When a business hires workers, the worker is placed into a government-recognized category. The categories, explained below, help to define things like how much the business needs to pay the worker or what rights the worker may have.
Employee or Independent Contractor
Employee. Hiring a worker as an employee provides the business with some flexibility regarding the work to be performed. For instance, job descriptions often include a caveat of “and other tasks as assigned” to allow the business to assign tasks to the employee that may not have been discussed at time of employment. An employee is offered more legal protection (like unemployment insurance) under state and federal law than an independent contractor.
Independent Contractor. An independent contractor sets their working hours and rates, billing by the hour or by the project. A business that hires the services of an independent contractor will not have to handle payroll taxes like they would when hiring an employee nor do they offer or pay benefits to the independent contractor. The work performed by the independent contractor is usually limited to a pre-agreed assignment. If the business wants to change the assignment, the price the contractor charges may change, assuming the contractor wants to continue the working relationship with the business.
Full- or Part-time Employee
The major difference between a full time employee and a part time employee is the number of hours they work each week. The payroll tax requirements for each still apply. The business may not offer full benefits to the part-time employee. The Bureau of Labor Statistics indicates that a part-time employee works one to 34 hours per week.
Non-Exempt or Exempt Employee
Non-exempt. Non-exempt employees, who are covered under the Fair Labor and Standards Act, must receive minimum wage ($7.25 as of July 2009) and be paid one and one-half times their hourly rate for hours in excess 40 hours during one week, like Sunday through Saturday.
Exempt. Exempt employees, as salaried workers, do not receive overtime compensation. The Department of Labor further qualifies certain job categories are exempt no matter what their hourly rate, like professional workers (executives, admins), drivers, farm workers, or commissioned sales workers. Check here for details from the Department of Labor.
At-will or Contract Employee
At-will. Employees hired as “at-will” can be fired by the business with or without just cause. Examples of just cause as reason for terminating an employee may include performing work carelessly or not at all, or violation of company rules. Other examples of just cause are shown here.
Contract. A contract employee or an employee who is a member of a union usually cannot be fired without just cause.
Sources: IRS: Independent Contractor or Employee; Department of Labor: Exemptions; Bureau of Labor Statistics