The way we work has significantly changed, especially in the last two years. More businesses are going remote and many people are working multiple jobs. If you’re running a business and have plans to expand, you might have to decide whether you’ll hire employees or work with independent contractors.
If you are wondering what the differences are between these two terms, the article below explains everything you need to know so you can make an informed decision when hiring the right type of workers for your company.
What Is an Independent Contractor?
An independent contractor is anyone self-employed that you can hire to execute certain tasks and responsibilities. While there are differences between countries, this categorization of workers usually covers all contractors, freelancers, and sole proprietors.
A contractor can work with multiple companies and provide specific services or tasks at once, and sometimes, even choose their hours of performing services. Contractors don’t receive any type of employment benefits. For instance, they don’t get medical leave or health insurance from their employer and they are responsible for filing their taxes.
If your company needs some support and wants to hire remote workers or freelancers, you must sign specific contracts with them. Use a simple independent contractor agreement to specify the area of work that is to be performed, the timeframe for project completion, and the fee agreed upon between the contractor and you as the company.
What Is an Employee?
An employee is a worker that your business employs to perform one or more roles and tasks. At the time of employment, the employer will define the responsibilities, working hours, and the location where the employee is expected to work.
Generally, employers withhold taxes for employees. In addition, employees are also protected by the law and receive benefits, as well as paid time off. Whether or not there’s work, employees must receive their monthly wage. If a project doesn’t get realized or a client leaves, as a company you must pay your employees.
Main Differences between Independent Contractors and Employees
You might now have a basic understanding of the two types of workers but let’s explain more about the main differences between them. This will ultimately help you decide which category of workers would be better for your company.
Payment, Taxation, and Benefits
The main difference between independent contractors and employees is how they’re paid and taxed. The hiring entity and the worker mutually decide the fees for independent contractors during the contract negotiations. The employer transfers the amount before or after the task is done and this concludes the working relationship between the two parties until the next hire.
As the agreement only covers the task and fee, employers don’t need to worry about providing health benefits or withholding taxes. The independent contractor is responsible for paying state, and federal income, as well as self-employment tax, and taking care of all taxation aspects for the business they own.
On the other hand, employees may enjoy additional benefits like paid vacation, stock options, and much more. Employees are solely responsible for filing their tax returns to remain compliant.
Independence
Employees are expected to work for certain hours during the day and certain periods pertaining to their availability are discussed and agreed upon at the time of employment.
Unlike them, independent contractors enjoy more flexibility and are only expected to complete tasks they were hired to do. They decide their working schedules and don’t have to be available at fixed times, but can instead share their progress and findings at the end of the week or month.
Learning and Development
Learning and development are other major differences between independent contractors and employees. Employees often go through extensive onboarding and training programs so they are fully aware of the different aspects of the business and how it operates.
Independent contractors, on the other hand, are hired to perform specific tasks or responsibilities and are only provided with the information required to complete the tasks without any interruption.
Hiring Goals
Independent contractors move on to the next job as soon as they finish the task at hand since they aren’t on a regular payroll and don’t enjoy the same benefits. However, employees, might have other ambitions and are more likely to work their way up and remain loyal to the company.
Final Thoughts
Employees and independent contractors come with their own set of pros and cons. Regardless of whom you decide to hire, you must provide an appropriate contract and include all terms so both parties are aware of their obligations and rights. This will ensure an optimized hiring process.
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