The Difference Between an Employee and a Contract Worker

Know the difference between employees and contract workers.

In the business world, it's crucial to know the difference between employees and contract workers, or independent contractors. There are differences in the rules and laws that apply to each group of workers.

Taxes

Employees typically have certain taxes automatically withheld from their pay. In most cases, the employer does not withhold taxes for contract workers, although contract workers are still responsible for paying the taxes.

Length of Employment

Contract workers are usually hired for a specific task or set of tasks. After the project is complete, the contract ends and the worker no longer works for that employer. "Employee" typically denotes a more long-term, steady job.

Benefits

Contracted workers, since they work for a company for shorter periods of time, don't enjoy the benefits the company offers. Employees, on the other hand, are more likely to have health insurance, retirement benefits and other various benefits through their companies.

Employee Control

The IRS states that businesses have the right to direct and control employees. Employers may give employees instructions on when, where and how to work.

Contract Worker Control

Employers do not have the same control rights with contract workers as with employees. As long as contract workers complete the job they're contracted for, they typically have more freedom to do things their way.

References

• IRS: Independent Contractor or Employee?
• IRS: Behavioral Control
• Employment Law Free Advice: Independent Contractor or Employee - Differences?