Choosing to hire a contractor vs employee is totally dependent on your circumstances and unique business goals. Engaging with contractors is surely a cost-effective and efficient option especially if you are looking to hire an expert for short-term projects. However, by hiring employees, organizations could build a connected company culture while generating ongoing business contributions that often outweigh the higher associated expenses. So if you are wondering which one you want to hire then a list of contractor vs employee differences could help you decide on a choice. Also with employee vs independent contractor classification, it will be clear as to whom you would like to associate with and which one will provide you benefits.
Table of Contents
- Key Differences: Contractor vs Employee
- Advantages of Hiring an Independent Contractor
- Advantages of Hiring an Employee
- Legal Implications of Contractor vs Employee Classification
- Contractor Compliance and Responsibilities
- How Asanify Simplifies Contractor Compliance and Management
- Conclusion: Choosing Between a Contractor and Employee
- FAQs
Key Differences: Contractor vs Employee
A worker’s legal employment status will depend on multiple factors that are related to both behavioral and financial relationships between the employer and the worker. Apart from this, there are also many elements that will decide which one is a great option when it comes to hiring contractor vs employee. So let’s take a look at a few of the key contractor vs employee differences that make both of them a suitable choice in various situations.
Onboarding
Onboarding employees tend to require much more time and resources than when you want to onboard a contractor. After applying for an employment opportunity, a candidate must initially pass the HR screening and several rounds of interviews. If you look into the contractor vs employee differences upon receiving the job offer, the employee will then undergo onboarding sessions along with learning about job duties.
On the other hand, contractors usually skip HR screening and undergo a few interview rounds and then start working right away which is quite different from what to see in an employee onboarding.
Training
When a company hires an individual the worker needs to undergo training as a part of the onboarding process.
This is the time period when employees are taught all about the team’s workflows, using of company tools, and developing job-related skills by their hiring manager.
However, since companies usually hire contractors for their expertise for a project, contractors do not generally require any sort of training.
Benefits
When it comes to hiring contractors vs employees, contractors are not entitled to any supplemental benefits from their clients. They usually have to purchase any desired or critical insurance policies, such as unemployment insurance, on their own.
Employees on the other hand tend to have statutory benefits such as paid leaves, and health insurance depending on the employer’s policies and local labor laws.
Taxes
Independent contractors classification usually required to pay their own income and self-employment taxes which also cover social security and Mediclaim.
Employers pay the statutory contributions and income taxes on behalf of their employees’ behalf such as for health insurance and social security.
Career development
Employers often make investments in ongoing employee career development to reduce the overall employee churn and to retain top talent. This process is usually used to help employees upskill their qualities.
However, when you consider the contractor vs employee differences, since contractors are just for the short term this does not exactly apply to them.
Advantages of Hiring an Independent Contractor
While the hiring game could be quite tough, employers need not worry about it since you can just hire an independent contractor instead of a long-term employee. Here are a few of the employee vs contractor pros and cons that you should weigh when hiring an independent contractor.
Increase in flexibility
When you find a skilled full-time employee, it could be great for continued employment however it also comes with high-cost requirements. Contractors while being a cost-effective option also come with flexibility. Once a project is complete they can start with a new one or even look for new opportunities.
Suggested Read: Freelancer vs Independent Contractor: A Guide for Employers
Cost savings
Hiring an independent contractor could lead to a lot of financial saving benefits. This is because independent contractors are responsible for their own benefits. Apart from this, they are also experts in their field which saves a lot for employers on both time and money used for training.
Increased efficiency and productivity
When you tend to lower costs you have faster access to talent and help companies become more agile. This in turn will increase the supply chain control while boosting overall efficiency. Not to mention independent contractors are provided with certain projects. Their job hence only revolves around solving certain problems. This helps companies reach their goal faster.
Advantages of Hiring an Employee
Hiring employees could provide a lot of benefits to the organization. Here are a few of the key employee vs contractor pros and cons you get from hiring an employee.
