FAQ: What Is an Employer?

By Indeed Editorial Team

Updated March 31, 2021

Published March 12, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Employers determine many important aspects of an employee's work. The employer and employee relationship should be one of mutual reliance and respect. Understanding what an employer is and their obligations to their employees can help job applicants find the best employer for them. In this article, we explain what an employer is, describe how employers compensate employees, define employment agreements and discuss the different types of employers.

Related: 10 Core Competencies and Skills Valued by Employers

What is an employer?

An employer is any person, company or organization that provides compensation to an employee in exchange for the employee's labor. Employers are job providers and can be members of several different groups or companies. Employers must abide by state and federal laws governing the fair treatment of employees, apply for Employer Identification Numbers (EINs) and pay necessary business taxes.

Related: 14 Common Qualities Employers are Looking For

How do employers compensate employees?

Employers compensate their employees with wages and benefits. Some common forms of employee compensation include:

  • Salaries

  • Hourly wages

  • Healthcare benefits

  • Paid time off

Some companies offer their employees additional perks like on-site childcare or credits towards childcare, amenities like office food and drink or wellness offerings like on-site gym equipment and gym memberships.

Related: 6 Weird Interview Questions and Why Employers Ask Them

What are employment agreements?

Employers create employment agreements, either written or verbal, which outline the expectations of the employee/employer relationship, the employee's duties and the employee's compensation package. If an employer and employee initially discuss an employment agreement verbally, the company almost always creates a written document that's signed later by all contributing parties.

Employers sometimes refer to employment agreements as job offer letters, job agreements or job contracts. Whatever they're called, they usually include the following information in detail:

  • Job title

  • Position details

  • Job duties and responsibilities

  • Compensation and benefits

  • Resignation or termination guidance

Some employers may include additional information in the employment agreement specific to the industry or position such as travel and reimbursement guidelines, dress code or confidentiality expectations.

What are some types of employers?

Employers can take many forms from a single person to a worldwide conglomerate. Here are some of the most common types of employers:

  • Corporations

  • Small businesses

  • Non-profit organizations

  • Government agencies

  • Individual employers

Corporations

Corporations are large entities composed of shareholders, or sometimes a single shareholder, interested in pursuing a common goal. Corporations operate separately from their shareholding owners and enjoy many of the legal and tax benefits of an individual person. The managing shareholders appoint a board of directors to run the corporation. This board makes decisions regarding leadership and corporate direction.

Working for a corporation is a great choice for employees who like structure and organization from their employer. Many corporations offer substantial training and support to adjust and thrive within the corporate structure. Corporations often rely on teamwork, so employees who enjoy working with others might find the corporate world the right place for them. 

Small businesses

Separate industries define small businesses differently. Some industries describe small businesses as any company that employs fewer than 250 people, while other industries consider a small business as any company with fewer than 1,500 employees.

Some industries use profit as the determining factor for company size and describe businesses with profits under a certain amount, ranging from $750,000 to $38.5 million, as small businesses.

Employees looking for a flexible career path with individualized support and direction from their employer may enjoy working for a small business. These companies often employ a small group of people, meaning new hires may take on independent projects and great responsibilities early in their careers.

Small businesses are often customer-focused and require greater customer communication than large companies, so working for a small business is an excellent choice for employees looking for a chance to connect face-to-face with their customers.

Non-profit organizations

Non-profit organizations serve the public or offer a public benefit. Because of this, the Internal Revenue Service (IRS) grants qualified non-profits with tax exemption. Individuals or companies can make tax-deductible donations to non-profit organizations, and the non-profits pay no taxes on donations they receive.

To receive non-profit status and the accompanying tax benefits, non-profits must apply for non-profit status, publicly share their financials and serve the public. Hospitals, churches, universities, foundations and national charities are all examples of non-profit organizations.

Non-profit organizations provide employees with structure, career development and training while also helping the community. Employees looking for a public service job opportunity would do well to consider working for a non-profit. Non-profit organizations can be large or small, so employees can find the right fit in terms of organizational size, leadership and autonomy to fit their needs.

Government agencies

Government agencies are departments and organizations created to fulfill a specific need within the state or federal government. They're created by legislative action in most cases, though past presidents established some through presidential orders. The president usually appoints federal agency directors.

The United States Environmental Protection Agency, Department of Defense, United States Department of State and U.S. Securities and Exchange Commission are all examples of government agencies.

Employees looking for long-term stability should consider government work. While private companies might face economic hardship that contributes to their success, the government continues to run regardless of external influences like the economy. Government positions tend to abide by predictable, eight-hour shifts, providing employees considerable work-life balance. Generous paid time off and excellent benefits make government work a solid choice for employees.

Individual employers

Some people are self-employed and do not work for employers in the traditional sense. Companies hire these independent contractors or freelancers to complete a project or perform a specific job or skill, usually for a short period. Instead of providing compensation like a salary or hourly wage along with benefits and other perks, companies provide independent contractors with a flat fee for their services. Freelancers handle their own taxes and accompanying paperwork.

Employees who seek extensive freedom and autonomy in their work-life could enjoy self-employment. Independent contractors and freelancers usually set their own hours, choose the projects they work on and can work from anywhere. Unlike traditional businesses that have high overhead costs like labor and building expenses, self-employed individuals can earn substantially more money without those extra costs. 

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