Supermarket manager training to a new employee
Employers need to know the main differences between contract, part-time and full-time employees as well as their obligations when hiring each type of employee. — Getty Images/ jacoblund

Employers looking to hire a workforce need to know the differences in compensation, expectation and employer responsibility for hiring contract, part-time and full-time employees. Each of these types of workers has different tax implications, varied responsibilities and separate legal requirements on the part of the employer.

Here are the main differences between contract, part-time and full-time employees, and what employers need to know about hiring each.

Contract employees

Contract employees are also called freelancers, gig workers or consultants. Contract employees do their work apart from the organization or company for which they provide their services. Often, contractors work for multiple organizations in order to make a living. These workers may make more money than part-time employees in the short term; however, they also have to pay self-employment taxes on their earnings, which can add up over time.

Contract employees are not steadily employed by any single company. They complete one-off projects or are retained on an as-needed basis. This means contractors may not always be available to your business on a month-to-month basis, depending on their other projects.

Additionally, contract workers are unable to receive benefits including health, dental and life insurance. Their self-employment taxes are also given a 1099-NEC form during tax season, rather than a W-2 form that part-time and full-time employees receive.

The amount of money a contract employee receives is based on the project or work that the company gives them. This compensation can vary and is usually delivered to them after services are rendered. Contract employees may ask for more money for their services because they have to provide their own benefits and handle their own taxes. Hiring a contract employee can be beneficial financially in the short term. But, contractors may not have the same loyalty to the company that an employee would.

[Read more: W-2 vs. 1099 Contractors: Tax Differences Explained]

The Affordable Care Act (ACA) requires that employees who work 30 hours per week (or over 130 hours per month) must be given the option to receive health insurance benefits, or the business may risk fines.

Part-time employees

In a general definition, an employer will hire part-time employees to work fewer hours than a full-time worker. Part-time employees are usually seen in retail, customer service and food service jobs. For many companies, part-time work is considered 30 hours or less per week; however, the Fair Labor Standards Act (FLSA) does not specify the exact hours of full- and part-time employment. This means some part-time jobs can account for 35 hours per week. Additionally, part-time employees can have varied hours. For example, they may work 25 hours one week and 15 the next.

Part-time employees may have the opportunity for flexible hours with days off throughout the week or a set schedule if they’re doing shift work. Part-time employees are never salaried employees, meaning they are paid only by the hours they work. They can work extra hours by picking up shifts or doing additional work during busy times of the year. Part-time jobs give employees the chance to focus on other outside tasks, which is why many students take part-time jobs.

State and local laws vary on providing benefits for part-time employees. Some states may require employers to provide sick leave, paid time off, short-term disability or health insurance to their part-time workers. For example, the Affordable Care Act (ACA) requires that employees who work 30 hours per week (or over 130 hours per month) must be given the option to receive health insurance benefits, or the business may risk fines.

[Read more: Experiencing a Hiring Skills Gap? How to Find Qualified Employees]

Full-time employees

A full-time employee is seen as a full part of a company’s workforce. Therefore, they are provided with more legal protections than part-time workers. Full-time employees can be salaried employees, meaning they receive a fixed payment either weekly or twice per month, based on their annual rate of pay. They can also be paid hourly, working over 30 hours per week.

An employer will usually set the hours of a full-time employee and the employee will report to a supervisor within the company. These employees have guaranteed work, meaning they have a more stable income than part-time workers and contractors. Their compensation at entry level varies but they are eligible for raises and are paid on a schedule rather than only after completing projects. Full-time employees are also promised benefits like health insurance and can fully utilize the company’s equipment or software to efficiently complete projects instead of relying on their personal technology.

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Published August 24, 2021