Employment Classifications: Quick Reference Guide

Employment classifications allow companies to compensate workers according to the duties, responsibilities and difficulty of their roles. It is also important for benefits and company policies. Proper employee classification can promote good relationships between employers and their staff and help companies abide by labor laws as required by the Fair Labor Standards Act (FLSA) and other regulatory bodies.
 
Here are tips on how to classify your employees to ensure fair compensation and avoid pay-related issues.
 
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Creating employment classifications in the workplace

There are three ways of classifying employees in the workplace. You can classify your employees by:
 

  • Job duties: This involves classifying employees into exempt and nonexempt categories. Exempt employees have limited access to the employer’s benefits while nonexempt employees are eligible for more company benefit plans. All employees need to know their eligibility status regarding legislated and company-specific benefit programs to avoid misunderstandings. 
  • Number of scheduled workweek hours: Employers use this to classify employees as part-time or full-time. While the FLSA doesn’t define full-time or part-time employment, companies commonly use a regularly scheduled 40-hour workweek to classify full-time employees. Part-time employees have a schedule of fewer than 40 hours per week but no more than 30 hours in many cases. Full-time employment offers more benefits compared to part-time employment. 
  • Job duration: The duration of a job defines a position as either permanent, temporary or special. Permanent employees are hired to work for an unspecified period while temporary employees work for a definite period.

Related: Building a Compensation Strategy for Your Business
 

Employee classification types

Here is a list of the different types of employment classifications:
 

  • Full-time employee
  • Part-time employee
  • Part-time excluding benefits
  • Special classes

Full-time employee

Regular full-time (RFT): Employees are scheduled to work on a 40-hour basis for an unspecified period. Regular full-time employees can receive all their employer’s benefits plans if they are eligible.
 

Temporary full-time (TFT): These employees have a regular work schedule of at least 40 hours per workweek for a maximum of 90 days. Upon the operating manager’s request, the employee can continue working for an additional maximum of 90 days. At the end of the 180-day period, a TFT employee will be released or given full-time status.
 

Temporary full-time employees can only take part in the benefits plans of the employer’s choosing after completing 1,000 hours of service. However, RFT employees will get holiday pay and other compensations based on their scheduled workweek.
 

Part-time employee

Regular part-time (RPT): A person whose scheduled regular workweek does not exceed 40 hours but can work for 20 hours per week for an unspecified period is considered RPT.
 

Temporary part-time (TPT): A person employed on a regularly scheduled basis that equals or exceeds 20 hours per week but fewer than 40 hours for a maximum of 90 days is a TPT. Employees may work an additional 90 days, but after 180 days, the company will either convert the position to regular part-time employment or release the person.
 

RPT employees can enjoy all the benefit plans of their employers if they meet the requirements. The company prorates the benefits of regular and temporary part-time employees based on their regularly scheduled hours.
 

Related: How to Hire Seasonal Employees
 

Part-time excluding benefits

These are the classifications of employees who don’t receive benefits:
 

Regular excluding benefits (REB): A person employed regularly to work for fewer than 20 hours per workweek for a maximum of 90 days is considered REB. REBs are ineligible for company benefits, and you may not extend their employment.
 

Temporary excluding benefits (TEB): This applies to people hired on a regular or irregular scheduled basis who work fewer than 20 hours per week for a maximum of 90 days. TEB employees cannot receive any benefits, and the company may not extend their employment.
 

Special classes 

Below are special types of employee classifications:
 

On-call employee (OCE): This applies to people hired on an as-needed basis for an unspecified period. Employers can extend OCE employment for a maximum of 180 days, after which the head of the employee’s unit must make a formal request for an extension. OCEs cannot take part in a company benefit plan and cannot work for over 400 hours during a 180-day period.
 

Interns: This applies to people working for a specific period for academic or training purposes. Interns typically cannot take part in company benefit programs.
 

Freelancers and independent contractors: They also fall in the specialized category because freelancers and independent contractors are non-employees who perform specialized functions for a specific period. Learn more about non-employee compensation.

 

In addition to these classification types, there are employee exemptions outlined by the FLSA that must align with each company’s compensation agreement.
 

Related: Volunteer vs Employee Classification

 

Best practices for classifying employees

Tips to help you successfully implement your employee classification policy:
 

  • Consider all aspects of the employer-employee relationship. Before classifying employees, it’s vital to determine the amount of control you have over their work and the amount of money you pay them. You also need to consider the duration of their role, contracts, the work they do and their benefits to prevent misclassification.
  • Make contracts align with employee job duties. When classifying employees, the classification in their employment contract must tally with their work duties. If you classify the employee as a full-time staff member on paper and their job duties are that of an independent contractor, tax authorities will go with the nature of their work. Making sure employment contracts and duties match can help you avoid job misclassification and potential penalties.
  • Stay within the law. Understand the federal and state legal positions on what makes up permanent or temporary employment and regular or part-time work, including minimum age limits as they relate to working hours and overtime.
  • Include employee classification on their job descriptions to manage staff expectations. This will make sure people know whether they are eligible for benefits and other company programs. 
  • Consider informing employees of their eligibility for part-time work in advance. If possible, employees can get authorization from their superiors before working overtime to allow them to prepare for the increased overrun and avoid conflicts over benefits. 

Related: What is Competitive Pay?
 

Employment classification FAQs

Why do employers have a job classification system and what purpose does it serve?

Labor laws require employers to have a job classification system to ensure uniform and fair assignment of job duties and benefits. The primary purpose of an employee classification system is to ensure that companies compensate their staff adequately based on the responsibilities, demands and difficulties of their positions.
 

What does FTE mean?

FTE or full-time equivalent is a unit of measurement that organizations use to understand how the hours worked in one environment compare to those worked in another. This can be for full-time or part-time and are calculated by dividing the hours worked by the full-time hours, to come up with a ratio used to benchmark revenues, profits or other metrics.
 

Which employment classifications are governed by FLSA law?

The FLSA regulates minimum wage, overtime compensation, recordkeeping and child labor standards as they apply to two categories of employment classifications: exempt and nonexempt employees. Examples of exempt employees include administrative executive staff who are typically considered “white collar” and unaffected by minimum wage and overtime pay rules, while nonexempt employees, such as police and “blue-collar” workers, are subject to those regulations.

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