Difference Between Employee and Independent Contractor

Employee vs Independent Contractor

Employees and independent contractors are two types of workers that are generally supervised and maintained by a company or a business. Both worker statuses also imply the type of business relationship that exists between the business and the worker.

The main distinction between independent contractor and employee is the degree of control and independence that an employer or other business exerts. To measure such degree, there are three parameters or categories; behavioral control, financial control, and type of relationship.

The distinction is made due to tax and legal purposes. The labeling is often made by the company or business. Also, compensation can also be a major factor.

In an employee status, there is the constant presence of an employer. An employee has a steady flow of income and other benefits as part of the compensation. An employee provides a set of skills and shoulders specific responsibilities in a company that is essential in conducting business. Employees often have a steady routine and a fixed income on a specified time frame (monthly, weekly, per hour), a set of work hours and eligibility for promotion. In terms of taxes, the employer contributes to half of the payment of the employee’s benefits, personal income tax, as well as future unemployment insurance. In instances of accidents during work, the employer also provides Workers’ compensation such as hospitalization and other services.

In return for these benefits, the employee gives up a certain degree of control and independence. Control can manifest in terms of hours rendered, schedule, or type of work. The employee is seen as an integral part of the company.

Another distinction is that the employee works in the employer’s presence or premises. In addition, the employer provides the means, tools, resources, and methods. Sometimes even training is included. Typically, an employee works for a single company. There are businesses that prohibit employee “moonlighting” or having two jobs at the same time. This is part of the employee’s observance and obedience towards company rules and regulations.

On the other hand, independent contractors are workers who provide specific services for other businesses. Independent contractors can be a person or a business itself. Unlike an employee, an independent contractor enjoys a lesser degree of control and higher independence.

Independent contractors have a variety of customers or clients. Contractors have their own tools and methods to do their jobs. They set their own hours and work around guidelines not rules and regulations. They are considered as outside entities or third parties, meaning they are not actually part of the company.

In terms of compensation, contracts usually have a fixed income per project. There is no compensation for accidents or health-related incidents. Contractors pay their taxes and benefits in full and are not dependent on any entity.

Summary:

1.Both “employee” and “independent contractor” are labels for workers. They are distinguished by the company for legal and tax purposes. Both imply the extent of independence and control. The label also defines the type of business relationship between the business and the worker.
2.Essentially, an employee is a worker hired by the business to do a specific job within the company’s premises and supervision. The independent contractor, on the other hand, can work from anywhere or away from company premises.
3.The employee receives monetary compensation and benefits especially during accidents or sickness. They are part of the company; the company pays half for the taxes and benefits in return for the employee’s compliance. An employee has less control and independence. In contrast, the independent contractors are not part of the company but only work on a project for a short-term basis. They pay for their own taxes and benefits in full.
4.Employees are also eligible for unemployment benefits and promotions. Meanwhile, there is also no additional compensation or benefits for the independent contractors aside from the agreed-upon terms of compensation. They are also not eligible for unemployment insurance.
5.In contrast, an independent contractor is a worker with higher control and independence over time, work methods, and progress. This is not true for an employee.

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