What are the best ways to classify and compensate temporary employees?

If you are a staffing service provider or a client that hires temporary employees, you need to know how to classify and compensate them properly. Temporary employees are workers who are hired for a specific period of time or project, and are not considered permanent or regular employees. They can offer flexibility, cost savings, and access to specialized skills, but they also pose some legal and ethical challenges. In this article, we will discuss the best ways to classify and compensate temporary employees, and how to avoid common pitfalls and risks.

1 Why classification matters

The way you classify your temporary employees can have significant implications for their rights, benefits, and taxes. For example, if you classify them as independent contractors, you are not required to pay them minimum wage, overtime, or provide them with health insurance, retirement plans, or workers' compensation. However, you also have less control over how they perform their work, and you must comply with the IRS rules for independent contractor status. If you classify them as employees, you have more control over their work, but you also have to follow the federal and state laws for wages, benefits, and taxes. You also have to decide whether they are exempt or non-exempt from overtime pay, based on their duties and salary.

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Daniela Araújo

Recursos Humanos | Desenvolvimento de Líderes | Consultora em RH | Headhunter | Palestrante | Docente | LinkedIn Estratégico | Business Partner | Programa de Treinamento | Entrevistas por Competências
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A classificação desempenha um papel vital na gestão de talentos, fornecendo uma estrutura organizacional clara e transparente. Ela não apenas define expectativas, mas também reconhece e recompensa o desempenho, contribuindo para a motivação, satisfação e desenvolvimento profissional dos funcionários.

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2 How to classify correctly

To classify your temporary employees correctly, you need to follow the guidelines and tests established by the relevant authorities, such as the IRS, the Department of Labor, and the state agencies. The main factors that determine the classification are the degree of control, the nature of the relationship, and the economic reality. For example, the IRS uses a three-part test that considers the behavioral, financial, and type of relationship between the worker and the employer. The Department of Labor uses a six-part test that focuses on the economic dependence of the worker on the employer. The state agencies may have their own criteria and definitions for different types of workers. You should consult with a legal or tax professional to ensure that you are classifying your temporary employees correctly and consistently.

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3 Why compensation matters

The way you compensate your temporary employees can affect their motivation, performance, and retention. It can also affect your reputation, competitiveness, and compliance. Temporary employees may have different expectations and preferences for compensation than permanent employees. For example, they may value flexibility, variety, and learning opportunities more than stability, security, and career advancement. They may also be more sensitive to market rates, incentives, and recognition. Therefore, you need to design a compensation strategy that aligns with your business goals, reflects your industry standards, and satisfies your temporary employees.

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Daniela Araújo

Recursos Humanos | Desenvolvimento de Líderes | Consultora em RH | Headhunter | Palestrante | Docente | LinkedIn Estratégico | Business Partner | Programa de Treinamento | Entrevistas por Competências
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A compensação não é apenas uma recompensa financeira, mas também um reflexo do valor que a organização atribui ao trabalho de seus funcionários. Ela desempenha um papel crucial na satisfação e retenção de talentos, além de impactar diretamente a motivação e o comprometimento.

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4 How to compensate fairly

To compensate your temporary employees fairly, you need to consider several factors, such as the skills, experience, and education required for the job, the duration and complexity of the project, the supply and demand of the labor market, and the legal and contractual obligations. You should also conduct regular research and benchmarking to ensure that your pay rates are competitive and updated. You should also communicate clearly and transparently with your temporary employees about their pay structure, frequency, and method. You should also provide them with feedback, recognition, and rewards for their achievements and contributions.

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5 What to avoid

There are some common mistakes and risks that you should avoid when classifying and compensating your temporary employees. For example, you should not misclassify them as independent contractors when they are actually employees, or as exempt when they are actually non-exempt. This can result in penalties, fines, audits, lawsuits, and back taxes. You should also not underpay or overpay them, or discriminate against them based on their temporary status. This can result in low morale, high turnover, poor quality, and legal claims. You should also not neglect or ignore them, or treat them differently from your permanent employees. This can result in disengagement, dissatisfaction, and conflict.

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Daniela Araújo

Recursos Humanos | Desenvolvimento de Líderes | Consultora em RH | Headhunter | Palestrante | Docente | LinkedIn Estratégico | Business Partner | Programa de Treinamento | Entrevistas por Competências
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Falta de Transparência: Evite a falta de transparência na classificação e compensação, pois isso pode gerar desconfiança e insatisfação entre os funcionários. Viés Inconsciente: Esteja atento a qualquer viés inconsciente durante o processo de classificação e compensação. Adote práticas que garantam uma avaliação imparcial, promovendo a diversidade e a inclusão.

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6 How to improve

To improve your classification and compensation of temporary employees, you can use a reliable staffing service provider, establish written policies and procedures, provide comprehensive orientation and onboarding programs, involve them in team meetings and activities, monitor their performance, productivity, and satisfaction, and review your practices regularly to ensure compliance with laws and regulations. Additionally, fostering a culture of inclusion, respect, and collaboration can help create a positive environment for temporary employees.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the best ways to classify and compensate temporary employees?

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1 Why classification matters

2 How to classify correctly

3 Why compensation matters

4 How to compensate fairly

5 What to avoid

6 How to improve

7 Here’s what else to consider

Staffing Services

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What are the best ways to classify and compensate temporary employees?

1

2

3

4

5

6

7

1 Why classification matters

2 How to classify correctly

3 Why compensation matters

4 How to compensate fairly

5 What to avoid

6 How to improve

7 Here’s what else to consider

Staffing Services

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