6 Tips To Grow Your Business As A Sole Trader

Employee vs Independent Contractor: What’s the Difference?

Did you know there are over 31.7 million small businesses in the United States? While many of these companies remain small, others eventually expand, creating the need for new staff members.

Hiring employees can be costly if you are a small company since you need to provide benefits. Thus, many businesses decide to work with independent contractors instead.

Would you like to know the difference between these types of workers? If so, keep reading as we explain employee vs independent contractor roles and responsibilities.

What Is an Independent Contractor?

Companies often hire independent contractors to fill short-term needs or work on projects remotely.

These individuals perform services for a company under specific conditions. Both parties agree to these terms in a contract, which includes details such as:

  • Pay
  • Duties
  • Amount of work

Although independent contractors do work for a business, they are not employees. Instead, they are self-employed and usually provide services for several clients or companies simultaneously.

Moreover, they can complete the work however they would like, as long as it meets the contract terms.

Employee Vs Independent Contractor Differences

Now you know what an independent contractor is. But, how do they differ from traditional employees? Let’s take a look!

Relationship

Employers tell workers what work they need to do and how to do it. Meanwhile, independent contractors have a business-to-business relationship. Therefore, they can work within their role as long as the result of the project is satisfactory.

Work Hours

A worker is classified as either a full-time employee or a part-time employee. So their employer will determine how much they work and even their schedule.

However, independent contractors can work however many hours they wish if the work is complete and meets the client’s expectations.

Payment

Companies automatically pay their employees, who work for a specific salary.

However, independent contractors negotiate payment terms before signing an agreement. They also provide their tools and equipment and submit invoices for payment to back office support.

Taxes

One of the main differences between employees and independent contractors is how they pay taxes. Since independent contractors are self-employed, they are subject to self-employment tax. Thus, they should complete a W-9 form.

Meanwhile, employees generally have taxes taken out of their paycheck and complete a W-4 from their employer.

Benefits

Companies do not employ independent contractors. Therefore, they do not receive benefits. This translates into savings for businesses since they don’t provide health care, paid time off, insurance, or retirement plans.

Choose the Best Workers for Your Business

Knowing the differences between an employee vs independent contractor is essential for making wise decisions as a business owner. After reading this post, you will likely know which type of workers are best as you grow your company. So, calculate the cost, and don’t forget to save this post for reference!

And, if you would like to learn more business tips, check out more of our great online articles!

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