What is the Difference Between an Employee and an Independent Contractor?

By hrlineup | 30.01.2020

There are numerous roles that a business needs to fulfil, some being full time, and others for a shorter term. Most full time roles are filled in by employees, while the short term roles are filled in by independent contractors. Nonetheless, there are situations where an independent contractor may be doing exactly the same role as a full time employee. What will differentiate the two types of employees is the legal differences, and responsibilities or obligations in their roles.

The Independent Contractor vs. Employee

Several key differences exist between how the independent contractor and employee are treated within the company, in regard to their roles and how they work. These include: –

  1. Tax obligations differ for the employer. With employees, social security, income tax, and Medicare are withheld. This is because employers need to abide by labor laws. With an independent contractor, there is no need for the company to withhold taxes. The independent contractor is responsible for paying their own taxes.
  2. Remuneration with employees being paid monthly salaries, hourly wages, based on commission or a mix of these methodologies. The independent contractor will have a fixed compensation rate that outlines how much they are to be paid for fulfilling a role. This is normally based on a project to project basis.
  3. Employees are expected to work for a single employer, whereas an independent contractor worker may have multiple clients that are being serviced. This gives the independent contractor more freedom to dictate the time that they will be available for work.
  4. An independent contractor may have numerous people available to them to fulfil their tasks. This gives them the ability to delegate certain tasks to their team members. Employees rarely have the freedom to delegate their responsibilities.
  5. Independent contractors are responsible for their own expenses and the inputs that are required to get the job done. Employees look to the company to make all those provisions and ensure that all equipment and requirements are available.

Freelance contractors are often neutral in nature. Some of the services that they provide include lawyers, consultants, engineers and accountants. In some cases, they are able to represent the company when handling issues with third parties. Being neutral, they cannot be influenced by the clients to fulfil their roles, so they have much more control. In addition, they are able to use and justify their own judgement for task completion.

When evaluating the employer vs. contractor option, there are pros and cons of both these options. From the employer point of view, the cost element may be the most important consideration. Independent contractors being paid based on projects they handle is affordable for an employer who may not have full time work with them every day. For employees, independent contractors help to reduce multi-tasking to fill in different spaces within the company. Using independent contractors can help a company become much more efficient in the services that they provide.