Part-Time vs. Full-Time Employees: Why the Classification Matters

Classification of employees as part-time vs. full-time can have a meaningful impact on your business’ finances. Full-time employees generally receive greater protections and benefits under the law, but many employers fail to understand the nuances of these definitions and requirements.   Like many employers, you probably think of someone who works 30 to 40 hours a week as a full-time employee and anyone working fewer than 30 hours a week as part-time. But as we explain below, it’s not always quite as straightforward as that. Having a greater awareness of certain regulations can help you comply with your obligations as an employer. 

In this article, we lay out the definitions of full-time vs. part-time employment according to various U.S. government agencies to help owners of small and medium-sized businesses like yours gauge their requirements under these policies.

What Are the Differences Between Part-Time and Full-Time Employees?

As you know, when it comes to differentiating between part-time and full-time employees, the main determinant is the number of hours they work.  As to the question of the exact number of hours for each type, different government agencies provided subtly different answers. For example:

• U.S. Bureau of Labor Statistics (BLS) 
  According to the BLS, “Full-time workers are those who usually work 35 or more hours per week and part-time workers are those who usually work fewer than 35 hours per week.” However, the BLS uses these classifications only for gathering statistics, not as legal definitions. 
  
• Internal Revenue Service (IRS)
  The IRS defines a full-time employee as someone who’s employed for an average of 30 hours a week or 130 hours in a calendar month.
  
• The Fair Labor Standards Act (FLSA)
  The FLSA law covers minimum wages, overtime, recordkeeping, and child labor, but it doesn’t specify what constitutes full- or part-time hours.

Generally, a  part-time employee works fewer hours than a full-time employee. They may have a set schedule or number of hours every week, or their schedule may vary from week to week.

A full-time employee, by contrast, usually receives a salary for a set number of hours. They tend to receive a fixed amount of money weekly or monthly, averaged out over a year. It’s much more likely that they have just one job compared to part-time workers.

How Do Full-Time vs. Part-Time Definition Impact Employee Benefits Obligations?

The Affordable Care Act (ACA) sets requirements for certain employers regarding the provision of health benefits. The policies defined in the ACA  are therefore among the most important to understand on the topic of full-time vs. part-time employees.

Under the ACA, all companies in the U.S. fall into one of two categories:  Small Employers (SEs) or Applicable Large Employers (ALEs). ALEs have more responsibilities when it comes to providing health coverage to employees and documentation for the IRS.

How to Know if You're an SE or an ALE

To determine whether your business qualifies as an SE or an ALE under the ACA, follow this three-step process:

• Count your full-time employees. These are your employees who work full-time job hours—more than 30 hours per week or 130 hours per month on average over the last calendar year. If there are more than 50, you’re automatically an ALE. If not, move on to step two.
  
• Calculate how many full-time equivalent (FTE) workers you have. To do this, count how many hours your non-full-time employees have worked in a calendar month (up to 120 hours per worker) and divide the total by 120.
  
• Add these two numbers together. If the total comes to 50 or more, you’re classed as an ALE. If the sum is lower than 50, you’re an SE.

As you can see, the classification of your employees as full-time or part-time according to their hours is critical in determining your obligations under the ACA. The hours your employees work affects whether your business is considered an SE or an ALE, as well as which of your employees are eligible for health benefits.

What are the Advantages and Disadvantages of Hiring Part-Time vs. Full-Time Employees

For business owners there are pros and cons to both types of workers. Many  businesses benefit from having a mixture of full-time and part-time employees. 

Your business type, industry, and how busy your company is will affect the way you classify your staff. For example, a restaurant will have a different employee setup from a law office. A company built around seasonal demand may employ more part-time workers. Here, we outline some things to keep in mind when deciding whether to offer a full-time or part-time position.

Part-Time Employment - Pros & Cons

Advantages:

• Fewer expenses for payroll and benefits: Since, part time employees work fewer hours, and since you’re not legally obligated to provide benefits under federal law, the total payroll expense associated with part-time employees is generally lower. This may be especially relevant if your business fluctuates seasonally or if you are uncertain about payroll requirements in the future.
  
• Increased employee flexibility: Employees who work part-time hours may enjoy a better work-life balance, making them more productive on the job. It may also be easier for them to adapt to covering different areas of your business during busy times.

Disadvantages:

• Restricted workload: As part-time employees work less consistent hours they might not be able to take on as much as their full-time colleagues and may not be available when you need them.
  
• Less long-term commitment: This depends very much on the employee, but some employers worry that part-time employees are less committed to the long-term plans of their business compared to full-time employees.

Full-Time Employment - Pros & Cons

Advantages:

• More responsibility: Full-time employees are at work more of the time, so they’re generally available to do more during the workweek. It is more practical for them to fill managerial roles and oversee other staff members as compared to part-time workers.
  
• Greater commitment: With higher pay and improved benefits, full-time employment may encourage more dedication and enthusiasm at work.

Disadvantages:

• Higher fixed payroll costs: Full-time salaries are generally fixed costs that are inflexible once set. This, plus the obligation to offer benefits, tends to make the total cost of full-time employees higher than that of part-time workers.
  
• Potential for job fatigue: According to the Mayo Clinic, full-time workers are more prone to work-related stress and burnout.

Final Thoughts

Although the difference between part-time and full-time employees isn’t as straightforward as many business owners might hope, it’s always worth investing in valuable employees, whether they work full-time hours or part-time hours. A mixture of both is likely to maximize the productivity and flexibility of your business.

That being said, it is essential to be aware of your company’s status under the ACA and to understand your legal obligations as an employer. It is also important to follow any state or other laws on issues like employment practices and responsibilities, discrimination, reporting, and workers’ health benefits.

For advice on your responsibilities and about how to reduce your risks, reach out to your broker. Learn about how you can protect your business with employment practice liability insurance offered by Counterpart.