Remote Work
May 18, 2021

Difference between an Employee and an Independent Contractor

Independent contractors and employees share many similarities, but there are a few key differences that distinguish them. They have different responsibilities as well as obligations to the businesses that they work for, and those that they work with (both businesses and clients) will have different standards for employees as opposed to independent contractors.

Who is an Employee?

The broad definition that sets employees apart from independent contractors is that they are a person who works for a business in exchange for a specific wage or salary. When someone is an employee, the business that they work for is responsible for processing withholding taxes from each paycheck and file relevant tax forms such as a W-2in the United States. An employee is also entitled to minimum wage benefits from labor laws.

Other distinctions include:

  • Eligibility to receive benefits,
  • Ability to work for one company,
  • Are given training,
  • And do not have to provide tools or a workspace
  •  

Employees’ jobs often encompass a wide array of tasks and duties, while independent contractors are only responsible for services that are in the scope of their outlined contract.

An employee signs an Employment Contract after accepting an offer from a potential employer. The terms of work are also defined here and can be full-time, part-time or even temporary.

 

Who is an Independent Contractor?

Independent contractors typically work for themselves and make money by providing their services to clients (either individuals or businesses). Independent contractors are often individuals with specialized skills who work or consult on specific projects.

When a business hires an independent contractor, it is the responsibility of the contractor to ensure they are in compliance. The business is not responsible for providing benefits such as training, workspace, or tools to the contractor. The relationship is akin to that of a business-to-business relationship.

Independent contractors also have the freedom to work for other businesses at the same time. In addition, they are free to set their own hours, choose their workspace and use their own tools to negotiate their own rates and fees, and submit invoices for their work. Their rate may be standard and charged by the hour, and/or depend on the work that they are doing.

They differ from employees by bringing specialised expertise to a job, whereas employees usually receive training. The vast majority of independent contractors get work assignments because they can offer a business a specialised skill that doesn’t require the business to worry about providing certifications, special training, or education, since the contractor will already have the necessary accreditations.  

Independent contractors may sometimes have their own employees, partner consultants, or subcontractors that help them complete work tasks.

Contractors sign an Independent Contractor Agreement after negotiating terms with a client.

 

Hiring Contracts

Since there are subtle differences between independent contractors and employees, the types of contracts used are also different.

In the case of employment contracts, the terms of a relationship between a business and their employee is stated. This includes the following information:

  • Job title
  • Job description
  • Probationally period (usually 3 months)
  • Payment terms (salary, hourly, commission, etc.)
  • Vacation time, work hours, and overtime
  • Type of employment (part-time, full-time, temporary, permanent)
  • Information about the company
  • Information about the employee
  • Any confidentiality, non-solicitation, or non-compete clauses
  •        

An Independent Contractor Agreement is used to define how a business and a contractor will work together. These contracts may be provided by either the client or the independent contractor, and include information such as:

  • A description of what services the contractor will be provided
  • The contract’s duration
  • If there is a deposit on the work to be done, and any conditions for late payment
  • Details about the contractor and the business hiring them
  • How much the contractor will be paid and when
  • Information about expenses and intellectual property
  •    

Independent Contractor Agreements are usually made after the contractor and client have negotiated terms and discussed the work that needs to be done. Sometimes a contract may only last for the duration of a project, for example, coding a website, and other times the work may be ongoing, like providing marketing support.

 

The advantages of hiring independent contractors

Hiring employees is a traditional route that many business take, but it isn’t without its downsides. Employees:

  • Need to be provided vacation time. This can cause headaches when there are disagreements between the employer and employee as to when the vacation time is to be taken.
  • Cost more than a contractor over time due to vacations, benefits, and overtime.
  • Are more difficult to end contracts with than independent contractors.

