Employee or Independent Contractor and What’s the Difference? – Hiring someone and having a small team of people who help you run your business are the keys to success in running your business. At some point the idea of letting them run the business without you might cross your mind.

Many entrepreneurs today run their own businesses. Such “solopreneurs” save money on upfront costs and payroll costs simply by doing most of the legwork on their own. While this is not the ideal setup for everyone, it does have its benefits.

When the business is running and in line with the times, Employees and Independent Contractors are the solution. Both are very much needed. But can you run a business independently without any employees? who used to help you in managing your business?

Below we will explain about what is an employee and an independent contractor and the differences and benefits in running a business.

What is an Employee?

An employee is an individual who was hired by an employer to do a specific job. The employee is hired by the employer after an application and interview process results in his or her selection as an employee. This selection occurs after the applicant is found by the employer to be the most qualified of their applicants to do the job for which they are hiring.

Employees typically deduct income tax, Social Security and Medicare from wages paid.

What is an Independent Contractor?

Independent contractors are not like regular employees. An independent contractor is an individual who may run their own business but also performs work for other businesses. Individuals classified as independent contractors are not considered employees of your business.

Unlike employees, independent contractors do not have taxes deducted from their wages. You don’t need to withhold Medicare or Social Security taxes from independent contractors’ wages. Instead, contractors must pay self-employment tax on their earnings. The labor law also does not apply to independent contractors.

Employee or Independent Contractor

What’s the Difference Between an Employee and an Independent Contractor? 

Please see the table below. Some differences in business relationships with employees and independent contractors.

DescriptionEmployeeContractor
Employment LawsCovered by legal aspects (labor
laws) in the country of work.
Not covered by employment
and labor laws.
Job DescriptionUsually works for only one
employer, Works the hours
set by the employer & usually
works at the employer’s place
of business.
Generally provides consulting
services to more than one
company, Sets his or her own
hours & Works out of his or
his own office or home.
Hiring PracticeA potential employee completes
an application that is handled
by Human Resources. The approved
applicant receives a job offer.
After a person accepts the
position, the employer must ask
for additional information about
the employee such as date of
birth, marital status, and
citizenship status.
A potential contractor normally
interacts with the person or
department that wants a certain
service or task completed.
A potential contractor might
complete a proposal. The
contractor enters into a
contract, including a Statement
of Work with the legal or
procurement section of the
business.
Payer’s Tax Reporting
Requirements
Reports all money paid to the
employee during the tax year.
Not subject to taxes or
withholding, but pays self-
employed taxes yourself.
Value of Work or
Contract
Earns either an hourly rate
or a salary.
A contract may be for a
total amount. It could be
for an hourly, daily, or
weekly amount that ends on
a specific date or a total
amount to be paid when the
job is completed.
When PaidThe employee's pay period must
remain the same unless officially
changed. The payment period
varies from one week to one month.
Require employees to be paid on
the normal pay date or earlier
if the paycheck is not negotiable
on the normal pay date, which can
occur on holidays.
Accounts Payable pays the
contractor upon receipt of
the invoice. The terms of
the contract or Statement
of Work determine when
payments are made, such as
after completing a task or
by a periodic amount.
Contractors are not paid
by the payroll staff in
most businesses.

Benefits of Hiring Employees

  • Improve employee morale and mental health
  • Bring new ideas to your company
  • Increase the skill set of your workforce
  • Build your capacity for new work
  • Grow your revenue

Benefits of Hiring Independent Contractor

  • Cost per employee savings
  • Reduced office and supplies costs
  • Access to global talent unlocked
  • Staffing flexibility
  • Little or no training expenses
  • A higher level of efficiency
  • Reduced exposure to lawsuits
  • Ending the working relationship is easier

Conclusion

When making strategic human resource decisions, companies need to consider carefully, whether employees or contractors independent or a combination of the both, is the best choice for its business.

Choosing to outsource from the both is a good thing, once you are ready and have considered a thorough understanding of the differences between the both. Remember to visit Indoservice.

Indoservice are an Outsourcing service company with various supports related to recruitment and employment. Therefore we offer an Outsourcing service. If you’re ready to hire an employee, but not ready for the legal hassle that comes with it. Our Outsourcing Service can help you. Our dedicated recruiting and contract design team can best assist you in a detailed understanding of worker requirements as well as the legal aspects that apply to you, so that those who will work with you will have a detailed understanding of the requirements for the job. Contact us at email: admin@indoservice.co.id and Telp./Whatsapp +62818-1881-1887 for more information and special offers.

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