Employment status refers to the classification of the relationship between an employer and their employee. 

Employment status outlines the employee’s legal status, employment rights and protections, and the employer’s responsibilities.

What are the types of employment status?

The three types of employment status include the following:

  • Worker. An individual who works for another person or organization following a relatively flexible work schedule. The worker’s schedule is more casual and irregular than an employee’s, as the worker is not guaranteed work hours and can reject work. 
  • Employee. An individual who works under a contract of employment to fulfill their duties. An employee’s schedule and employment package are more stable and secure, and they are offered additional rights on top of a worker's protections.
  • Self-employed. An individual who works for themselves or runs their own business. Also sometimes referred to as contractors, self-employed workers have the most freedom and flexibility but are not protected by employment rights and do not receive benefits. 

What is employment status code?

Employment status code indicates an employee’s current status within the company for payroll processing and reporting purposes. Employment status code helps determine the employee’s role, pay, and benefits.

Examples of employment status codes include active, inactive, unpaid leave of absence, intern, and onboarding.

How does employment status differ around the globe?

Employment status has various meanings worldwide, and employers use it differently depending on the country and local employment laws:

Employment status in the United States

In the United States, employment status refers to the contract agreement between an employer and an employee regarding the type of work that the employee will perform. Employment status examples include full-time, part-time, and temporary employment. 

For example, if a U.S. employee is hired to work 40 hours a week, their employment status is full-time. If a worker is hired with varying hours under 40 hours a week, their employment status is part-time. 

Employment status in other countries

In most other countries, employment status describes the relationship between the employer and employee and determines the employee’s rights and conditions of employment. Employment status also outlines the employer’s responsibilities to the employee. 

An individual’s worker, employee, or self-employed classification influences these employment status rights, conditions, and employer responsibilities.

Why is it important to determine employment status?

Both employers and employees must understand their obligations and rights as outlined by employment status. Employment status ensures employees know their job expectations and entitlements. Employment status also helps employers correctly classify their workforce and maintain global compliance with international employment laws.

Which type of employment status should you hire?

Determining the type of employee to hire, such as a contractor or employee, and their employment status depends on the needs of the business.

An employer must assess the kind of work they require from their talent and the types of offerings that talent can provide to their business.

Below are considerations for each type of employment status:

  • Worker employment status. Worker employment status is common for seasonal workers and zero-hour contract workers. ​​A worker often does not receive guaranteed work hours but can also reject work their employers offer them.
  • Employee employment status. An employee works under a contract of employment and has all the protections of a worker with additional rights and protections. Employees must do the work outlined in their employment contract, and the employer can control how, when, and where the employee performs the work.
  • Self-employed employment status. Employers often engage self-employed individuals, or contractors, for short-term projects or specialized work. Employers are not required to offer self-employed individuals any statutory or supplemental benefits. 

An employer must also comply with the employment laws in the countries where they hire to avoid risks like misclassification.

Misclassification occurs when an employee is misclassified as a contractor and denied their entitlement to global employee benefits and other legal protections. Misclassification leads to fines, employee entitlement back pay, and legal headaches.

Read more in our complete guide to employee and contractor misclassification.

When should you consider changing employment status?

Changing an individual’s employment status means moving them from one benefit eligibility to another. 

An employer might change the status of its employees for several reasons. For example, because full-time employees typically cost more than part-time workers or self-employed contractors, a business might change a full-time employee to a worker to meet a tight budget.

Alternatively, a company may convert contractors to employees down the line to invest in a more secure, high-quality workforce that will help them achieve long-term business goals.

Key reasons to change employment status include the following:

  • Cost 
  • Misclassification risk 
  • Long-term or short-term work needs
  • Business goals 
  • Talent demand
  • Retirement or leave of absence 

Employers must ensure employment status changes comply with market-specific employment laws and regulations.

 

Legal Disclaimer: The information available in this guide does not, and is not intended to, constitute legal advice and is for general informational purposes only. You should contact your attorney to obtain legal advice with respect to any particular legal matter. Only your individual attorney can provide assurances that the information contained in this guide—and your interpretation of it—is applicable or appropriate to your particular situation. All liability with respect to actions taken or not taken based on the information in this guide is hereby expressly disclaimed. The content in this guide is provided "as is," and no representations are made that the content is error-free.

 

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