What Is an Employer?

Definition & Examples of an Employer

Female barista wearing apron smiling while handling a large mug of coffee to a customer.
••• SDI Productions / Getty Images

An employer is an individual or organization that has employees. It can direct the work of its employees, including dictating where, when, and how work is completed.

Learn more about what it means to be an employer and an employee.

What Is an Employer?

More specifically, an employer is an organization, institution, government entity, agency, company, professional services firm, nonprofit association, small business, store, or individual who employs or puts to work individuals who may be called employees or staff members.

Employers are required to withhold federal, state, Medicare, and Social Security taxes for their employees. Employees also have certain protections, including the right not to be harassed or discriminated against due to race, religion, sex, gender identity, national origin, disability, and age.

How an Employer Works

In exchange for the employee’s services, an employer pays compensation that may be a salary (a fixed amount per week, month, or year) or an hourly wage that's at or above your state's or the federally mandated minimum wage.

Many employers offer employees a comprehensive employee benefits package, including health insurance and paid time off, holidays, and vacation. Under the Affordable Care Act, employers "must either offer minimum essential coverage that is 'affordable' and provides 'minimum value' to their full-time employees (and their dependents) or potentially make an employer shared responsibility payment to the IRS." If employers don't have 50 or more employees, they can choose whether to provide benefits.

Requirements for Employers

An employer has certain responsibilities that are required by law, including paying taxes that self-employed people pay themselves.

Some companies want to use contractors so that they don't have to provide health insurance or pay employer-side taxes, but contractor positions must meet strict qualifications. Calling a worker a contractor but treating them as an employee is called misclassification. Generally speaking, if the entity or individual paying you directs when, where, and how you work, you may be an employee.

If you're working as a contractor but think you're misclassified, contact the federal Department of Labor, state labor department, or a local employment attorney for assistance and advice.

Hiring Exempt and Nonexempt Employees

When employers hire employees, they are classified as either exempt or nonexempt. Exempt employees receive a salary for completing a whole job. For example, an employer may hire an employee for $60,000 per year to supervise the quality department.

The term "exempt" refers to being exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). To be classified as exempt, employees must meet standards that involve more than just receiving a salary rather than hourly pay; it also involves the type of work done by the employee. There are exemptions for executive, administrative, professional, computer, and outside sales employees.

Exempt employees receive the same salary each pay period regardless of the number of hours they worked. Employers can't dock the wages of an exempt employee who goes home early, for instance.

Employers can also hire employees as nonexempt or hourly workers who are paid an hourly wage for each hour worked, and whose pay is subject to the terms of the Fair Labor Standards Act (FLSA) for overtime.

These employees must be paid for every hour worked. For instance, if employees are scheduled to work from 8:00 a.m. to 5:00 p.m. with an hour's lunch, they receive 8 hours of pay. If the employee works through lunch, they receive 9 hours of pay.

Making Employment Agreements

Employees typically work under a verbal, implied, or written contract. Some employers use job offer letters to confirm the details of an employment relationship. In union-represented workplaces, the employer is obligated to follow the terms of the union-negotiated contract.

Unless there is a specific contract in place, employees in 49 of the 50 states are employed at-will. Montana is the only exception, as it has eliminated the at-will rule. This means employees can quit at any time and the employer can fire them at any time for any reason.

Terminating Employment

Employees typically give two weeks' notice when they resign. Two weeks' notice may not be required or even recommended, though, depending on the nature of the work and the employer. Some employment contracts specify the amount of notice employees are required to give.

Companies usually terminate employment for a reason, such as poor performance or position elimination, but legally they aren't required to have a reason because of at-will employment. Employers can't terminate an employee for a reason that violates equal opportunity employment laws, though. If they do, the terminated employee has the right to file a Charge of Discrimination with the Equal Employment Opportunity Commission and their state or local fair employment practice agency.

Key Takeaways

  • An employer is an individual or organization that has employees.
  • Employers compensate employees for their work. 
  • Employers have responsibilities per federal and state law, including withholding federal, Social Security, and Medicare taxes.
  • Employers can classify employees as exempt or nonexempt.
  • Employees typically work under a verbal, written, or implied contract. 

Article Sources

  1. U.S. Internal Revenue Service. "Employer Shared Responsibility Provisions." Accessed July 5, 2020.

  2. IRS. "Employer's Supplemental Tax Guide," Page 7. Accessed July 5, 2020.

  3. Wage and Hour Division. "Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer, and Outside Sales Employees Under the Fair Labor Standards Act (FLSA)," Page 1. Accessed July 5, 2020.

  4. Wage and Hour Division. "Overtime Pay." Accessed July 5, 2020.

  5. National Conference of State Legislators. "At-Will Employment - Overview." Accessed July 5, 2020.

  6. Equal Employment Opportunity Commission. "Filing a Charge of Discrimination." Accessed July 5, 2020.