When it comes to hiring a person for performing tasks, there are two options available, before the business person, i.e. employee or independent contractor. An employee is a person who provides services to the employer in exchange for an adequate consideration, i.e. salary. On the contrary, an independent contractor is a person, or an entity, which provides services to the clients for a definite fee.
Making a choice between these two would be difficult as both have their pros and cons. However, if you learn the differences between employee and independent contractor, then the selection is quite easy. These two terms differ in some aspects, like the degree of control, the permanence of relationship, independence, ability to subcontract, the extent to which the work performed is integral to the employer’s business.
Content: Employee Vs Independent Contractor
|Basis for Comparison||Employee||Independent Contractor|
|Meaning||The employee is a person hired by the employer, to work on a regular basis, in exchange for a fixed remuneration.||An independent contractor is a self employed person who provides services to other organization for a fixed compensation.|
|Source of income||Salary||Proceeds from each project|
|Works for||One employer||Multiple clients|
|Inputs||Provided by employer||Contractor uses his own inputs|
|Time and place of work||Decided by Employer||Decided by Contractor|
|Payment for expenses||Made by employer||Made by contractor himself|
|Independence||Works under the control and direction of employer.||Works independently.|
|Delegation||He is required to personally perform the task.||He can delegate tasks.|
|Training||Employee receives training for performing services in a particular manner.||Contractor does not receives any training from contractee.|
|Relationship||Continuing relationship with employer.||Temporary relationship with client.|
Definition of Employee
An employee is defined as the person who works for the employer on a regular basis, in return for a fixed remuneration called salary. The terms and conditions of the employment are described under a contract known as a contract of employment. The contract can be oral or written, express or implied. The organisation has full control over the work of the employee, i.e. what, how, when is to be done.
There is a complete process for hiring employees known as recruitment process. The work of the employee can be part-time, full-time or even hired temporarily by the employer. The employee is hired for a specific job, and each job has its own tasks, duties, responsibilities and authorities. They are paid monthly salary, on the basis of their qualification, experience, skills, performance and position.
Definition of Independent Contractor
An independent contractor is a neutral person, i.e. a consultant, lawyer, accountants, engineer or any other professional degree holder, who provides services, either to the client/principal or to a third party on behalf of the client, as per the terms of the contract between the contractor and the principal. They are paid on a freelance basis.
The independent contractor is free from any control or influence of the client, he can apply his judgment concerning the manner and method of completing the task. Further, whatever the outcome of the project, the independent contractor is responsible for it.
Key Differences Between Employee and Independent Contractor
The points given below are noteworthy, so far as the difference between employee and independent contractor is concerned:
- A person hired by the employer, to work on a regular basis, in exchange for a fixed remuneration, is called an employee. A self-employed person who provides services to another organisation for a fixed compensation is called an independent contractor.
- The remuneration for an employee is the salary or wages. On the other hand, the independent contractor draws income from each project.
- An employee works solely for the employer, whereas the independent contractor works for several clients.
- Inputs like tools, materials, equipment or any other resources to perform the task are provided to the employee by the employer. On the other hand, the independent contractor uses his own resources.
- It is the employer who decides when and where to work. As against this, the independent contractor decides the time and place for completing the project.
- The expenses made by the employee, during the performance of the task, are borne by the employer. Unlike independent contractor, who is responsible for bearing the expenses incurred during the performance of services.
- The employee works under the control and direction of the employer. On the contrary, the independent contractor is under no control, and so he works at his own will.
- The employee cannot delegate the task to another person while an independent contractor has the right to delegate task and duties to his/her subordinates.
- To perform tasks and duties in a defined manner, the employee receives proper training. In contrast, an independent contractor does not receive any training for the provision of services.
- An employee has a continuing relationship with the employer. However, the independent contractor has a short-term relationship with the client.
Therefore, merits and demerits are associated with both the employee and independent contractor. Before, coming to a decision, first, realise what are your requirements and expectation, after that choose the right person for the task. The cost for maintaining employees is higher than independent contractors because of the need to pay.