Written by Jackie Lam and Alana Rudder, USA Today. Featuring Partner Travis Tatko, Capell Barnett Matalon & Schoenfeld LLP.
Whether you hire full-time or part-time employees depends on the needs of your business as well as state and federal regulations. For example, certain hourly thresholds may mean you must offer your employees health insurance or paid family leave. This means it is essential to distinguish between the two — or risk potentially facing legal trouble or overextending your labor budget.
In this guide, we do a deep dive into what it means to be a part-time vs. full-time employee and its implications.
When is an employee considered full-time?
Categorizing employees as “part-time” or “full-time” isn’t as cut-and-dry as one would think. While full-time is generally considered working 40 hours a week, according to the Fair Labor Standards Act (FLSA), the employer determines whether an employee is full-time or part-time.
An exception to an employer’s responsibility to define an employee as full-time or part-time is when applying the Affordable Care Act (ACA). Under the ACA, an employer that employs at least 50 full-time employees or a combination of full-time and part-time workers that equal 50 full-time employees must provide employee health insurance benefits.
Under this rule, a full-time employee works at least 30 hours a week or 130 hours a month. However, if you have a team of part-time employees, you must also account for “full-time equivalent employees” and doing so changes how you must apply the ACA to meet federal requirements. The IRS defines a full-time equivalent employee as “a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”
Calculating full-time employees for the Affordable Care Act (ACA)
The number of full-time employees you have in your business determines what benefits you must offer full-time employees under the ACA. Here’s the breakdown of how to determine how many full-time and full-time equivalent employees you have and the impact on your requirements:
- Add up the number of hours worked by all part-time employees for one month. Do not include over 120 hours per employee.
- Divide this total number of part-time hours worked by 120. This is the number of full-time equivalent employees you have.
- Add the number of full-time employees to the number of full-time equivalent employees you have.
If the resulting number is 50 or more, you are considered an applicable large enterprise (ALE) and you must provide health care benefits for your full-time employees and their dependents to meet the ACA requirements.
If you do not provide affordable coverage for your full-time employees and you are an ALE, you must pay a penalty (called a shared responsibility payment). The penalty equals $2,000 per full-time employee above 30 full-time employees in your company. For employees who claim the premium tax credit for not receiving affordable health care from your company’s coverage, you must also pay $3,000 to the IRS.
Pros and cons of full-time employees
- More experienced candidates: Full-time positions can garner interest from more seasoned, devoted candidates with more experience than those seeking a part-time job.
- More devoted workers: Because you are employing a worker as a full-time hire, it typically means you get a greater number of hours per week than if you hired a part-time worker. In turn, your employees invest more of their time and talent into your company, may play a larger role on ongoing company projects and are more willing to put in the time to make valuable contributions to your business. This often accumulates to a sense of ownership over your company’s results, leading to more devoted workers.
- Lower administrative costs: If you hire a full-time worker as salaried, you won’t have to spend money on dealing with the administrative costs and intricacies involved with tracking hours and payroll for workers that are classified as part-time. However, if the employee is salaried or a full-time hourly employee and nonexempt, you must still track and pay overtime by law.
- Higher costs: To meet state and federal requirements, full-time workers are often given a more robust benefits package that includes health insurance, retirement plan, life insurance and more paid time off. This results in more labor costs per employee for your company.
- Less flexibility: Full-time status can mean less flexibility in the work schedule, arrangement, and costs. Not only does this lend to less flexibility in adapting to business needs but, if not managed carefully, it can erode the work-life balance of your employees, leading to lower morale and/or productivity. For example, if you need overtime work, instead of calling in another part-time employee, you may have to overextend your full-time team.
- Greater risk: Full-time workers often have more essential roles in the workplace and more responsibilities. So, in the event a full-time employee leaves, their absence can have a greater negative impact to your business than in the case of a part-time hire. It can also take more time and resources to hire, onboard and train an equivalent full-time replacement.
When is an employee considered part-time?
As mentioned, the federal government does not clearly define part-time employment. In this respect, it’s largely up to the employer how to determine whether an employee falls under this category. Many employers use their own definition of full- and part-time employment to determine company policies around benefits and perks, such as how much paid time off (PTO) an employee is entitled to.
“The lack of distinction between full-time and part-time employment under the law is actually a good thing because it allows for freedom of contract,” says Travis Tatko, an employment law attorney and partner at Capell Barnett Matalon & Schoenfeld LLP, a law firm based in New York City. In other words, as the employer, you can classify what it means to be a full-time versus part-time worker at your company and what entitlements and benefits come with the status.
The ACA and part-time employees
However, under the ACA’s shared responsibility rules, a full-time or part-time employee is clearly and legally defined. We’ve already overviewed how to calculate how many full-time employees you have under this act’s requirements. However, if your calculations deem that you have fewer than 50 full-time and full-time equivalent employees, it exempts your business from the ACA’s requirement that you provide health care benefits to your full-time employees or pay a penalty.
The Family and Medical Leave Act and part-time employees
Similarly, the Family and Medical Leave Act (FMLA) also has its own definition of who qualifies for emergency leave based on the number of hours they work. This act only applies to companies with at least 50 employees.
Under this act, an employee must have worked for the company for at least 12 months and, during that 12-month period, worked at least 1,250 hours to receive paid leave in the event of a family circumstance in which leave is needed. That averages out to about 24 hours per week worked or a part-time employee under most definitions. If an employee meets this requirement, they may take a total of 26 weeks of leave to care for a family member, for example, in the event of an adoption, birth or serious illness.
