If you are running a business you surely know there are several types of employment - regardless if you own a coffee shop or a multibillion-dollar company. In order to make the best decision for your business, you need to be aware of the options you have in front of you. One of the biggest dilemmas every business owner is facing is the one between part and full-time employees. Although you might think that the number of hours is the only difference, in reality, it gets a tad more complicated than that. But no worries, we will break it down for you and allow you to make an informed decision. Let’s start by getting you up to speed with the relevance of this issue.
Why is this distinction so important?
Even if you aren’t that informed you can make an educated guess and realize that part-time employees work fewer hours than full-time ones. Some businesses hire one type of worker, some others, and there are the ones who combine both types. Pretty simple, isn’t it? Although all of this is true, the issue with full-time employment is that it determines the status of the business itself.
The type of hires you make will put you in one of the two categories. Either you are a small employer (SE) or you are an applicable large employer (ALE). The category determines what kind of benefits you need to offer to your employees since small businesses have fewer obligations.
According to the Affordable Care Act (ACA), if you have more than 50 full-time or full-time equivalent employees you are considered an ALE and you are required to offer health insurance to every full-time employee. Below you can read how to do the math without racking your brain for days.
The number of full and part-timers is also relevant when you are determining the type of employment that impacts overtime pay requirements, under the Fair Labor Standards Act (FSLA). It matters whether your employees are salaried, hourly, exempt, or nonexempt.
What is a full-time equivalent (FTE)?
One thing you should know is that individual states, as well as government agencies, define full-time hours, as well as part-time hours, differently from each other. There is simply not a universal definition of full-time. One size does not fit all, and based on your needs, as well as location, your math will look differently.
FTE, in all of those cases, stands for a full-time equivalent - the number of hours worked by a full-time worker during a workweek. This number is usually 8 hours each day, totaling 40 hours each week, and 2,800 hours per year. Although, as you will see, there are many exceptions. Employers are allowed to set their own definitions and determine the hours that are considered to be part or full-time. However, they need to comply with certain rules and restrictions.
ACA’S definition is very important because it determines whether or not you are required to provide health insurance. Their distinction is as follows - in order for someone to be considered a full-time employee they need to work, on average, at least 30 hours per week, or 130 hours per month. Additionally, they need to be working for more than 120 days per year. On the other hand, a part-time employee simply works less than, meaning that they can’t work more than 30 hours per week, 130 hours per month, or 120 days per year.
On the other hand, the Fair Labor Standards Act (FLSA) doesn’t have a minimum number of hours that a full-time worker needs to complete. You can look to the Bureau of State Labor Statistics (BLS) for guidance, although they use completely different math. According to them, anyone working between 1 and 34 hours per week is considered part-time. If they work 35 hours or more, they are considered full-time. This calculation is used to determine benefits, and it is more a guideline than a strict rule that needs to be obeyed.
Each state has its own definition, and you need to check that you are complying with state laws. If your business is in California, full-time employment will be the standard 40 hours per week. However, The Hawaii Health Care Law requires employees to pay health insurance for each employee that works at least 20 hours per week.
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What is part-time work?
We have already established that there are various rules for calculating what can be considered part-time employment. Although there are several ways to make the distinction, the amount of time someone is working is always the deciding factor. In every distinction, it is clear that part-time workers need to work fewer hours than the ones that are working full-time. However, that is not all.
Part-time positions usually have flexible schedules, fewer responsibilities, and tasks, and they almost always have fewer benefits than the employees hired to work full-time.
Ultimately, it is the business owners that make the distinction and create rules and guidelines that will determine which positions need to be filled by part-time employees. All of this needs to be part of the employee handbook, and it is the responsibility of the human resources department to communicate the company’s stance to all employees.
Although there are no employment laws that require business owners to provide benefits to part-time workers, that doesn’t mean that they aren’t allowed to do so. Health insurance and paid time off are amongst the common employee benefits offered to those that don’t meet the minimum requirement for full-time employment.
Schedule for full-time work vs part-time work
Employees with full-time status are usually the ones whose work schedules remain consistent. Although they might work in shifts, or even odd hours, nights, evenings, etc, they almost always work 5 days a week, 8 hours a day. On the other hand, part-time workers follow no such rules.
Their schedules are usually more flexible, and their day to day can vary. They might work a couple of hours, or double shift the next day, covering weekends, absences, holidays, etc. This is why part-time workers are often students, domestic or foreign, or in some cases people have several part-time jobs, in order to juggle their families as well as other responsibilities or hobbies.
It is important to mention that if a business determines since there are no legal requirements prohibiting it, that a part-time worker is someone who works 30 hours or less, that doesn’t mean that that employee needs to consistently work for 30 hours each week. Their overall time might vary, and they might even work only a couple of hours on some weeks. This matters more than anything when it comes to payment.
Payments for full-time employees vs part-time employees
A common misconception is that part-time employees are paid less than full-time workers. However, this doesn’t have to be the case. What is most certainly true is that the manner in which their pay is calculated is entirely different.
Full-time employees are almost always paid a flat salary, regardless of the hours worked. Their salary won’t differ if they leave work early, but it won’t change even if they pull an all-nighter. They can, of course, have different bonuses, but their salary remains unchanged. On the other hand, part-time employees are paid by the hour. That means that their paychecks can significantly vary based on how much they’ve worked each week. It is fairly common to have part-time workers submit timesheets, or clock in and out, based on the type of work they hired to do.
As we mentioned, it isn’t uncommon for part-time workers to receive no benefits whatsoever. Full-time workers can have not only health insurance and paid time off, but also retirement options, and offers that include reimbursements for learning and development, fitness, etc.
Taxes for full-time employees vs part-time employees
When it comes to taxes, this distinction isn’t that important. According to the IRS, both types of employees are taxed the same. Payroll and income taxes need to be withheld from their wages - federal income tax, Medicare, and Social Security. In addition to this, you are required to pay unemployment taxes, and in some states, employers are required to provide workers’ compensation benefits. Of course, there are also state and local income taxes that you need to keep in mind.
Salaried and Hourly/Exempt and Non-exempt
When it comes to this issue, there is one other distinction that you need to keep in mind. In case you weren’t familiar with it, the term exempt and non-exempt employees matter a lot to a business owner. Why? Because the classification determines whether or not you should pay your employee overtime.
First, we have exempt employees. They do not get paid for their overtime hours. In order for someone to be labeled exempt, they need to receive a flat salary in the amount of at least $35,568 per year and their level of responsibility at work needs to be high.
On the other hand, we have non-exempt employees. They receive wages, almost always paid by the hour worked, they are paid at least the minimum wage and their responsibilities are limited. They need to be paid overtime if they have worked more than 40 hours in one week. Part-time workers are almost always nonexempt, which makes them eligible for overtime. Overtime is paid 1.5 times the agreed hourly wage of the employee.
Read more about the exempt vs non-exempt employees classification