Independent contractors can offer a lot of benefits to businesses looking for support from skilled and trained individuals. Some of these benefits include things like:

  • Short-term contracts - if, after a project is complete, either party doesn’t want to continue working together in the future, there is no obligation for either the contractor or the client to sign another contract.
  • They tend to specialize. This is great for clients as they get an expert’s advice where they need it, and contractors are able to focus on what they do best instead of generalizing.
  • They don’t cost overhead for the employer and contractors can choose their own hours and workspace.
  • The flexible nature of the work that     independent contractors do inspires productivity.
  • Independent contractors are a great way to test-drive potential hires if a company can’t hire a full-time employee currently, but wishes to in the future.

If your company is working with or looking to work with independent contractors, then we’ve got a great solution for you at RemotePass. We’re a Global Payroll & Compliance platform for remote teams, and we make it easy to hire, offer benefits, onboard, manage & pay your global team all-in-one place! Get in touch with us today for more info or any questions you might have, and get started with streamlined hiring, onboarding and payroll for global remote teams.

     


Ready to get started?

Sign up for your free demo today!

More from RemotePass

People are talking

Hear what teams love about using RemotePass.

RemotePass has been so efficient for us as we have at least 60% of our team being remote. Especially for tracking if everyone has been paid out or if they have reimbursements, we don't have to manually do it one by one anymore. It's also really good since we are in compliance with each and every single one of our remote teams' place of residence.

Lorena A, HR
@NasDaily

RemotePass has enabled Swvl to be more flexible, allowing us to hire the best talent in Remote locations. RemotePass has been a great partner and fast tracking Swvl's growth plans in multiple countries. Special shout out to the support team for the exemplary service.

Faizan M, Global HR
@SWVL

Brilliant service. We love and we'd be using it for the years to come. Also great customer success management as well!

Badr A.  CEO
@Soum

We love the entire system you guys have built, it's user-friendly and in particular we love the automated notifications part. Employees are automatically informed about the payment status and they receive the payment in a couple of hours after they get notified vs. manually asking us. Thanks for your ongoing support

Muhammed, CFO
@ShortPoint

The experience with Remote pass and the assistance you have provided with my recent transaction is amazing. I really liked the follow-up nudge and provide me details is super cool. Thanks for your help

Tarun V.
@NasEducation

Using RemotePass has been an absolute game-changer for our operations - knowing that we have a reliable partner on our side even in complex regions efficiently (this has previously been a big headache for us), allows our teams to focus exclusively on client service and product delivery

Nina, Associate VP
@Infomineo

We were looking for a simple and affordable product and RemotePass more than delivered. RemotePass helped us streamline and manage our remote teams. RemotePass understood us as a company and provided us the support and confidence that we are compliant with regulations, our remote teams have excellent support, and that we made the right choice

Preeta, HR Business Partner
@Eyewa

Love it! It has been an essential tool for us, the perks of having everything at the point of my fingers.Using RemotePass has been super efficient. The platform is user-friendly and fast, and communication with customer service is truly a "gold standard".

Iyad A, Head of People
@Unico

RemotePass has been very helpful as it streamlines the payment process to our consultants, with a simple 2 to 3 clicks the job is done. It is effortless and straightforward to use. The most important thing is that It eliminates any compliance risks we might face, and the lengthy verification process. Overall the system is excellent, and I would recommend it to other organizations.

Rafik, Head of HR
@Rizek

The product has been incredibly a game-changer for us as we scaled our team globally. Creating a great first impression when onboarding remote teams . Everything centralized in one place. Love it!

Roxana L, Chief People Officer
@Bankio

Our work with RemotePass is a partnership based on trust and credibility we are proud to have. With RemotePass services, onboarding and payroll for our global team is well managed and our employees feel safe and cared for.

Fahad A, HR
@Soum KSA

I was instantly impressed with the UI/UX of the RemotePass platform, it is incredibly user-friendly and the feedback I have received from the remote workers has been excellent. Having supplied contract and remote staff to clients in the Middle East for several years, I have been used to a very manual and labor-heavy process when it comes to payroll and compliance. After one demonstration from the team at RemotePass I switched from using an existing supplier, as I get better value and service using this platform.

David S, Practice Lead
@Salt

Try RemotePass Today!

Join leaders who depend on RemotePass every day to be ahead of the curve.