+62877-1449-8500Employee 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.
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.
| Description | Employee | Contractor |
|---|---|---|
| Employment Laws | Covered by legal aspects (labor laws) in the country of work. | Not covered by employment and labor laws. |
| Job Description | Usually 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 Practice | A 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 Paid | The 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 +62877-1449-8500 for more information and special offers.
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