What Is Employment Status?

What Is Employment Status?

Employment status is the legal classification that defines a worker’s relationship with an employer. This classification determines eligibility for benefits, tax withholding requirements, legal protections under labor laws, and other employment rights.

The most common employment statuses include full-time employee, part-time employee, independent contractor, temporary worker, and on-call or PRN staff. Each status carries different obligations for employers and different rights for workers.

Quick Answer

Employment status defines whether someone is an employee or contractor, full-time or part-time, and determines their eligibility for benefits, tax treatment, and legal protections under federal and state labor laws.

According to Bureau of Labor Statistics data, approximately 85% of U.S. workers are classified as employees, while 10% are independent contractors and 5% hold other alternative work arrangements.

What Are the Main Types of Employment Status?

Full-Time Employee

Full-time employees typically work 32–40 hours per week and receive comprehensive benefits including health insurance, paid time off, retirement contributions, and full legal protections under federal and state labor laws. Common schedules include standard 9-5 shifts, 2nd shift, 3rd shift, or compressed 4-10 work schedules.

Employers define full-time status, though the Affordable Care Act considers workers averaging 30+ hours per week full-time for health insurance purposes.

Part-Time Employee

Part-time employees work fewer hours than full-time staff—usually 15–30 hours per week—and may receive limited or no benefits depending on company policy and hours worked. They are W-2 employees entitled to minimum wage, premium pay for overtime (after 40 hours), and other FLSA protections.

Learn more about part-time job structures and scheduling strategies. Avoid clopening practices that schedule part-time workers for closing then opening shifts.

Independent Contractor

Independent contractors are self-employed individuals who provide services under contract but maintain control over how work is performed. They receive 1099 forms, pay their own taxes (including the full 15.3% self-employment tax), and are not entitled to employee benefits or protections.

The IRS uses behavioral control, financial control, and relationship factors to determine whether someone should be classified as an employee or contractor.

Temporary Employee

Temporary employees are hired for fixed periods or specific projects. They may work full-time hours during their assignment but typically receive limited or no benefits. Most temporary workers are W-2 employees of either the hiring company or a staffing agency.

Read our guide to temporary employment for more details.

PRN or On-Call Workers

PRN employees (pro re nata, meaning “as needed”) work only when called in to cover shifts, with zero guaranteed hours. They typically earn premium rates (20–40% higher) to offset lack of benefits and income stability.

See our comprehensive PRN employee guide for scheduling strategies.

How Does Employment Status Affect Benefits?

Health Insurance

The Affordable Care Act requires employers with 50+ full-time equivalent employees to offer health insurance to workers averaging 30+ hours per week. Part-time, temporary, and contractor classifications typically exclude workers from this requirement.

Paid Time Off

Full-time employees typically receive PTO, sick leave, and vacation days. Part-time employees may receive prorated PTO or none at all, depending on employer policy. Contractors and temporary workers usually receive no paid time off.

Retirement Plans

Employers often limit 401(k) eligibility to full-time employees who have completed a waiting period (typically 3–12 months). Part-time employees working 1,000+ hours per year must be allowed to participate under federal law, though employer matching may be restricted.

Workers’ Compensation

All employees—full-time, part-time, and temporary—must be covered by workers’ compensation insurance. Independent contractors typically are not covered, though some states require contractors to carry their own coverage in high-risk industries.

Unemployment Insurance

Employees who lose their jobs through no fault of their own typically qualify for unemployment benefits. Independent contractors generally do not qualify unless they’ve been reclassified as employees by the state.

What Is the Legal Test for Employee vs Contractor Status?

The IRS and Department of Labor use multi-factor tests to determine whether a worker should be classified as an employee or independent contractor:

Behavioral Control

• Does the company control or have the right to control how work is done?
• Does the company provide training on required procedures?
• Does the company set work hours and location?

Employee indicators: Employer sets schedules, provides detailed instructions, requires specific methods.

Contractor indicators: Worker determines how, when, and where work is completed.

Financial Control

• Does the worker have significant investment in equipment and facilities?
• Can the worker realize a profit or loss based on their business decisions?
• Does the worker make services available to the open market?

Employee indicators: Company provides tools, guarantees pay regardless of business conditions.

Contractor indicators: Worker invests in their own equipment, markets services broadly, can profit or lose based on efficiency.

Relationship Factors

• Is there a written contract describing the relationship?
• Are employee-type benefits provided?
• Is the relationship intended to be ongoing or project-based?

Employee indicators: Ongoing relationship, benefits provided, work is key to business operations.

Contractor indicators: Project-based contract, no benefits, specialized services outside core business.

What Are the Penalties for Misclassifying Workers?

Misclassifying employees as independent contractors is one of the most expensive compliance mistakes employers make:

Federal Penalties

• IRS penalties: $50 per unfiled W-2, plus 1.5% of wages for unfiled FICA, plus 40% of employee FICA not collected
• Willful misclassification: Up to 100% of FICA taxes due, plus criminal penalties
• Back wage claims: Full unpaid overtime and minimum wage violations under FLSA

State Penalties

Many states impose additional fines for misclassification, ranging from $5,000 to $25,000 per misclassified worker. Some states also pursue criminal charges for willful violations.

