Difference between Independent Contractor and Employee

Key Difference: An employee is someone who is employed by a company. They work directly for the company, and in turn are given a salary, and may also get bonuses and employment benefits. An independent contractor can be a person, a company, business, corporation, etc. that can be hired on a contract basis. Typically, when speaking in terms of an employee, an independent contractor is a person who is hired to fulfill a certain task for which the person will be paid accordingly.

EmployeeIndependent Contractor and Employee are terms and titles that are often used in the industry, however, while both of them sound important and fancy, chances are that a number of people may not know exactly what those terms mean and what is their importance?

An employee is what most people think of when they hear job. An employee is someone who is employed by a company. They work directly for the company, and in turn are given a salary, and may also get bonuses and employment benefits. An employee can be a full time employee, which is the most common, or a part time employee, which still fits the bill of an employee. Typically an employee works in a hierarchical system, and works directly under the control of a supervisor or a boss.

An independent contractor can be a person, a company, business, corporation, etc. that can be hired on a contract basis. Typically, when speaking in terms of an employee, an independent contractor is a person who is hired to fulfill a certain task for which the person will be paid accordingly. It is a contractual agreement, in which services are rendered against money.

Independent ContractorAs an employee, the person is under direct control of the company. They have to report to a head or a boss, who will oversee all the work and ensure that it is being done in a timely manner and appropriately. As an independent contractor, the person is independent of the company’s control; they do not work for the company, but rather the company is one of their clients, and hence they have a business agreement. The client cannot interfere or closely monitor the work process, instead they provide a set of requirements that need to be completed, and for which they are willing to pay. The how of the matter is decided by the independent contractor.

In addition to job titles and the manner in which they work, there is also a significant difference between them in terms of the law, benefits, rights, and taxes. A salaried employee is taxed accordingly. They also have access to employment benefits, as well as unemployment benefits. An independent contractor, on the other hand, is treated as being self-employed, and as an independent business. The actual differences between the two in terms of law and taxes may differ region or region.

Comparison between Independent Contractor and Employee:

 

Independent Contractor

Employee

Description

A person who is hired by the company on the basis of contract pay

A person who is hired by the company usually for full term employment

Employment

Self-employed

Employed by the company

Source of income

Proceeds from each project

Salary

Employer

Can work with various companies at any given time

Typically works for one employer

Benefits

No employment or unemployment benefits

Some employment benefits according to the company

Work hours

Set by self

Set by the employer

Overtime

Unpaid for overtime

Paid for overtime

Location

Works out of their own home or office

Work’s at the company’s offices

Control

Maintains control over their own work

Has to work under a boss or a supervisor who oversees their work

Relationship

Has a business – client relationship with the company

Has an employee and employer relationship with the company

Reference: Business Dictionary (Independent Contractor and Employee),
Wikipedia (Independent Contractor and Employee), Find Law, Entrepreneur
Image Courtesy:  forbes.com, youtube.com

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