Differences between a Full-Time Employee and an Independent Contractor

Differences between a Full-Time Employee and an Independent Contractor

As an employer, obviously you’ve had to fill different positions for your organization at various times. When doing so there will be a huge number of factors that will need to be taken into account, not least of which, things like the skills, experience, and overall “fit” of the candidates concerned.

However, another aspect that is often considered is whether or not to take on a full-time employee or to employ a contractor. As with most things in the business world, there are arguments for and against both of these options. This blog post will take a look at and expand upon some of the key differences between a full-time employee and an independent contractor to consider when hiring.

Cost Differences

It’s not surprising that cost differences can play a huge role in deciding which route is preferred, and unfortunately, it’s not as straightforward as it might seem.

When taking a look at the actual job compensation, a contractor will often, but not always, be paid more than a full-time employee. This is because a contractor typically charges more as they are independent, setting their own salary, and charging for exactly the number of hours that are worked. In the case of a full-time employee however, there might be overtime payments to consider if the job runs over their normal working hours, which are normally at a higher rate than the usual salary level. Also, consider the cost of paying benefits and so on, which are often provided to employees but not contractors.

Potential Responsibility Issues

It would be very easy to suggest that a contractor will provide the employer with potential headaches relating to responsibility issues. Things that might crop up can include:

  • Quality of work
  • Timekeeping
  • General attitude
  • Overall commitment levels

But these issues can occur just as easily in a full-time employee situation. It very much comes down to the mindset of the person concerned rather than just their employment status as to whether or not they present any responsibility issues.

An example of this might be that a contractor may possibly not put in more effort than they need to because they know that they don’t have any long-term commitments to the company, whereas another contractor might take the view that if they perform above the required level then there could be a potential full-time opportunity at a later stage.

Legal Differences

This is one of the areas that can cause employers massive problems if they are not too careful. There are very clear differences between the rights of a full-time employee versus that of a contractor.

The main differences involve the areas of:

  • Overtime
  • Vacation
  • Other Benefits
  • Statutory Notice
  • Severance

The severance element of this is a classic example. In the case of a contractor it is relatively easy to carry out without any real cost implications. However, for a full-time employee there is much more that should be considered to avoid running afoul of local employment laws.

It should also be noted that there are some occasions when a contractor can claim the rights of a full-time employee. Over time they can see their relationship with the organization evolving. Factors that can influence this can be:

  • The contractor having just one client
  • The contractor working full-time in the client’s office
  • Using the organization’s computers and tools
  • Working alongside full-time employees on the client’s projects

Over time, there is a pretty strong case that this individual will be able to claim that they actually an employee, rather than just a contractor.

Tax Considerations

The biggest single difference here is that the full-time employee will have his or her income taxed at the source. This is not the same for the contractor, who will have to make their own arrangements to pay the tax that is due from their income. As such, contractors will often charge you tax on jobs they perform, so watch out for this hidden cost which can make them even more expensive.

It is important that a company doesn’t try to treat their actual employees as if they were contractors when it comes to taxes. In the event of this happening, it’s likely that they will face penalties from the IRS, almost certainly including the unpaid tax, interest, and possibly fines.

Full-Time Employee Benefits

As discussed earlier in this blog post, there will normally be some benefits to the full-time employee position. These are very likely to include some or all of the following:

  • Paid vacation
  • Sick pay
  • Pension contribution
  • Health cover
  • Employee bonus schemes, including overtime
  • Use of company vehicles
  • Severance payments

All of these things will have a degree of cost attached to them; this is perhaps one of the main reasons that a full-time employee will normally be paid less than that of a contractor. If your employees don’t end up using their benefits, you could stand to save in the long-run.

And in addition to these benefits, the full-time employee will often feel more settled in their working environment; not least of which because they are on a permanent contract. As the old saying goes, a happy worker is a productive worker.

Benefits to Using a Contractor

From the employer’s point of view there are also benefits to the use of a contractor, these may very well include:

  • Not having to deal with payroll issues
  • No employment benefits to pay out
  • Little disruption to existing teams
  • Very little overhead required

The Wrap up

Quite clearly there are differences between a full-time employee and an independent contractor, both of which bring different benefits. If an organization is in need of filling a position quickly then the contractor option might well be worth taking a look at. They can often be drafted very quickly and are especially good if there is a short-term increase in workload; sometimes this can be more cost effective than paying employees overtime.

On the other hand, good longer-term employees might prove to be more reliable, work harder, and offer a higher degree of quality.

Whether you choose to hire a full-time employee or an independent contractor, remember, it all comes down to finding the right people who “fit” your organization. With that in mind, you can rest assured you will have made the right decision.

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