Difference between Employee and Independent Contractor

June 6, 2016 by Editorial Team

So you need some help around the office or at whatever you do for a job and you are thinking about getting someone for hire. Do you opt for an employee or do you go with an independent contractor? Is there a difference between them as far as you are concerned? Let’s see.


Employee vs Independent Contractor

An employee is a person who performs a service for you for payment which is negotiated beforehand and which is given on a monthly or a biweekly basis. The contract between an employer and an employee is legally binding and it implies a certain number of hours or tasks to be performed by the employee in exchange for a salary, and it obliges the employer to pay state taxes on behalf of the employee. These state taxes are usually social security tax, unemployment tax and worker’s compensation tax. An employer may also have control of the means and of the way in which an employee does his job. This means that they can ask for changes in the schedule and in the type of performance provided by the employee. Also, there is a certain degree of permanence given to the employee by the contract as well as obligations on behalf of the employer regarding employees’ work conditions.

An independent contractor is someone who will perform a specific service based on a contract. His job does not imply any kind of stability and the employer only pays the service fee without having to cover other state taxes. The independent contractor is not on a payroll and the employer does not have control over the way in which the contractor performs his job, or over the means used by him or the hours he works at. What is more, when hiring an independent contractor, the employer does not always need to supply equipment, materials and tools.

Employee vs Independent Contractor

So what is the difference between an employee and an independent contractor?

While an employee is an asset for a business, the services and know-how of an independent contractor are temporary resources. The employee depends on the job as his only source of income, while for the independent contractor there can be various other similar jobs he is doing at the same time. Also, while an employee is a constant expense for the employer, who has to cover his salary along with state taxes even when he does not need his services in particular, the independent contractor only does the job he is paid for and may in fact not always be available to the same employer whenever he is needed.

When choosing the type of employment for the people you plan on working with, it is important to analyze your financial possibilities and think ahead about the work volume. Hiring a full time employee might not be covered by your expenses, and it may exceed your needs. On the other hand, if you have tasks you need to complete and independent contractors cannot be found at a moment’s notice, maybe keeping someone on the payroll may not be such a bad idea. Also, keep in mind how particular you are about the way in which the job is done. This means just how comfortable you are with a contractor working at his own pace when you are in dire need of what he must deliver.

Comparison Chart

EmployeeIndependent contractor
Is on the payrollIs paid to deliver the service as specified by the contract
Employer pays state taxes such as health and social insurancePays his own taxes from the money received as payment
Is tied to the job and depends on it as his main source of incomeEach project brings in some of his total annual income
Employer has some form of control over the schedule, over the means and the way in which the job is performedSets his own hours and brings his own equipment and materials