Diverse skillsets
Employees tend to possess different skill sets rather than just one expertise. They also have multiple experiences and backgrounds which make them complement with the existing team. This diversity could in turn be a more well-rounded workforce.
Growth and expansion
Hiring employees could enable the company to grow and expand its services. Additional personnel may also be required who can take on new projects while entering new markets or even meeting increased demands.
Loyalty
Employers often view employees are more likely to be loyal to the company as compared to the other contractors who could possibly job-hop. While this may or may not be the actual case, however, this is still the perception viewed.
Also Read: How to Become an Independent Contractor: Step-by-Step Guide
Legal Implications of Contractor vs Employee Classification
When you misclassify an employee as an independent contractor classification, it could have serious ramifications when it comes to your business. Here are a few of the consequences of not properly discussing the employer vs independent contractor classification.
- Losing tax-exempt status for benefit plans
- Reemployment assistance penalties and fines
- Workers compensation penalties
- Paying additional federal and state taxes for improper classification of contractors
- Potential liability which also includes a wage and hour claim
- Lawsuits for employee benefit obligations.
Contractor Compliance and Responsibilities
Contractor compliance management tends to establish a consistent and clear process for onboarding, evaluating, and managing contractors to make sure that everyone involved understands what are the expectations.
It also lays out the specific requirements for contractors which also includes necessary permits and licenses, certifications, safety protocols, and insurance. This feature tends to eliminate any ambiguity and makes sure that the contractors are qualified for this job. For example, a candidate should have a bachelor’s degree in one of the computing fields in order to be qualified to get an IT position in the organization.
Moreover, all contractor information right from pre-qualification documents to performance reviews must be stored in a central location to keep track of the compliance status and to access every record easily.
By ensuring there is a formal process in place, your organization can eliminate any sort of risks that are associated with non-compliant contractors which also include legal liabilities, financial risks, and safety hazards.
How Asanify Simplifies Contractor Compliance and Management
Asanify’s contractor compliance management systems tend to simplify the process by overseeing the entire journey of contracts and relationships between the business and the vendors providing a certain service or product. The platform also provides visibility, and transparency and automates the compliance processes so that all your bases are covered. The platform will also help you measure real-time contractor performance and provide you with better feedback regarding the selected contractors. Asanify also helps better by putting the independent contractor classification in the proper place which could result in risk mitigation.
Conclusion: Choosing Between a Contractor and Employee
Well now that you know whether you would like to hire a contractor vs an employee it has surely come down to your decision and your business needs. However, it will be important to hire and engage contractors and employees through and EOR will be essential with each having its own benefits and challenges. Sometimes hiring a combination of both contractors and employees would also be a great way to achieve optimal results and to maximize the business’s success and efficiency. Also not to mention with workforce management software such as Asanify it is possible to ensure smooth working within the organization.
FAQs
What is the difference between a contractor and an employee?
A contractor is an individual who is hired through a contract and is present for a specific project. Whereas an employee is a permanent salaried worker who is part of the organization’s growth.
What are the benefits of hiring a contractor?
There are a multitude of benefits while hiring a contractor and they can be provided as follows:
- Cost-effective
- Access to a network of subcontractors
- Expertise and experience
- Time-saving
When is it better to hire an employee over a contractor?
You might want to hire an employee over a contractor in cases where you need stability, support, and alignment in terms of organization’s goals.
What are the risks of misclassifying a contractor as an employee?
There could be multiple risks associated with independent contractor misclassification can be provided as follows:
- Tax violation fines
- Back wages and benefits
- Fines
- Labor law violation
How does contractor compliance affect my business?
When the contractors tend to adhere to quality standards and follow all the important requirements then it leads to several benefits for the overall quality of the service or project which also includes maintaining consistent standards within the organization.
Are contractors eligible for employee benefits?
No, contractors are not eligible for any of the employee benefits such as health insurance, retirement plans, sick leave, or paid time off.
How can Asanify help with contractor management?
Asanify with its cloud-based contractor management software could help in several ways such as follows:
- HRMS
- Onboarding
- Payroll
- Integration
- Customization
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
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