Employee: What It Means for Employers

What it means in practice

Employee status decides most of what an employer owes a person: payroll tax withholding, minimum wage and overtime, protection from discrimination, leave eligibility and an employment eligibility check. The IRS lists five kinds of people who may perform services for a business: an independent contractor, a common-law employee, a statutory employee, a statutory nonemployee and a government worker. This page covers who is an employee and how employees are counted; the detailed contractor tests are on our independent contractor page.

No single federal definition. Several federal laws define "employee" in nearly the same circular words. The Fair Labor Standards Act (FLSA) says "any individual employed by an employer" (29 U.S.C. 203(e)(1)). Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e(f)), the ADA (42 U.S.C. 12111(4)) and the ADEA (29 U.S.C. 630(f)) say "an individual employed by an employer." The meaning comes from the test each agency applies: common-law control for federal tax and the EEO laws, economic reality for the FLSA and, in some states, an ABC test.

The FLSA: "suffer or permit to work." The FLSA defines "employ" to include "to suffer or permit to work" (29 U.S.C. 203(g)). The Department of Labor's FMLA regulation, which borrows that definition, explains that the FLSA relationship is broader than the traditional common-law concept of master and servant: "to permit" requires more positive action than "to suffer," but both require much less than the common law, and mere knowledge by an employer of work done for it by another is sufficient to create the employment relationship (29 CFR 825.105(a)). An employee, as distinguished from a contractor in business for themself, follows the usual path of an employee and is dependent on the business served. DOL Fact Sheet #13 (July 2008) adds that the work location, the absence of a formal agreement, licensing and the time or mode of pay do not control.

Who the FLSA leaves out of "employee." The statute carves out certain public-sector roles, such as elected officials and their personal staff, and two groups of volunteers: people who volunteer for a state or local public agency for no compensation or only expenses, reasonable benefits or a nominal fee, doing work different from any job they hold there (203(e)(4)), and food bank volunteers who receive groceries (203(e)(5)). Whether an employee is then owed minimum wage and overtime is a separate question; see exempt vs. non-exempt employees.

Where the FLSA classification rule stands. As read on November 9, 2026, DOL Fact Sheet #13 (revised March 2024) says the 2024 rule, whose legality is being litigated, remains in effect for private litigation. Field Assistance Bulletin 2025-1 (May 1, 2025) says WHD no longer applies that rule in FLSA investigations and enforces open matters under Fact Sheet #13 (July 2008), as informed by Opinion Letter FLSA2019-6. DOL announced a proposed rule on February 26, 2026; comments closed April 28, 2026, and DOL lists no final rule. A proposal is not law.

The IRS common-law test. For federal employment tax, IRS Topic 762 says the usual common-law rules apply and groups the evidence into behavioral control, financial control and the relationship of the parties. The IRS employee page says the substance of the relationship, not the label, governs, and that being full-time or part-time does not change the test. Its example: a full-time auto dealership salesperson who works assigned hours, uses the dealer's customer lists and receives commissions and insurance from the dealer is an employee. Publication 15-A (2026) adds that an officer of a corporation is generally an employee, unless the officer performs no services or only minor ones and neither receives nor is entitled to pay. A business or worker that wants an IRS ruling on a specific person files Form SS-8.

What employee status triggers for tax. For employees, the IRS says employers generally must withhold and deposit income tax, Social Security tax and Medicare tax, pay the matching employer share of Social Security and Medicare (see FICA) and pay unemployment tax (see FUTA). Generally none of this applies to payments to independent contractors. Employee wages are reported on Form W-2.

Statutory employees. Some workers who are contractors under the common-law rules are employees by statute for certain taxes: specified commission or agent delivery drivers (category 1), full-time life insurance sales agents (category 2), home workers using materials the payer supplies (category 3) and full-time traveling or city salespeople (category 4). The IRS says not to withhold federal income tax from their wages; Social Security and Medicare apply when all three IRS conditions on personal services, investment and continuing work are met. Publication 15-A (2026) says only categories 1 and 4 are also employees for FUTA, and that the employer furnishes a Form W-2 with the "Statutory employee" box in box 13 checked.