Class Action Risk

Misclassified workers can file class action lawsuits seeking back pay, benefits, overtime, and legal fees. High-profile cases have resulted in settlements exceeding $100 million.

How Do You Verify Employment Status for Your Team?

Review the IRS Tests

Evaluate each worker relationship against the behavioral, financial, and relationship factors outlined by the IRS. When in doubt, err on the side of employee classification.

Document Your Analysis

Maintain written records showing how you determined each worker’s status. Document the control exercised, financial arrangements, and nature of the relationship.

Use Form SS-8 When Unclear

Employers can file IRS Form SS-8 to request an official determination of worker status. This protects against future penalties if classification is challenged, though the process can take 6+ months.

Audit Third-Party Relationships

Review contracts with staffing agencies, consultants, and other intermediaries. Ensure temporary workers provided by agencies are properly classified by those agencies.

Conduct Regular Audits

Review worker classifications annually, especially when job duties change. Workers who start as contractors may evolve into employees if control and relationship factors shift.

Many organizations tracking worker classifications use employee directories to maintain accurate status records and ensure proper benefits administration.

What Are Common Employment Status Mistakes?

Calling Everyone “Part-Time” to Avoid Benefits

Simply labeling workers as part-time doesn’t change their status if they regularly work full-time hours. The ACA bases coverage requirements on actual hours worked, not job titles.

Using Contractors for Core Business Functions

Workers performing essential, ongoing business functions under company direction are typically employees, regardless of what the contract says. Contractors should provide specialized, project-based services.

Inconsistent Treatment

Treating some workers as employees and others as contractors for similar work creates classification risk. Ensure similar roles receive consistent treatment.

Ignoring State Laws

Some states like California apply stricter tests (like the ABC test) that make it harder to classify workers as contractors. Review state-specific requirements in every location where you operate.

How Does Employment Status Affect Scheduling?

Different employment statuses create unique scheduling considerations:

Full-Time Employees

Require consistent schedules, advance notice for changes, and careful management of overtime thresholds. Many organizations use 4-10 work schedules to provide full-time hours with compressed weeks.

Part-Time Employees

Need schedule flexibility to stay below benefit thresholds while maintaining adequate coverage. Managers must track hours carefully to avoid unintended ACA coverage triggers.

PRN and On-Call Workers

Can be called in on short notice but have no guaranteed hours. Organizations should maintain 15–25% more PRN staff than needed to ensure availability. Learn about covering shifts with on-call teams.

Contractors

Set their own schedules within project deadlines. Employers should avoid dictating specific work hours or locations for true contractor relationships.

Try ShiftFlow’s scheduling tools to manage multiple employment statuses, track hours for benefits eligibility, and ensure FLSA compliance across your workforce.

The Bottom Line

Employment status is the legal classification that determines worker rights, tax treatment, and benefits eligibility. The main categories are full-time employee, part-time employee, independent contractor, temporary worker, and on-call staff—each with distinct legal requirements and obligations.

Misclassifying workers can result in substantial penalties from the IRS, Department of Labor, and state agencies. Review classification decisions regularly, document your analysis, and consult employment counsel when relationships are unclear.

Sources

• Internal Revenue Service – Independent Contractor vs Employee
• U.S. Department of Labor – Fair Labor Standards Act
• U.S. Bureau of Labor Statistics – Contingent and Alternative Employment

Further Reading

• Exempt Employee Classification – Understanding FLSA exemption requirements
• FTE Calculation Guide – Calculate full-time equivalents for benefits
• Mandatory Overtime Rules – Legal requirements by employment status

Frequently Asked Questions

What is employment status?

Employment status is the legal classification of a worker’s relationship with an employer, determining benefits eligibility, tax treatment, and legal protections. Common statuses include full-time employee, part-time employee, and independent contractor.

What are the main types of employment status?

The main types are full-time employee (32–40 hours with benefits), part-time employee (fewer hours, limited benefits), independent contractor (self-employed, no benefits), temporary employee (fixed-term), and PRN or on-call (as-needed).

What is the difference between an employee and an independent contractor?

Employees work under employer control with taxes withheld and benefits provided. Contractors control their own methods, receive 1099 forms, pay their own taxes, and receive no employee benefits or protections.

What happens if you misclassify a worker?

Misclassification can result in back taxes, FICA penalties, unpaid overtime claims, benefits liability, and substantial fines from the IRS, Department of Labor, and state agencies—potentially thousands of dollars per misclassified worker.

How many hours is full-time employment?

Most employers consider 32–40 hours per week full-time. The Affordable Care Act considers workers averaging 30+ hours per week full-time for health insurance purposes, but this doesn’t define full-time for other purposes.

Can you have multiple employment statuses?

Yes, workers can have different statuses with different employers (employee at one, contractor for another) or even with the same employer for genuinely separate roles. However, trying to classify the same work differently creates compliance risk.

How do you change someone’s employment status?

Document the business reason, obtain written agreement from the worker, adjust payroll systems and tax withholding, communicate changes to benefits eligibility, and ensure the new status accurately reflects the actual working relationship.

What employment status qualifies for benefits?

Benefits eligibility varies by employer policy and plan rules. Generally, full-time employees qualify for comprehensive benefits. Part-time employees may qualify for some benefits if they work enough hours. Contractors typically qualify for no employer-sponsored benefits.