Do you want your employees to be eligible for overtime pay or healthcare benefits? This guide can help you determine whether you should hire full- or part-time employees.
- Typically, the number of hours worked each week and your weekly work schedule can help you determine full vs. part-time status.
- Full-time employees can offer your business security in scheduling, regularity in product or service flow, and overall consistency for your labor management. Part-time employees, on the other hand, can save your company money because you won't have to pay as much staff when there are dips in workflow or offer healthcare and other benefits.
- It is crucial to your success that you understand the pros and cons (as well as the payroll taxes involved) when building a workforce with a mix of full- and part-time employees, or simply all of one or the other.
- This article is for small business owners who want to hire employees for the first time and aren't sure whether they need full- and/or part-time employees.
It isn't uncommon for small business owners to struggle with the question of whether it's best to hire all full-time employees, all part-time staff or a combination of both. Some employers need more part-time staff to remain flexible for fluctuating needs, while others need a more consistent and predictable workforce. Before you hire staff, it is important to know the pros and cons of each type of hire and how federal laws may impact your decision. There are also many hidden unknowns, including when the Affordable Care Act mandates healthcare coverage and how overtime works.
Part-time vs. full-time employees
Many employers use both part-time and full-time employees as their business needs demand. While there are pros and cons to each employment option, the final decision comes down to your specific company needs. The use of part-time employees tends to increase as the economy becomes more uncertain, according to the Center for Law and Social Policy. In 2020, for example, as the COVID-19 crisis has forced businesses to adapt to changes, there has been an increase in part-time hires. The Center for Law and Social Policy says hiring patterns like this can result in underemployment.
Technically, there are no federal laws or regulations that fully define full- or part-time employment. Instead, Fair Labor Standards Act regulations and ACA benefit requirements can help employers discern the difference.
In general, part-time employees work fewer hours cumulatively than full-time employees. However, this may change in a busy week or season, such as over the holidays.
Part-time employees typically work less than 40 hours a week, although there are numerous exceptions to this generalization. The FLSA does not outline in any further detail what "part-time" is.
The ACA, as noted, requires employers to provide healthcare benefits to their employees for regularly worked hours of 30 or more within a workweek. So, the ACA would consider less than 30 hours a week to be part time.
Although most employers consider 40 hours in a workweek to be full time, many use 32 hours as the minimum for full-time status, which is important when determining who is eligible for paid time off, paid holidays, retirement plans and so on. Working 40 hours per week typically gets employees around 2,080 hours in a year (40 hours per week multiplied by 52 weeks).
Overtime laws for part-time and full-time employees
Whether your employees are eligible for overtime pay may play into your definition of full- vs. part-time employee. Employees whose jobs are governed by the FLSA are either exempt or nonexempt. Nonexempt employees are entitled to overtime pay; exempt employees are not. The majority of employees covered by the FLSA are nonexempt. [Read related article: Exempt vs. Nonexempt: What's the Difference?]
For the most part, the FLSA requires overtime pay – time-and-a-half of the employee's regular pay rate – for nonexempt employees who have worked more than 40 hours in a standard workweek (not a pay period). However, overtime laws differ somewhat from state to state.
Key takeaway: Whether you need full- or part-time employees depends on the needs of your business, but be mindful of employment laws, such as those concerning overtime and ACA eligibility for employees based on their hours.
Pros and cons of hiring full-time and part-time employees
Hiring either full and part-time employees, or a combination of both, has a wide range of pros and cons. In the end, it will be your staffing and overall business needs that truly drive your decision.
In general, it's easier to flex outwardly and inwardly with staffing levels using part-time employees who don't have guaranteed hours or benefits than it is with full-time employees who expect a similar schedule and number of hours each pay period, vacation time, and healthcare benefits.
Here are some specific pros and cons of each employee type.
Pros of hiring part-time employees
- Lower overhead costs: It saves you the costs of salaries and employee benefits.
- Flexibility: It allows for more nimble staffing for fluctuating scheduling needs.
- Extra support: It permits easier overflow or additional staffing when you need it (either week to week or seasonally).
- Cross-training: You can develop experienced backup team members (and cross-trained team members) to cover shifts and projects when needed.
