Have you ever wondered what the difference is between an employee and an independent contractor?
Maybe you’ve never even thought about the difference between the two. In fact, depending on the job you’re working sometimes there’s no difference at all. Most times, independent contractors and employees are working side by side at the same business, doing very similar or even the same work, yet there are hidden differences you may not have known.
The differences are legal, and these differences are very important when it comes to being either an employee or an independent contractor (also known as a consultant or gig worker)
The legal differences go beyond the job title. These differences may affect your employment benefits, tax implications and other liabilities. So before you accept that job, ensure you know the key differences.
Let’s start with the employees, here’s what you can expect if you are to be one:
An employee tends to only work for one employer, and in doing so works the hours that have been set by the said employer. The employer will also more than likely work at the employee’s place of business (although everything that has happened with the pandemic has made working from home as an employee more common)
A huge benefit to being an employee is that they will more often than not receive employment benefits, which can be anything from health insurance to disability insurance and everything in between.
As an employee, you’re working under the control and direction of your employer, or in other words, your boss. You are also likely to accomplish tasks in the manner that the employer has requested. For example, if accounts payable is top of your priorities, that should be done first before other tasks.
Working as an employee, you’re not expected to incur any costs of the business or make any investments in the work. If your work laptop has broken, your employer should be the one to replace it, not the employee.
An employee will more than likely have general education and experience in the job they’re working. Whether you’re a high school graduate working as a retail assistant or have studied a degree at college to become an accountant. If you’re unaware of how to do some of your tasks as an employee, your employer will more than likely give special training to ensure you’re doing the job to your best possible standard.
Working as an employee, you will receive a net salary, with income tax, medicare tax and social security having already been withheld by the employer, making paying taxes easier.
If you get laid off or terminated as an employer, there’s a high chance you’ll be eligible to receive unemployment compensation.
If you happen to hurt yourself at work, as an employee you are able to receive worker’s compensation benefits from said work-related injury.
One of the best security measures of being an employee is that you generally can’t be terminated at will by your employer without good cause or notice, giving you peace of mind you won’t be suddenly unemployed next week.
There are rules that need to be followed by all employers for their employees, such as federal and state wage and hour laws. This is related to minimum wage and overtime rules.
As an employee, you have the protection of workplace safety as well as anti-discrimination laws.
And lastly, as an employee, you may be entitled to form or join a union.
As you can see, there are many benefits to being an employee. However, how does this change when you’re an independent contractor? We’ll go over the same list of things and see what is and isn’t different between the two.
So let’s talk independent contractors, here’s what you can expect if you are to be one:
As an independent contractor, you are generally providing consulting services to more than one company at a time and in doing so you are able to set your own hours.
As an independent contractor, you will more than likely be working from your own office or home, not tied to one specific desk.
Unfortunately, you are not eligible to receive employment benefits from the employer.
While an employee works under the direction of their employer, an independent contractor works relatively independently (as the name may have suggested!)
You have the authority to choose the importance of your tasks and what order they should get done in, without the input of an employer.
As an independent contractor, you are in charge of incurring the costs associated with getting the job done. Like the employee example of a broken laptop, rather than the employer buying you a new one, this is on you.
An independent contractor will have a more specialized set of skills with a particularised education and experience background, not getting the same kind of training an employee would if they don’t know how to do something.
When it comes to payday, your tax isn’t withheld. You’ll get a lump sum, meaning you have to put your own taxes aside in order to meet all requirements when tax time rolls around.
If you lose your job, you’re not eligible for unemployment compensation benefits (although this has been slightly different throughout the pandemic thanks to federal and state unemployment compensation benefits)
If you are to injure yourself on the job, you’re not eligible for worker’s compensation benefits.
You can be let go tomorrow without warning, leaving you with a little less security than those who are employees.
You are paid according to your contract. This means if you are to work overtime, you will not receive additional compensation for doing so.
An independent contractor is also usually not protected by employment anti-discrimination and workplace safety laws the way employees are.
You are also not entitled to join or form a union.
As you can see, there are many differences when it comes to being either an employee or an independent contractor, and depending on what you’re looking for you may be more suited to one than the other.
While an employee has a lot more benefits, an independent contractor has a lot more freedom with their time and where they work. You need to weigh the pros and cons and decide which works best for you and your situation.