State laws and part-time employees
Some states may also have guidelines on what is considered a part-time employee. As such, these guidelines may affect the types of benefits or other work provisions you must offer your workforce. It’s important to check your state’s laws to ensure your part-time employees are indeed part-time employees by your state’s definition and, in turn, to ensure you comply with state laws.
Pros and cons
- Greater flexibility: There’s more wiggle room when you hire a part-time worker in terms of the contract and work arrangement — as long as you can comfortably and appropriately stay on top of administrative and compliance requirements, explains Tatko. “Hiring part-timers gives employers a lot of flexibility to structure an agreement with the employee that is fair and that works,” he says.
- Lower costs: Part-time employees are often given fewer benefits than their full-time counterparts. In turn, this can help you save on benefits administration costs, such as the provision of health insurance, retirement plans, life insurance, flexible spending accounts, family and sick leave and paid time off.
- Less risk: When you hire part-time employees, you’re not putting your eggs in one basket, so to speak. Duties might be split among several employees and some may be able to equally perform the same duties as other employees. So, should there be turnover, it might be less time, money and administrative costs to hire and train new workers and fewer hours with no skilled workers who can perform certain tasks.
- Higher administrative and operational costs: Hiring a part-time worker who is eligible to work overtime can mean greater payroll and administrative costs than hiring an exempt salaried employee who you’re not required to pay overtime. The labor costs associated with scheduling part-time worker shifts and running fluctuating payroll can also add to your operational costs.
- Less experienced candidates: Part-time workers are not always less experienced than their full-time counterparts. You may, for example, attract semi-retired workers with decades of experience for a part-time role, but, in some cases, part-time roles lure less seasoned hires who are looking to build their resume or get their foot in the door of a new career. This could potentially mean higher training costs and lower quality services provided by new hires.
- Less committed workers. In addition to working at your company, part-time hires may have other part-time jobs or be working on their own side ventures. In turn, they may be less inclined to take on more involved roles within your company or involve themselves in company projects that require more dedication or unexpected vested time.
Why is classifying full-time or part-time important?
Benefits administration requirements
An employee’s eligibility for health insurance, disability insurance, a flexible spending account, a health savings account or paid time off is often determined by whether they are a full-time or part-time employee, either by the employer’s definition or state or federal-act definitions.
“Benefits are often where employers set the terms of eligibility to participate in, for example, a retirement plan, or to set parameters for their company’s paid time-off policies,” says Tatko. “This is where some benefits might be eligible for someone who is full-time but not a part-time employee.”
The cost of benefits impacts your operating costs and how many full-time and part-time workers you can hire for your small business. According to the Bureau of Labor Statistics, wages and salaries cost employers $29.86 and benefits cost $13.39 per employee per hour worked.
Paid time off
Employees’ PTO offerings can also hinge on whether they have part-time or full-time roles within your company. Typically, full-time workers accrue more hours and can be eligible for more paid time off. When creating a paid time off (PTO) policy for your company, you also need to adhere to jurisdiction requirements at the city or state level.
Family and Medical Leave Act (FMLA)
Under the FMLA, eligible employees can take unpaid leave for certain family and medical reasons if they have worked an average of 24 hours per week for the last 12 months of employment with the company. Hires also need to work within 75 miles of where the employer employs 50-plus employees. While on leave, in addition to continuing their employment status, they can also continue their employer-offered group health insurance coverage without any changes to their policy or gaps in coverage.
Employees are eligible for 12 weeks of leave in 12 months for the following reasons:
- To care for a newborn.
- To care for a newly fostered or adopted child.
- To care for a spouse, parent, or child with a severe health condition.
- If they have a severe health condition and can’t perform key parts of their job.
If the employee’s child, parent, or spouse is a servicemember on active duty, they can also qualify for FMLA if the servicemember experiences a serious injury or illness and the employee needs time away from work to care for the servicemember.
Overtime pay requirements can apply to both full-time and part-time workers. However, the number of hours your employees work, their occupations, their wage arrangements, and their duties can determine whether you must pay them overtime wages or not.
State and local labor law regulations
It’s true that the general definition of a full-time worker is someone who works at least 30 hours a week or 130 hours a month for more than 120 days in a row. And many small businesses define full-time work at 30 or 35 hours a week. However, federal laws and agencies can define “full-time” and “part-time” differently. The same goes for local and state labor laws.
You must comply with local and state labor laws on how full-time workers are classified and what you’re responsible for providing as an employer to your full-time workers. For example, some states have specific rules on paid sick leave that are determined by the number of hours an employee works.
In New York, if you have at least five employees and a net annual income of at least $1 million, the sick leave law allows any employee to accrue a certain amount of sick leave for every hour worked, even if the employee is classified as part-time.
Frequently Asked Questions (FAQs)
- When do companies prefer part-time workers over full-time?
Some companies may prefer to hire part-time because part-time workers may offer greater flexibility in their work arrangements, allowing businesses to adapt to labor needs as they evolve. Similarly, part-time workers are sometimes easier to recruit and train when needed.
In addition, for some part-time workers, employers may not have to extend certain benefits, such as health care benefits, helping the company to minimize labor costs.
- What does exempt employee mean?
An exempt employee is an employee who is not eligible to receive overtime pay. This type of employee usually fills a salaried position in an executive, administrative, professional creative, computer, or outside sales role within a company. Exempt employee salaries must not fall below $684 per week.