There are primarily two options when it comes to outsourcing services — hiring an employee or an independent contractor. Although these two people may get hired to do the same job, their payment terms, tax obligations, work environments, training, and a lot more are legally different.
Our goal in this blog is to help you to spot the differences between these two commonly used terms.
Who Is An Employee?
An employee, by definition, often works for (and under) an employer with respect to employment. There may be an employment agreement or policies that dictate how the employee shall work, when the employee shall work, and where. The employee is paid a salary, which gets paid on a set schedule. Employers have control over whatever the employee does in the business. The employee usually works regularly, with some of them hired to work full-time, part-time, and others, permanently.
Who Is An Independent Contractor?
Consultants, graphics designers, and engineers are great examples of independent contractors. They’re outsiders who are free from any controls or monitoring by the employer. They finish projects using their own equipment and however, whenever, and wherever they choose to. Their payment isn’t made regularly, as it is the case with employees. They get paid after the completion of a project that they were assigned. Independent contractors are self-employed individuals.
Employees and independent contractors differ in a plethora of ways. To follow are some of the significant differences between them.
- An employee is often covered by employment and labor laws while independent contractors are not.
- Employees are paid salaries while independent contractors are usually paid per project.
- An independent contractor can work for several employers at the same time, while an employee is usually restricted from working for multiple employers.
- The independent contractor has a short-term relationship with the client (employer), while an employee-employer relationship often lasts longer — sometimes a lifetime.
- Independent contractors have all the rights to delegate some duties to other individuals. Employees must do all the work assigned by their bosses.
- An employee is often trained to gain working skills. The independent contractor already has the skills. The only thing that remains is winning a contract then getting to work immediately without any training.
- The employer usually tells his/her employee the time, place, and amount of work to be done. On the other hand, independent contractors have their own timetables for performing the tasks.
- All the input tools required to complete the task given are often provided to the employee. The independent contractor uses his/her own resources.
- The employer withholds employees’ income tax, social security expenses, and some other specific costs. Independent contractors are responsible for their own expenses and taxes.
Whether a company wants to bring in an employee or an independent contractor depends on a lot of factors, including the individual’s role and how much autonomy the individual will have. It is, however, very important to ensure that you choose correctly, as misclassifying an employee can be very costly. It is always best to have an attorney help you determine how to classify them and provide you with the documents that you need.