The Difference Between Contractors, Independent Contractors, & Employees

The Difference Between Contractors, Independent Contractors, & Employees

The internet is flooded with misinformation and scams. The white noise can be overwhelming. The line between being an independent contractor and an employee has become blurred as the number of “gig economy” jobs rise in popularity. In this article, we will explain the significant differences between contractors, independent contractors, and employees.

  • Contractors

Contracting provides companies and individuals an alternative to permanent employment. Contractors are professionals who offer skills or services to companies for a fixed period, often completing a single project.

Contractors are responsible for their own equipment, tools and other supplies. They negotiate their own hours and are self-directed in completing their own work. Contractors are not entitled to certain benefits like workers' compensation insurance, workers’ comp, health insurance and FMLA leave, which are usually provided to full-time employees.

  • Independent Contractors

Independent contractors are self-employed professionals who provide a service of some sort to companies but are not employees. If the independent contractor provides services within the company, they are usually compensated by a predetermined cost per hour, a lump sum amount, or other ways.

Companies that work with independent contractors are not required to provide them with benefits like health insurance or retirement accounts.

  • Employees

Employees are people who provide services of some sort within the company. They usually get paid a fixed wage or salary and receive benefits and protection under federal, state, and local labor laws. Employees are usually hired to work full time and are required to work in a specific workplace. However, some companies also may hire employees who work remotely.

Independent Contractors vs. Employees

An independent contractor may be a sole proprietor or have an incorporated business. Their businesses provide specialized services. They also typically bring specialized expertise to a project, while employees receive training when it comes to their job duties.

It’s also important to note that independent contractors may take on additional work for other clients even if they have a long-term contract with one company. Depending on their contracts, employees may not be able to do so.

When it comes to task completion, employees handle a wide variety of duties and tasks, while independent contractors will only need to carry out the services in the Scope of Work (SOW).

Scope of Work: Why is It Important?

If a contractor doesn’t have an SOW, they’re more likely to work on a whole spectrum of what you have in mind, rather than completing a specific task. The contractor may take on more projects than they can handle, which can lead to low quality of work and a waste of time.

The SOW is detailed and outlines the tasks, responsibilities, deliverables and other critical components you want completed. The SOW is key in defining the work you want to be done, how the work will be done, and how the work will be evaluated.

The Bottomline

As the workforce becomes more flexible and independent, it’s important to stay ahead of the game and understand the difference between a contractor, an independent contractor, and an employee. Being able to clearly understand the differences in your relationship with a contractor, independent contractor or employee is necessary for your protection and for the protection of your business.

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