An employee is an individual hired by an employer to perform specific duties and tasks in exchange for compensation, typically under a formal or informal contract of employment. Employees are subject to the employer's direction and control regarding how their work is performed.
How is an employee classified?
Employees are typically classified based on various factors that determine their role, responsibilities, and entitlements within a company. Classification can affect an employee's legal rights, benefits, and obligations.
While the specific criteria for classifying employees can vary by jurisdiction, certain general principles apply globally. For example, in the United States, employees are often classified based on their work hours, job duties, and compensation structure, among other factors. Legal frameworks typically distinguish between employees and independent contractors, giving different rights, protections, and legal obligations to each type of worker.
What does an employee do?
An employee performs specific duties and tasks as outlined by their employer.
An employee’s responsibilities are defined in a job description and can vary widely depending on the industry, company, and role. Employees work under the direction and control of their employer, who provides the necessary tools, training, and supervision to make sure tasks are completed correctly and effectively.
Employees may be responsible for a range of activities, from manual labor to managerial duties, depending on their position.
Employee vs independent contractor
An independent contractor (also called a freelancer) is a self-employed individual who provides goods or services to an employer on a contract basis, often to fill a short-term or temporary need. Most countries around the world legally distinguish between employees and independent contractors.
Although the exact definitions and distinctions vary by jurisdiction, the differences typically lie in the nature of the worker’s relationship with their employer:
Employee
Independent contractor
Benefits
Often entitled to certain mandatory employee benefits, which may include health insurance, paid time off, and more.
Generally not entitled to benefits that are mandatory for employees.
Worker protections
Often entitled to certain protections under labor and employment laws. These can include minimum wage, workplace safety rules, and other protections.
Labor and employment laws often don’t apply to independent contractors.
Degree of control
Often subject to higher control. Employers can typically dictate when, where, and how their employees complete their work.
Independent contractors often have more control over their work, and are able to choose their own hours, work locations, and other factors.
Work terms
Often work under an employment agreement or employment contract. It’s common for employees to have ongoing, indefinite employment relationships with no fixed end date.
Often work under a written contract or contractor agreement. Typically, contractors work for a set term or on a project or contract basis.
Taxes
In most jurisdictions, employers pay tax withholding for their employees, which can include income taxes, Social Security tax (or the local equivalent), unemployment taxes, and other local taxes.
Employers typically don’t withhold or pay taxes for contractors. Instead, contractors typically pay self-employment taxes, depending on local tax laws.
Employee vs employer
The relationship between an employee and an employer is characterized by mutual obligations.
- The employee agrees to perform specific tasks and duties as directed by the employer in exchange for compensation. Employees must adhere to company policies and complete their work to the employer’s standards.
- The employer provides the employee with work, pays compensation, and offers benefits according to the employment agreement. Employers are responsible for creating a safe work environment, complying with labor laws, and supporting their employees’ professional development.
Types of employees
Aside from the definition of an employee, there are also different types. Employees can be categorized based on their work hours, job duties, compensation, and more, representing many different ways individuals can have employee status. Here are some of the common types of employees:
Full-time employees
Full-time employees typically work a standard number of hours per week—typically 35-40. They are often eligible for benefits, which can include health insurance, retirement plans, and paid time off. Full-time employees may have more job security and responsibilities compared to part-time or temporary employees.
Part-time employees
Part-time employees work fewer hours per week than full-time employees. They may not be eligible for all the benefits that full-time employees receive, but they can still be an integral part of the workforce. Part-time roles are often more flexible, making them suitable for students, parents, or people looking for supplementary income. They can also be a flexible way for small businesses to hire help if they don’t have the budget for full-time workers.
Seasonal/temporary employees
Seasonal or temporary employees are hired for a specific period or project, often to meet increased demand during peak seasons or to complete short-term tasks. These employees may work full-time or part-time hours but may not be eligible for benefits, depending on their employment agreement. Their employment may end when the season or project is over, or they may transition to indefinite employment.
Exempt employees
Under American labor law, “exempt” refers to certain types of employees who are exempt from specific provisions of the Fair Labor Standards Act (FLSA), a federal law that establishes important protections for employees in the US. The most important distinction is that exempt employees aren’t eligible for overtime pay. Even if an exempt employee works more than a 40-hour workweek, they aren’t entitled to additional pay.
The FLSA outlines three primary factors to determine whether an employee is exempt:
- Salary level: The employee’s salary must meet or exceed a threshold set by the Department of Labor—currently $844 per week (equivalent to $43,888 per year); effective Jan. 1, 2025, it will increase to $1,128 per week (equivalent to $58,656 per year).
- Salary basis: The employee typically must be paid a salary, not an hourly wage.
- Job duties: Only certain types of jobs are eligible for exempt status, including managers, directors, professionals (like attorneys or software developers), and certain types of salespersons.
Non-exempt employees
In the US, non-exempt employees are entitled to overtime pay for any hours worked beyond the standard workweek, calculated at 1.5 times their regular hourly rate. Non-exempt roles often include jobs in retail, hospitality, and manufacturing industries.
How to hire an employee
Many business owners will hire employees at some point, so knowing the steps can help streamline the process and help you find the right fit for your organization. Here’s what to do:
Step 1: Define the role
Clearly outline the job duties, responsibilities, and required qualifications. Write a job description that includes essential skills, experience, and any specific certifications needed for the role. Make sure the job title is accurate and reflective of the industry standards. Set a competitive salary range.
Step 2: Advertise the position
There are many places to search for qualified job candidates:
- Job boards
- Professional networks
- Company websites
- Social media sites like LinkedIn
- Recruitment agencies
Step 3: Screen applicants
As applications start coming in, review them and shortlist candidates who meet the job criteria. You can also conduct initial phone or video interviews to assess candidates' basic qualifications and interest in the role.
As candidates move through the recruitment funnel, use structured interviews with a consistent set of questions to evaluate each one fairly. Involve key team members or department heads in the interview process to get a well-rounded perspective on the candidate.
Step 4: Check their background and references
Once you’ve narrowed down your candidate pool to your chosen hire, you can verify their background, employment history, and references. This step helps protect your organization from potential threats and makes sure the candidate’s qualifications and experiences are genuine. Different countries have different rules and regulations regarding background checks and data privacy, so depending on where you hire, be sure to comply with local rules while verifying any new employee’s background.
Step 5: Onboard the employee
Onboarding is a collaborative process between your organization’s human resources team and other stakeholders to set the tone for a new employee’s tenure. It should start before their first day and extend well beyond it. Follow our onboarding checklist to help ensure a smooth process that sets your new employee up for success.
How to pay an employee
Paying an employee accurately and on time not only helps maintain a positive work environment, but is also crucial for complying with legal requirements. Payroll compliance can be one of the most complex parts of running a business with employees—it’s on employers to know and comply with complex and jurisdiction-specific labor, employment, and tax laws at federal and local levels (as well as varying state laws if you’re in the US).
Using payroll software is the easiest way to pay employees while also ensuring compliance. Payroll software like Rippling can help you manage your payroll while automatically calculating deductions (including payroll taxes, workers’ compensation insurance, healthcare, contributions to retirement plans, and more), filing and paying taxes to the Internal Revenue Service (IRS) and other tax authorities around the world at the right times, and other important compliance tasks.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.