Employee or Independent Contractor? Best Hire for Small Business NEXT

independent contractor vs employee pros and cons

Unlike employees, contractors are self-employed (and usually run their own businesses). A company can hire a contractor (also called a contract employee) to perform a one-off task or project or deliver work on an ongoing basis. Contractors are entitled to decide when, where, how, and even who completes the work, provided that the deliverables meet the terms of the independent contractor agreement. Regardless of what’s in the employment contract, the IRS determines a worker’s status based on how the relationship is actually carried out. If the worker is hired for an indefinite period of time, provides services that are a key business activity, and enjoys benefits, the worker is likely an employee in the eye of the IRS.

Since payments to independent contractors aren’t subject to employee withholdings or employer-paid taxes, some business owners prefer hiring independent contractors over employees. But they must exercise caution because paying a worker as an independent contractor requires that you meet several standards. Despite this flexibility, independent contractors aren’t usually entitled to workers’ rights or statutory benefits, such as paid time off, sick leave, and other standard employee perks. They’re also responsible for handling their own taxes and social insurance contributions. Employees are covered by numerous federal and state employment and labor laws.

What key factors set employees and independent contractors apart?

Both would be typing at computers, going to meetings, and using the bathroom. Because most ICs bring specialized expertise to the job, they are usually productive immediately, eliminating the time and cost of training. While contractors settle their own tax affairs, there are still occasions when you may need to fill out and submit certain forms. As mentioned, you must withhold and settle taxes on your employees’ behalf. Specialized skills relate to people’s specific talents or capabilities and whether those skills make them fit for a job.

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What is the difference between an employee and a contractor?

First, because independents are their own business entity, they are responsible for providing their own benefits and paying both the employer and employee portion of Social Security and Medicare (FICA). Second, independent contractors are experts in their respective fields. Engaging an independent can help companies save both time and money on training, onboarding, and managing a full-time employee.