contractor All activities related that can be associated to the benefit of the employer are the ownership of the employer 

Right to sue pre-agreement (this means before you even agree to work together) 

Civil Rights, Disability Rights, Fair Labor Rights * Civil Rights, Disability Rights, Fair Labor Rights, local rights to work laws* 

Right to sue post-agreement (this means after you agree to work together) 

Very few protections under labor-related laws. boundaries of assumed risk and responsibly are set in contract* Protected under Federal and State governing body laws even though boundaries of assumed risk and responsibly are set in employment contract* 

Age Limitations 

None Set by Federal and State governing body laws. Must be of legal age to begin work, the amount of time you can work and the age you should stop working 

Time off 

Contractor's Choice Must comply with Federal (ie. Family Medical Leave Act) and State governing body laws, some absentee time must be paid by the employer and some is unpaid  

Time controls on when and how long you work each day 

Contractor's Choice  Must comply with rules set by Federal and State governing body laws determined by industry and age in correlation with safety standards 

Safe Work Environment 

Human Rights Acts, OSHA Human Rights Acts, OSHA, additional mandates set by Federal and State governing bodies vary by industry  

Tools to complete the job 

Contractor's responsibility unless otherwise negotiated Provided by the employer and are the property of the employer and all malfunctions, errors, and issues are required to be addressed by the employer in compliance with industry and safety mandates. 

Location of job 

Agreed upon by both parties Agreed upon by both parties 

Right to Separate 

A contract is bound by terms of the contract and both parties can determine at any time when they don’t want to work for  Each state can determine if they are At-will, right to work. Depending on industries you can have unions involved as well. Each determines when, how and the terms of separation 
  • Anybody can sue anyone with an attorney
  • Medical benefits are typically accessible under private plans 

What do we recommend for employers?   

Not all skilled talent are looking for an employer. Realize that there are people looking for work that want to take personal accountability for their work life. But, they want to work remotely. Or, they want the freedom of being a contractor. If you are dead-set on using full-time employment status, you could miss out on great Talent with the work ethic you need. 

There are a few things that can deter employers from being flexible in their hiring. First is not knowing the rules. Second, they haven't researched the risk-reward of how to hire people using various employment statuses. Third, they have no idea how to manage the various types after hire. In addition, employers can actually increase the costs of their labor and recruiting by bringing in staffing and outsourcing firms. Just to avoid thinking about it.

Determining Status

Begin by determining what you need to be done in the business.  Please do not start by naming a role or job title. That’s an internal thing that’s only relevant to you. Titles don't help you define the skills that you need for the work that needs to be done. Nor does it define what type of employment status you are going to offer. Ask questions like, how long should I wait to offer employment? What boundaries and legal responsibilities do I want to have?

If you are under the impression that categorizing Talent with employee status gives you more control over that person. It doesn’t. Talent retention is a balance of a multitude of factors. Whether you choose to hire a contractor or an employee is an agreement that balances risk with responsibility. Work status is more about tax implications than it is about retaining talent.

What do we recommend for Talent (job seekers)?  

It doesn’t matter if you are looking for shift work, project work, have general skills or very specialized trade, technical or creative skills. After all, the ultimate goal is to get paid for using your skills. Work status may not be as important to you as getting a paycheck. Or, maybe it is extremely important if you want an employer-sponsored health insurance plan or other benefits. The job market is fluid. It changes all the time. Your decision to market yourself as someone looking for a contract position or full-time employment is not about having an opportunity to work, it is a statement of responsibility. Being an employee doesn’t give you more job security than being a contractor. It also is not related to how much you want to work or that you are willing to settle for less money. In fact, if the employer has done the math, they should be offering a competitive wage for what they need you to do regardless of your work status.

A decision now isn’t a decision forever.  

What I liked to do as an operator was to start all of my job openings, yes, all of them, as a contractor. I don’t like dealing with unnecessary third parties that cut into wages with their profit margins. As much as possible, I dug in my heels to avoid adding admin costs to systems or paying temp-to-perm fees. I wanted to capture those savings and increase the wage budget. This set up allowed me a few months to see if the contractor could do the work and fit into the groove of the working environment. In addition, it gave me the opportunity to make sure that my own revenue pipeline could sustain the position. I could then extend an employment agreement and lift the wage with the savings I hadn't paid to a headhunter.

Starting the person as a contractor at the competitive wage allowed me to set them up for higher compensation over time. Raises (merit increase) and any additional per employee cost for administration and compliance tasks would typically be offset by my lower rate of churn and lost productivity. In addition, sometimes the person was happy remaining a contractor. Forward-thinking in this way prevents jumping into a relationship with Talent too soon. 

This is the way that we think about things at pepelwerk. 

Work is a choice. Who you work for, where you work and what you do-all are choices. They are infinite and global in today’s digital era. As a result, what you get paid whether you like it or not, is based on the market price of your job and the value it has to an employer.  

We believe that everyone has the right to a clean, safe and non-abusive work environment. Choosing to be a contractor or an employee doesn’t change that. However, we don’t believe in waiting for the opportunity to sue. We believe that if an employer isn’t doing the right thing for you, leave. Having no employees is the best consequence that Talent can deliver to employers. That is to say, no people to do the work, no work gets done, and the business closes. It's pretty simple. Lawsuits don’t always bring about the change or the financial gains that we are expecting.

In conclusion, we are all about giving information to empower all of our users to make informed decisions about their work lives. Deciding your employment status is just the beginning.