Employee Classification Policy Guide

Employee handbooks help set expectations for your employees. Including an employee classification policy can help ensure workers understand how they’re classified and what their job responsibilities may be. This is especially important in the evolving world of work, where decentralized and distributed teams may lead to more autonomy across roles. An employee classification policy is a simple way to let employees know what standards they’re beholden to.

What is an employee classification policy?

An employee classification policy outlines the different categories of workers within a company and the criteria used to assign them. This categorization serves two main purposes:

1. Compliance: The primary function is to ensure adherence to labor laws, particularly the Fair Labor Standards Act (FLSA). The FLSA dictates whether an employee is “exempt” (salaried and ineligible for overtime) or “non-exempt” (hourly and entitled to overtime pay). Misclassifying employees can lead to hefty fines and legal repercussions.
2. Benefits and administration: Beyond legal compliance, classifications determine employee eligibility for benefits like health insurance, paid time off (PTO), and stock options. They also impact administrative processes like payroll and performance reviews.

In essence, an employee classification policy acts as a roadmap, guiding both the company and its workers in understanding rights, responsibilities, and entitlements based on their designated category.

Does my company need one?

The short answer for most companies is, yes, you should have an employee classification policy. It’s imperative for any organization with more than one class of employee to have documentation that clearly delineates employee groups.

Here are some scenarios where including an employee classification policy is wise:

• Diverse workforce: When a company employs individuals with various employment arrangements, such as full-time employees, part-time employees, temporary workers, seasonal staff, or independent contractors, having a clear classification policy helps manage the distinctions between these roles.
• Compliance with labor laws: These policies ensure compliance with local, state, and federal labor laws and regulations.
• Benefits administration: When a company offers different benefits packages or eligibility criteria based on employment classifications, a policy provides clarity to employees and helps in the consistent administration of benefits.
• Contractor relationships: If the company engages independent contractors or consultants, a policy helps define the expectations, responsibilities, and distinctions between contractors and employees to comply with tax and labor regulations.
• Performance management: When a company has varying performance expectations, evaluation processes, and advancement opportunities for different employee categories, a policy helps communicate these distinctions clearly.
• Consistency in practices: These policies promote consistency in HR practices, including hiring, onboarding, compensation, and termination procedures, across different classifications.
• Avoiding legal risks: This policy can minimize legal risks and potential disputes related to misclassification of employees.
• Communication and transparency: These policies foster transparency and open communication with employees about their employment status, job expectations, benefits, and career progression opportunities.
• Contractual relationships: If the company uses fixed-term contracts or has employees on an at-will basis, having a policy clarifies the terms and conditions of employment for both the employer and the employee.
• Adaptation to growth: As a company grows and its workforce expands, having a clear policy helps manage the complexities associated with different employment arrangements.

What should be included?

The main purpose of an employee classification policy is to clearly delineate the characteristics of different employee classifications. That said, the policy needs to go beyond just classifying employees—it also needs to inform them of their rights, benefits, and employment expectations.

Some of the major components of this policy may include:

• Definitions of employee categories: Clearly define different employee classifications such as full-time, part-time, temporary, seasonal, independent contractors, and any other relevant classifications used within the organization.
• Job responsibilities and duties: Outline the specific job responsibilities and duties associated with each employee classification to ensure clarity.
• Employment status: Specify the employment status of each classification, including whether employees are at-will or under a fixed-term contract.
• Work hours and schedules: Detail the expected work hours and schedules for each classification, including any flexibility or variations in working hours.
• Benefits eligibility: Clearly communicate the eligibility criteria for benefits such as health insurance, retirement plans, paid time off, and other perks associated with each classification.
• Compensation structure: Define the compensation structure for each employee category, including details about salary, wages, bonuses, and any other forms of compensation.
• Performance evaluation and advancement: Outline the performance evaluation process and opportunities for advancement or career progression within each classification.
• Termination procedures: Describe the procedures for termination or separation for each employee classification, including any notice periods, severance packages, or exit interviews.
• Compliance with labor laws: Ensure that the policy aligns with local, state, and federal labor laws and regulations regarding employment classifications to avoid legal issues.
• Contractor guidelines: If the organization engages independent contractors, the policy may include guidelines for contracting relationships, emphasizing the distinction between contractors and employees to comply with tax and labor regulations.

Create your own employee classification policy with SixFifty

SixFifty’s Employee Handbook Creator can help your organization generate custom, state-specific employee handbooks for all 50 states. Contact us today to learn more about how our tools can help you create your own employee classification policies, so you can maintain clear and transparent standards for all of your employees—no matter their classification.