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Business

Contractor vs Employees: 7 Pointers to Clearly Understand the Difference

3 Mins read

Contractor vs Employees: 7 Pointers to Clearly Understand the Difference. There are 7 pointers that will help you to understand the difference between contractors and employees.

Ownership

The first pointer is the ownership of the business. An independent professional is going to be a sole proprietor or they could have an incorporated business. This means that they are going to build their business around all of the special services that they provide to the customers.

But it is not uncommon for the independent contractors to have a business name and they will work with a variety of clients. Most of the time, the relationship with the independent contractor will be a business to business relationship. But it can still be easy to treat these people as employees.

Expertise

The second pointer is the expertise of the industry that the contractor and employee are going to have. The employees are going to have a little bit of training on about duties of their job, but the independent contractors will have specialized expertise in the project or task that you need them to do. This means that as a client you are not going to be responsible for providing the contractors with the training for the job.

Therefore, the independent contractor might be the best way to fill the needs of the business correctly. The contractors have the ability to work in every sector of the economy so they will demonstrate a high level of specialization.

Time

The third pointer is the time constraints that can happen. The traditional employees will have a wide variety of duties and tasks that they will have to do for their job but the independent contractors will only be responsible for performing the services that have been outlined inside of the contract.

This means that you are going to be able to have a good working relationship with the contractor since they are going to know exactly what the expectations of their work are. The contract will need to include all of the details about the work that needs to be done, payment terms, and a time frame for when the work will be completed.

Payment

The fourth pointer is the way that the people are going to get paid. The independent contractors are not going to be working for a certain salary instead they will submit an invoice for all of the work that they do. This means that when the contract is being negotiated, then the pay and the terms of the pay will need to be discussed.

Most of the time, the independent contractors will have a billing rate for the services that they are going to perform. But there is also a possibility that the rate might depend on the work that they are going to be doing for you.

Taxes

The fifth pointer is how the taxes are going to be paid. When you are a client with independent contractors, then you don’t have to worry about withholding any taxes on the contractors that you have engaged with. This means that the independent contractors that are going to be responsible for paying their own taxes. Therefore, they are going to pay what is known as the self-employment tax. This will be half of Social Security and Medicare for the employer and the employees.

Benefits

The sixth pointer is the benefits that you will receive if you use an independent contractor. Some of these benefits might include not having to provide the employees with more traditional benefits like stock options, health insurance, and retirement plans. Plus the independent contractors are not going to get the same legal protections like unemployment, worker’s compensation, and anti-discrimination like employees of a company are going to receive.

But it is always a good idea to make sure that the independent contractor that you are using has the basic insurance requirements. This needs to be built into their contract so that you are protected from any type of legal issues.

Delegation

The last pointer is that the independent contractors are going to have their employees that are going to help them to make sure that the work tasks are completed. When you are discussing all of the things in the contract, then you are going to need to ask the independent contractor about how they are going to utilize the different work resources. If they are not going to use them, then all of this will need to be outlined in the contract.

It is important to remember that if the independent contractors are going to use some extra resources to get the work done, then they are going to be responsible for the taxes on these resources. This also includes the filing and reporting of all of the additional employees that might be needed in order to get the project completed within a certain time frame.