Title VII, the ADA and the ADEA. The EEOC Compliance Manual (Section 2, Threshold Issues) says the question is fact-specific and turns on whether the employer controls the means and manner of the work, considering all aspects of the relationship. Factors pointing to employment include the right to control when, where and how the work is done, furnished tools, a continuing relationship, pay by the hour, week or month rather than per job, benefits, tax withholding and the right to discharge. Not all or even most factors need be present, and the label the parties use does not decide it. The EEO laws protect people employed in the United States regardless of citizenship or immigration status.

Volunteers, owners and partners under the EEO laws. The EEOC says volunteers usually are not protected employees, but a volunteer may be one if the service brings significant benefits such as a pension, group life insurance or workers' compensation, or if volunteering is required for, or regularly leads to, paid employment with the same entity. Partners, officers, board members and major shareholders usually are not employees, but a title does not decide it: the EEOC asks whether the organization can fire or supervise the person, and whether the person shares in profits, losses and liabilities. For tax, by contrast, a corporate officer is generally an employee.

Counting employees toward the 15-employee threshold. The EEOC counts the employees on the payroll, excludes non-employees such as discharged or former employees and independent contractors, and adds others who have an employment relationship with the employer, such as temporary or staffing firm workers. An employee is counted for each working day from hire until employment ends, regardless of daily schedule, so a person who works only Mondays and Wednesdays counts for the whole week. Only weeks with the required number on every workday count, but the 20 weeks need not be consecutive. Jointly employed workers count for each employer, and related businesses may be counted together as an integrated enterprise.

Counting for the FMLA and the ACA. The FMLA regulation counts any employee whose name is on the payroll for each working day of the calendar week, whether or not paid that week. Part-time employees count the same way, as do employees on paid or unpaid leave or suspension if the employer reasonably expects them to return. Laid-off employees and employees working outside the United States and its territories are not counted. An employer that meets the 50-employee, 20-workweek test stays covered until it no longer meets it in both the current and preceding year (29 CFR 825.105). The ACA test is different: an applicable large employer averaged at least 50 full-time employees, including full-time equivalents, in the prior year (IRS); see FTE (full-time equivalent) and the Affordable Care Act.

The NLRA excludes several groups. The National Labor Relations Act (see union) defines "employee" broadly but excludes agricultural laborers, domestic workers in a family or person's home, individuals employed by a parent or spouse, independent contractors, supervisors and workers covered by the Railway Labor Act (29 U.S.C. 152(3)).

Form I-9. USCIS says employers must complete and retain Form I-9 for every person they hire for employment in the U.S. after November 6, 1986 who works for pay or other remuneration. Its handbook (M-274) says not to complete one for independent contractors, workers provided by a staffing or employee leasing agency, sporadic casual domestic workers in a private home, or people working outside the United States.

Where states differ: California. States can define "employee" more broadly than federal law; these are examples, not a full list. The California Labor and Workforce Development Agency says that under the ABC test a worker is an employee unless the hiring entity proves all three conditions: the worker is free from its control and direction, both under the contract and in fact; the work is outside the usual course of its business; and the worker is customarily engaged in an independently established trade or business of the same nature. Its examples: a retail store hiring an outside plumber to fix a leak passes prong B, while a bakery hiring cake decorators to work regularly on its custom cakes does not. See California labor laws.

Where states differ: Massachusetts. Massachusetts General Laws chapter 149, section 148B, applies a similar three-part test for the state wage law (chapter 149) and the minimum wage law (chapter 151): an individual performing any service is an employee unless all three parts are met. Failure to withhold income taxes or pay unemployment contributions or workers' compensation premiums cannot be considered in the determination (148B(b)).

Questions employers ask. Is a part-time worker an employee? Yes, if the relationship meets the test; the IRS says part-time status does not change it, and EEOC and FMLA counts include part-timers for each working day. Does a signed contractor agreement settle it? No; the IRS, the EEOC and California's ABC test all look past the label. Is "worker" the same as "employee"? No; "worker" is broader, and the IRS uses it for all five categories, including independent contractors.

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