- Balanced employees: In some cases, a part-time schedule allows your loyal team members who work other jobs, go to school or have family responsibilities to work what they can. This is why a large portion of employees choose to work part time.
Cons of hiring part-time employees
- Inconsistency: Inconsistent scheduling sometimes makes it hard to retain employees, especially those who need steady hours.
- Potential inefficiency: Part-time employees who only work a few hours here and there may have higher error rates due to the lack of consistent repetition for their job.
- Outside employment challenges: When you hire part-time workers, you may have to deal with co-employment issues. There's always the chance that your company is the "side gig" that they don't care about as much as their other job. When an employee has more than one job, for instance, they have to decide which takes priority if they are double-booked for a shift.
Pros of hiring full-time employees
- Better planning: You'll enjoy consistency in scheduling and be better able to plan for goals, objectives, projects and workload.
- Cost savings: The more benefits-eligible employees you have, the more cost-effective they can be for your company. Large benefit-eligible groups (or companies) tend to yield cost savings (per capita) for the employer in the healthcare benefits area.
- Consistency: You'll see more consistent productivity due to employees' longer time working in their roles and partnering with other full-time team members.
- Employee loyalty: Employees tend to feel more tied to their company's brand when they are consistently working for the company.
Cons of hiring full-time employees
- Over-staffing concerns: Full-time employees might not be cost-effective when workload dips and productivity and/or output drops.
- Higher employee stressors: Full-time employees manage more work-related stresses concerning deadlines and project goals.Employers care about this not only for the well-being of their team members, but also because of the statistics pointing to reduced productivity in the workplace when employees feel overstressed or anxious. The International Journal of Environmental Research and Public Health reported that employees experiencing stress at work were 19% less productive than their relatively unstressed employees.
- Expense of benefits: Fringe benefits are a very real expense, which compounds as you hire more full-time employees.
- Employee relations: At times, employers must manage attendance and performance issues due to employee burnout and poor work-life balance when employees work at the same job for consistently long hours.
Key takeaway: There is truly no wrong decision here. Both part-time and full-time employment options are tools in your arsenal to utilize as your business evolves and grows (or stagnates). Part-time employees offer flexibility and potential cost savings, and full-time employees offer more consistent staffing and support for your business needs.
Payroll and taxes for full-time and part-time employees
Employers must withdraw federal and state taxes from employee paychecks for all taxable compensation. Whether your employee works part or full time, you must execute your payroll tax obligations consistently. These are some examples of payroll taxes:
Income tax: There are both federal and state income taxes. Although everyone pays federal income tax, some states do not collect income tax. (Leading payroll firm Paychex notes that all states other than "Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no income tax, and New Hampshire and Tennessee (through 2020), which do not tax wages, require employers to withhold state income tax from employees' paychecks." A few cities, such as New York City and Philadelphia, also have city income taxes that the employer must withhold from paychecks.) This tax is paid exclusively by employees. Each employee's Form W-4 outlines their income tax withholdings.
FICA: The Federal Insurance Contributions Act, which is a combination of Social Security and Medicare taxes, is paid equally by employers and employees. The Social Security portion has its own name, "Old Age, Survivors, and Disability Insurance" (OASDI), and provides benefits to eligible parties. The Medicare portion of FICA permits those age 65 and older to qualify for Part A Medicare coverage, as well as Parts B, C, and D (though they carry additional costs).
- Unemployment: Federal unemployment tax is paid exclusively by employers, under the Federal Unemployment Tax Act, to protect employees who are laid off. State unemployment tax is paid by employers, although a few states require some employee contributions.
Regardless of size and type, all employers deduct payroll taxes for their W-2 employees. Most employers in the U.S. outsource their payroll needs, which makes these taxes, as well as the payroll process in general, relatively easy to handle.
Key takeaway: All W-2 employees require you, as the employer, to withhold certain types of taxes from their paycheck.
Bottom line on full-time vs. part-time workers
Whether you utilize full-time and/or part-time employees depends on your business needs at any given time. You should reevaluate your balance between these staffing options at least once a year to ensure your needs are being met.