Employer and Employee Rights and Responsibilities
When you start your first job, the number one thing everyone cares about is the salary (or hourly rate). What big bucks will you be earning? You will be surprised to find that this number is just a small part of the total compensation package offered by most employers.
Employees versus Contractors
Before we get into the benefits themselves, we need to focus on who can earn them. This is where there is a great divide between “employees” who receive benefits and protections, and “contractors” who do not.
An “Employee” has a set agreement with their employer for an hourly wage or annual salary. Employees can be full-time or part-time, and their employer has a high degree of control over what the employee can do during their working hours. Most employees have an employment contract outlining the specific duties involved, the compensation structure, and more. The employer also has many obligations to the employee, including many tax and insurance obligations. While part-time workers might have more than one employer, most employees only have one employer at a time.
Historically, a “contractor” would be an outside worker or consultant brought in to work on one specific project or provide one service to a company. Contractors would have multiple clients and operated as their own business. This meant that companies would pay contractors a fee for their services, and that is pretty much it. Think of it as having a personal trainer. Your trainer works exclusively with you for an hour or two a week, and you pay them for their services. They are not your employee, and they have many other clients. There are occasionally tax forms involved for particularly large contract work (just so there is documentation of income), but not always.
Required Benefits
There are many laws in the United States requiring employers to offer certain benefits to their employees. Some of these you might already be familiar with, but most will probably be new. The line between an employee and a contractor has become blurred with the rise of the Gig Economy. For example, a worker might exclusively drive for Uber and have this as their only source of income, but Uber classifies them as a contractor, not an employee.
This is important because “Required Benefits” are only required for employees, not contractors. This means that companies who want to keep costs to an absolute minimum will try to rely more heavily on contractors than employees. This is where the big debate about Uber/Lyft and other “gig” companies classifying their workers as contractors or employees comes from.
Tax Benefits
If you are an employee, your employer is required to pay specific taxes. You usually do not even see these taxes being paid, but when a company budgets how much they can spend on your salary, these taxes enter that calculation.
Social Security and Medicare
If you are a regular employee, you will see Social Security and Medicare payments are taken out of every paycheck. This is called FICA and consists of 6.2% going towards Social Security and 1.45% going towards Medicare. But you as the employee only actually pay half the total tax out of your paycheck, your employer pays the same amount themselves.
If you are a contractor, these taxes are not taken out of your paycheck, and nobody pays the other half. This means at the end of the year, you need to pay the full amount yourself (called a “Self-Employment Tax”, a full 15.3% tax.
Unemployment Insurance
Employers also need to pay for “unemployment insurance” for all their employees. As an employee, you will probably never see how much your employer pays, but usually is between 5% and 10% of your wages. In exchange for this, if you get laid off or lose your job, you can claim unemployment benefits from your state to help pay your bills while you look for a new job. The only exception is if you voluntarily quit. People who quit on their own are not eligible for unemployment benefits.
If you are a contractor, your employer does not need to make unemployment insurance payments for you. This means that contractors usually have no unemployment benefits if they lose their jobs.
Minimum Wages
Every state also sets minimum wages for all employees, which is a minimum dollar amount that employees can be paid per hour of work. There are strict enforcement measures for minimum wage.
Contractors, depending on the circumstances, may not have a minimum wage, depending on the type of work. For example, you might be an Uber driver sitting in your car and waiting for rides to come in all day, but only actually earn $20 in an 8-hour day, just based on the number of rides that come in. However, if your contract labor is explicitly based on a set number of hours (for example, you are hired as a consultant to work with a marketing team for 30 hours), the minimum wage applies to your hours worked.
Overtime Pay
Similar to overtime wages, employees get protections for overtime as well. If you are an employee and work more than 40 hours per week (not counting breaks), your employer is required to pay you 150% of your normal wage for the additional hours. Falsifying “overtime” is one of the most common types of employer fraud, where an employer would argue that you did not really work as many hours as claimed or force an employee to “clock off” and continue working for cash payments so the overtime is not properly recorded.
Contractors do not have any overtime protections.
Health Insurance
Health Insurance is also required to be offered by all companies with 50 or more employees. This is a group insurance policy that is usually far more cost-effective than what an individual could buy on their own.
Health Insurance is not a required benefit to be offered by small businesses, but many still offer it as an optional benefit.
Optional Benefits
“Required” benefits are exclusively offered to employees. Usually, only full-time employees with a contract get these other benefits. The most commonly offered other benefits include:
Employee Retirement Plans
Fewer and fewer employers offer full pension plans to their employees, but many offer employee retirement plans, where you can make contributions to your retirement account, and your employer will match it (up to a certain limit). Employee retirement plans are usually standardized for all employees in the company, where all employee’s assets are pooled into the same mutual funds. While you do not get as much control over your account as if you were investing on your own, the “free money” from having your employer match your contributions is a big boost to your returns.
Fringe Benefits
Other benefits are becoming more common to attract employees, especially in higher-paying jobs. Some of the most common other benefits include:
- Paid Vacation
- The option to work from home some or all the time
- Childcare reimbursement
- Tuition reimbursement for continuing education
- Performance bonuses
- …and much more.
Some companies offer on-site cafeterias or free lunches/dinners to attract employees (and sometimes to encourage them to work late), and some positions might even offer profit-sharing schemes or stock in the company itself.
When you are interviewing for a job, or are trying to negotiate a raise, securing additional optional benefits beyond the standard offering is a very frequent request. Especially if the company is unable or willing to meet your “ask” for base salary. In recent years, many employees have petitioned to receive more vacation time or the ability to work from home even above requesting increases to their pay.
Your Employee Handbook
So far, we have covered benefits, but as the employee, you have responsibilities too. Usually, these would be covered in your contract, but you can also find standard “codes of conduct” in your Employee Handbook.
The Employee Handbook is created by the Human Resources department of most medium and large-sized businesses (and an increasing number of small businesses too). It includes not just basic workplace expectations like dress codes and office hours, but also an explanation of all of the optional benefits (and sometimes even required benefits) offered by the company so every employee can see everything in one place. The employee handbook would explain the company-wide vacation policies, retirement plans, health insurance options, and more.
The employee handbook is also important because it includes steps to follow in case of a dispute between an employee and their manager; how to file a dispute with human resources, and what the formal steps are to get a resolution resolved.