Employee Classification Guide for Arizona Business Owners

Starting a new business in Arizona takes lots of organization and effort. Your excitement about this venture can potentially cause you to forget to  adhere to federal or state laws concerning employees. These regulations have significant influence over how you hire and compensate your employees.

Anthony Law Group’s business lawyer in Phoenix, Arizona offers guidance on how to navigate the all-important aspect of employee classification below. Find out where each type of worker falls so you can supply the proper benefits.

What Is Employee Classification?

Most workers fall into one of two categories: independent contractors or permanent employees. Permanent team members differ from independent contractors in:

• Company benefits and compensation: When you add employees to your company’s payroll and deduct taxes for them, you hire permanent employees. They depend on your company for paychecks, benefits, and other perks that come with permanent employment.
• Professional relationships: Do the terms of employment come with an end date? Perhaps the employee maintains more control over their processes and supply selection than you. If so, they are likely a contingent worker performing independent contractor work for your business.
• Company behavior toward the workers: Do you have specific policies in place that you expect your workers to follow? If so, you likely hired them as employees rather than contingent workers.

However, each category has a few subgroups where the similarities and differences may blur the lines between proper worker classification. You’ll find some common examples of employee classifications detailed below.

Full-Time Employees

A full-time employee works at least 32 hours per week at your business. Since full-time employees give the majority or all of their working hours to one company, they qualify for company-provided health insurance, earn at least minimum wage, and can receive overtime pay when they work more than 40 hours per week. You might hire them on an hourly basis or a salary basis, depending on the position’s requirements.

Part-Time Employees

Permanent workers whose weekly hours worked total less than 32 hours are considered part-time employees. You can provide them with similar opportunities as full-time employees, like paid time off and insurance benefits. However, you must constantly keep their weekly hours low to abide by state and federal labor laws. Most employers might hire part-time employees to help with busy periods, like weekends.

Independent Contractors

Independent contractors, also called gig workers, are not as economically dependent on your company. They provide a particular service within the terms of an agreed-upon contract when you hire them. The contract typically outlines a specific period during which they will provide the service.

Once that period ends, you can either renew or end the contract. These workers pay back taxes annually or quarterly since the employers don’t withhold the taxes. They also supply their own insurance benefits rather than relying on their employers.

Be very careful when trying to classify an employee as an independent contractor.  Recent developments in the law make it very difficult to designate workers as independent contractors.  Independent contractors need to be truly independent in order to qualify for this status.  If you control their hours, work, and where they perform the work, it is likely that the government will deem them to be employees and not independent contractors.

Temporary Employees

Also known as leased employees, temporary employees are workers you hire through a staffing agency. While they are not official employees under your payroll, they can supplement staff and projects for short periods. When you hire temporary employees, you do not directly pay them. Instead, their agency provides payment.

Seasonal Employees

The final type of employee classification is seasonal employees. You hire these temporary workers directly to your company to help with high-demand job duties during busy seasons. For example, you might own and operate a garden center. Therefore, you might hire seasonal workers during the summer months when business picks up.

Understanding the Fair Labor Standards Act

Running a successful business means you can either retain talent or entice it to return. Talent retention depends on a proper employee classification policy and fair job duties according to labor market demands. Hiring traditional employees can become a little muddled when you take a deeper look at exempt employees vs non-exempt employees according to the Fair Labor Standards Act and Overtime Policy.

Exempt Employee Classifications

Exempt employees typically earn a salary. Both the employee and employer agree to the job duties and an annual salary amount. The employee cannot earn overtime pay but receives a steady, stable income with benefits.

Exempt workers typically perform administrative or sales duties and may do remote work since their positions don’t always require their presence.

Non-Exempt Employee Classifications

Team members are considered non-exempt employees when they are paid hourly, receive benefits, and qualify for overtime provisions. Arizona labor laws define full-time hours as 40 hours per week. Therefore, an employer must provide overtime pay when an employee exceeds 40 working hours in a week.

Many businesses hire non-exempt staff members for in-person positions, such as stocking, customer service, and other hands-on tasks. On-call employees may also fall under the non-exempt category.

Consequences of Misclassifying Workers

When employers follow each labor law to the letter, they protect themselves and their staff members from the consequences of misclassification. If you fail to correctly classify workers, you could face fines and other penalties, such as:

• Court cases: An employee who faced discrimination or lost payment or benefits because of an employer’s misclassification can seek legal counsel and pursue litigation.
• A tarnished reputation: Some employers struggle to rebuild their public perception after accidental oversights or intentionally withholding payment and benefits.
• Financial penalties: Arizona state and federal governments may impose fines on your business if you fail to properly classify your workers.
• Difficulty hiring quality talent: You might struggle to identify and successfully hire stellar job candidates if your reputation as an employer is tainted.
• Liability for all missed benefits: Finally, employers that misclassify their workforce may eventually have to compensate each staff member who missed out on paid time off, insurance coverage, or overtime. The federal and state governments may also hold an employer accountable for back taxes.

Navigate Employee Classification with Guidance From Anthony Law Group in Arizona

Protecting your business’s success, reputation, and employees begins with learning from the mistakes of other employers. Anthony Law Group can help with legal guidance for handling employee classification and developing legally binding employment contracts. You can also request assistance navigating other concerns, like terminating your business partnership in Arizona.

Call 602-362-2396 for a free consultation.