Employment status is how you classify the working relationship between your company and the people who work for you.
It’s like a rulebook that determines everything from tax obligations to benefits requirements. It spells out what you’re legally required to provide, what protections your workers get, and which boxes you need to check to stay compliant.
What are the types of employment status?
The three types of employment status include the following:
- Worker. An individual who works for another person or organization following a relatively flexible work schedule. The worker’s schedule is more casual and irregular than an employee’s, as the worker is not guaranteed work hours and can reject work.
- Employee. An individual who works under a contract of employment to fulfill their duties. An employee’s schedule and employment package are more stable and secure, and they are offered additional rights on top of workers’ protections.
- Self-employed. An individual who works for themselves or runs their own business. Also sometimes referred to as contractors, self-employed workers have the most freedom and flexibility, but are not protected by employment rights and do not receive benefits.
What is an employment status code?
An employment status code is the label your payroll system uses to track where each employee stands—active, on leave, terminated, part-time, you name it.
These codes aren’t just administrative housekeeping. They determine how people get paid, which benefits kick in, and what shows up on government reports. Use the wrong code and suddenly your full-time employee isn’t getting health insurance, or worse, you’re explaining to auditors why your payroll data doesn’t match your tax filings.
Examples of employment status codes include active, inactive, unpaid leave of absence, intern, and onboarding.
How does employment status differ around the globe?
Employment status has various meanings worldwide, and employers use it differently depending on the country and local employment laws:
Employment status in the United States
In the United States, employment status refers to the contract agreement between an employer and an employee regarding the type of work that the employee will perform. Employment status examples include full-time, part-time, and temporary employment.
For example, if a U.S. employee is hired to work 40 hours a week, their employment status is full-time. If a worker is hired with varying hours under 40 hours a week, their employment status is part-time.
Employment status in other countries
In most other countries, employment status describes the relationship between the employer and employee and determines the employee’s rights and conditions of employment. Employment status also outlines the employer’s responsibilities to the employee.
An individual’s worker, employee, or self-employed classification influences these employment status rights, conditions, and employer responsibilities.
Why getting employment status right matters for your business
Both employers and employees must understand their obligations and rights as outlined by employment status. Employment status ensures employees know their job expectations and entitlements. Employment status also helps employers correctly classify their workforce and maintain global compliance with international employment laws.
Which type of employment status should you hire?
Determining the type of employee to hire, such as a contractor or employee, and their employment status, depends on your business needs.
Before you hire anyone, you need to figure out what you need them to do—and how that matches up with different employment types.
Here’s what to think about for each option:
- Worker employment status. Worker employment status is common for seasonal workers and zero-hour contract workers. A worker often does not receive guaranteed work hours, but can also reject work their employers offer them.
- Employee employment status. An employee works under a contract of employment and has all the protections of a worker, with additional rights and protections. Employees must do the work outlined in their employment contract, and the employer can control how, when, and where the employee performs the work.
- Self-employed employment status. Employers often engage self-employed individuals, or contractors, for short-term projects or specialized work. Employers are not required to offer self-employed individuals any statutory or supplemental benefits.
You also need to follow the employment laws wherever you hire—miss this step and you’ll pay for it later.
The big risk is misclassification. That’s when you call someone a contractor who’s actually an employee under local law. Sounds like a small paperwork mistake, but it’s not. That “contractor” could be entitled to benefits, overtime, and protections you never provided. When authorities catch on (and they will), you’re looking at hefty fines, years of back payments, and legal battles that drain your time and budget.
When it’s time to rethink employment status
Changing someone’s employment status means shifting them from one category to another—and with it, their benefits, protections, and how much they cost your business.
Why do companies make these changes? Sometimes it’s about the budget. Full-time employees with benefits cost more than part-time workers or contractors, so when money gets tight, some businesses shift people to less expensive arrangements.
Other times it goes the opposite way. You’ve been working with amazing contractors who know your business inside out. Converting them to full-time employees costs more upfront, but it locks in talent you can’t afford to lose. Plus, employees tend to stick around longer and invest more in your success—exactly what you need when you’re building something that lasts.
Key reasons to change employment status include the following:
- Cost
- Misclassification risk
- Long-term or short-term work needs
- Business goals
- Talent demand
- Retirement or leave of absence
Employers must ensure employment status changes comply with market-specific employment laws and regulations.
Get employment status right with Pebl
Employment status might seem like paperwork minutiae—until you get it wrong. Then it’s fines, back payments, and legal troubles that can derail your international expansion before it starts.
That’s why growing companies work with Pebl. As your Employer of Record (EOR), we handle employment classification in 185+ countries so you don’t have to become an expert in global labor law. We know exactly what makes someone an employee versus a contractor in Berlin, Bangkok, or Buenos Aires. More importantly, we set everything up right from day one.
Here’s how it works: You identify the talent you need. Our EOR services mean that we handle their employment status, contracts, benefits, and compliance—all tailored to local laws. No guessing whether that developer in Denmark should be classified as an employee. No wondering if you’re meeting requirements in Mexico. Just compliant hiring that lets you build your global team with confidence.
The result? You expand into new markets without the classification headaches. Your team gets paid correctly, receives the right benefits, and you sleep better knowing everything’s handled properly.
Ready to hire globally without the employment status stress? Let’s talk.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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