Employee vs. Contractor: Which Is Right for Your Business?

LAST UPDATED: June 11, 2022

Deciding between hiring an employee or contractor can be difficult for small businesses. On the one hand, hiring a full-time employee provides companies with the security of knowing that they will always have someone to do the work - but on the other hand, contractors can often be more affordable. So, which is right for your business? In this blog post, we'll discuss what your company needs to know to determine which type of employee your business should hire.

Are Employees And Independent Contractors The Same?

It's vital to understand that employees and contractors are not the same. An employee is an individual who works for a company in exchange for salary and benefits, while a contractor is an individual or organization that provides services to a company on a contractual basis.

There are several key differences between employees and contractors that small businesses should be aware of, including:

Taxation And Payment

One of the most significant differences between employees and contractors is the way in which they are taxed and paid. An employee is a part of your business's payroll, which means that their taxes (such as social security taxes and medicare taxes) will be withheld from their paycheck by your small company, and they will receive either a salary or hourly wage from your organization.

On the other hand, a contractor is not a part of your small business's payroll and is responsible for paying their own taxes. Therefore, they will receive payment from your small business either as a lump sum for the project or on an hourly basis, but they will not have any taxes withheld from their compensation. This difference can be significant for small businesses, as it means that hiring a contractor can often be more affordable than hiring an employee since you will not be responsible for paying their taxes.

Employment Benefits

Employees not only receive a salary or hourly wage from small businesses but are also typically eligible for a number of employment benefits, such as health insurance, vacation time, and sick days. Employees expect small businesses to provide these benefits, and small businesses are sometimes even required by law to offer them, such as workers' compensation insurance.

Contractors, on the other hand, are not typically eligible for employment benefits from small businesses. This is because they are not considered employees of the small business, and therefore the small business is not responsible for providing them with benefits. So, if a contractor needs health insurance or other benefits, they will need to obtain them on their own.

Work Schedule And Hours

The final key difference between employees and contractors is the work schedule and hours. An employee typically works set hours for a small business and is expected to be available during those hours to do the work that is required of them. They may also be expected to work overtime or on weekends if the small business needs them to.

A contractor, however, is not typically expected to work set hours for a small business. Instead, they are assigned to specific tasks without the company controlling how many hours they work. In addition, contractors may have other projects that they are working on, and as such, their availability will vary. This can be beneficial for small businesses as it means that they can often get the work done when they need it, but it can also be a downside as it may be challenging to get in touch with a contractor when you need them.

Role Assignments

A contractor is typically hired to perform one specific task. For example, if you need to have your roofing replaced, you would hire a roofing contractor. Once the task is completed, the contractor is no longer needed, and their contract with your small business will end. This person would not be required to work on additional projects unless you specifically contracted them to do so.

An employee, on the other hand, is typically hired to work for your small business on an ongoing basis. They may be assigned specific tasks, but they are also expected to perform other duties as needed. For example, an employee who works in customer service may be responsible for answering phone calls, responding to customer emails, and helping customers in person. As a result, employees are often more versatile than contractors and can be reassigned to different tasks as needed.

Hiring Process

The hiring process for employees and contractors is also different. When you hire an employee, you typically go through a more formal process that includes advertising the position, reviewing resumes, conducting interviews, and doing background checks. This process can be time-consuming and expensive, but it is crucial to ensure that you are hiring the right person for the job.

When you hire a contractor, on the other hand, the process is typically much simpler. You simply reach out to contractors who you think may be a good fit for the job and ask them if they are interested in working on your project. If they are, you provide them with the details of the project and negotiate a price. Once the price is agreed upon, the contractor will begin work on the project.

Which Choice Is Right For My Business?

When deciding between hiring an employee or contractor, small businesses need to consider a number of factors, including the type of work that needs to be done, the amount of money that is available to pay for the work, and the benefits that are required by law.

Employees typically cost more than contractors, but they also offer small businesses more stability and protection under the law. Contractors can be a good choice for small businesses that need work done on a project basis or that have a limited budget. Ultimately, the decision of whether to hire an employee or contractor depends on the specific needs of your small business.

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