What You Need to Know About Contractors vs Employees

Hiring a contract employee can be beneficial financially in the short term. But, contractors may not have the same loyalty to the company that an employee would. After all, training any new worker requires time and funds — and these are two things small-business owners don’t always have an abundance of on hand.

Also, contractors may sometimes own a business and can delegate work to subcontractors, while that’s not a common case among freelancers. Part-time employees may have the opportunity for flexible hours with days off throughout the week or a set schedule if they’re doing shift work. Part-time employees are never salaried employees, meaning they are paid only by the hours they work. They can work extra hours by picking up shifts or doing additional work during busy times of the year. Part-time jobs give employees the chance to focus on other outside tasks, which is why many students take part-time jobs.

Legal considerations of contractor-to-employee conversion

An independent contractor is a self-employed worker who provides services to a company on a short-term, long-term, or per-project basis. Independent contractors work under individual written contracts called independent contractor agreements, so your company doesn’t officially hire them. Many contractors have their own businesses and independent contractor licenses. Contractors can set a price contract vs full time salary for their services, specify their preferred payment method, schedule, and deliver their services in alignment with the terms agreed upon in the contractor agreement. Unlike employees, contractors aren’t entitled to mandatory benefits and must pay their income taxes. An employee is a worker hired and managed by an employer.When you hire an employee, they work for you, not for themselves.

• One of the biggest benefits of hiring independent contractors is access to specialized expertise at a lower cost.
• This means you have no obligation for federal, state or local taxes, Social Security or Medicare benefits, workers’ compensation insurance or unemployment taxes.
• Hiring a contract employee can be beneficial financially in the short term.
• Though benefits can vary from enterprise to enterprise, all your employees should receive the same perks.
• However, converting a contractor to an employee has some other steps that aren’t involved in the normal hiring process.
• The classification difference between contract vs. full-time employees is vital.

Globalization Partners makes no representations or warranties concerning the accuracy, completeness or timeliness of this information. Globalization Partners shall have no liability arising out of, or in connection with, the information, including any loss caused by use of, or reliance on, the information. Workers and companies should carefully consider and discuss the above factors that differentiate the contractor vs. employee status so that both parties can make informed decisions. Misclassifying your employees as contractors is a serious issue in most countries. An employer may face several types of misclassification penalties if the authorities discover they’ve misclassified employees as contractors.

Factors When Choosing Between a Contractor or Full-Time Employee

Because contractors are essentially business owners, it takes an entrepreneurial spirit to be successful. They must feel confident networking and selling themselves to potential new clients. Contractors may go weeks without work so a reasonable amount of savings is practically a requirement.

Attorney Christy L. Foley said these questions can help you determine how to classify a worker. And if you need help creating a hiring plan and forecasting the cost of employees and contractors, sign up for a free trial of Finmark to build your financial plan. Part of the reason why contractors don’t stick around too long is that most people use them on an as-needed basis, whereas you hire full-time employees when you have a long-term and ongoing need. Generally speaking, there’s not an expectation for independent contractors to stick around long term.

Contract Workers vs. Employees: What Your Business Needs to Know

State and local laws vary on providing benefits for part-time employees. Some states may require employers to provide sick leave, paid time off, short-term disability or health insurance to their part-time workers. When an individual works for an employer full time, they typically have a fixed schedule and working hours. They also enjoy employee benefits such as paid vacation time or sick leave, retirement benefits, health insurance, life insurance, and more. In addition, as employees, they don’t have to deal with their income taxes – the employer covers them by deducting the designated amount of money from the employee’s gross pay.

An employer will usually set the hours of a full-time employee and the employee will report to a supervisor within the company. These employees have guaranteed work, meaning they have a more stable income than part-time workers and contractors. Their compensation at entry level varies but they are eligible for raises and are paid on a schedule rather than only after completing projects. As part of converting independent contractors to employees, companies and workers need to agree on a new compensation structure. As self-employed individuals, independent contractors decide how to charge their clients, typically through an hourly rate or a flat fee per project.