Contractor Vs. Employee Salary
Hiring a contractor versus an employee brings major differences to how you pay that person. Contractors are typically hired for temporary tasks or jobs. Even if the job lasts several months or years, it is still a temporary position in that it has a designated end, and when the job is done, the contractor is finished as well. Employees are hired permanently, meaning that the expectation is that the employee will work for the company for a long time with no specific end determined. Contractors might eventually become full-time employees as well, especially if you like their work.
Other People Are Reading
-
Salary and Hourly Wage
-
Contractors are typically paid either by the hour or by the project. For example, when you hire a contractor, you might agree to pay him $20 an hour, or $1,000 total for a project. If you pay by the hour, you should get a sense of approximately how long the job will take, so you know roughly how much you will have to pay. Employees might also be paid by the hour, with the number of hours per week designated in advance, such as 20 hours per week for part-time employees or 40 hours per week for full-time employees. Employees may also be paid a set annual salary.
Taxes
-
One of the major salary differences between contractors and employees is taxes. When you pay contractors, you typically do not deduct taxes from their checks. So a contractor who work 30 hours at $20 an hour gets a check for the full $600; he will be responsible for filing taxes on his contracted amounts, including self-employment tax. Employees, on the other hand, normally have their federal income and Social Security/Medicare taxes deducted automatically each pay period. A contractor files a 1099 form with the IRS each tax season, while an employee files a W-2.
-
Frequency of Pay
-
The frequency of pay may also differ between employees and contractors. Employees are normally paid on a set schedule, such as every other Friday, or on the first and fifteenth of each month. Contractors may also be paid on this set schedule, or their pay periods may differ. You may pay a contractor some money up front and the rest when the job is done, or you may just cut checks to contractors every now and then on request. Agree to a payment frequency plan before the contractor begins work so there will be no confusion.
Benefits
-
Benefits are a major difference between employees and contractors. Typically, contractors do not receive company benefits in addition to their salary. These benefits include health insurance, sick days, paid vacations, stock options and 401k opportunities. Employees typically do receive at least some of these benefits, especially full-time employees working for established companies. You can offer contractors these benefits if you choose, but normally, you just pay them the wage you agree on, and they are on their own for insurance and paid time off.
-
References
- Photo Credit Three office workers image by Vladimir Melnik from Fotolia.com
