Employee vs. Contractor: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Published on November 18, 2023
An employee works directly for a company; a contractor provides services under a contract, often self-employed.
Key Differences
An employee is an individual who is hired by a company or organization to perform specific tasks within that entity, usually on a full-time or part-time basis. They are often subject to the company's rules and procedures and may receive benefits like health insurance and paid leave. In contrast, a contractor is typically self-employed or works for a separate entity and is hired to complete a specific project or set of tasks, often for a limited period. Contractors usually have more control over their work and hours but often do not receive the benefits that employees do.
Employees are generally considered an integral part of the company they work for. They may have a structured career path within the organization and are often eligible for promotions and raises based on performance. On the other hand, contractors are usually hired for their expertise in a specific area and work independently. They may work for multiple clients simultaneously and are not typically involved in the company's internal career progression.
In terms of legal and tax implications, employees are often subject to employment laws and have taxes withheld from their paychecks by their employers. They may also be covered by the employer's liability insurance. Conversely, contractors are responsible for handling their own taxes and insurance. They are considered independent businesses and are not covered by most employment laws that protect employees.
Employees often have a fixed schedule and work location set by the employer, and they may be required to use the company's tools and resources to perform their job. Contractors, however, typically have more flexibility in determining their work hours and location and usually use their own tools and resources to complete the work.
The relationship between an employer and an employee is often long-term and may include opportunities for professional development and advancement within the company. In contrast, the relationship between a client and a contractor is typically project-based and ends once the project is completed, although it can lead to future contracts if the work is satisfactory.
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Comparison Chart
Type of Work Relationship
Directly hired by the company
Hired under a contract for services
Benefits and Protections
May receive benefits, covered by employment laws
No company benefits, not covered by employment laws
Tax and Legal Responsibilities
Taxes withheld by employer, less tax/legal paperwork
Handles own taxes and insurance, more paperwork
Flexibility and Control
Fixed schedule, less control over work
Flexible schedule, more control over work
Longevity and Career Path
Often long-term with career progression
Project-based, typically no career progression within the client company
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Employee and Contractor Definitions
Employee
A worker under company’s control.
As an employee, he follows the company's schedule.
Contractor
Self-employed or from a separate entity.
She works as an independent contractor.
Employee
A person part of an organization’s structure.
Every employee has a role in this organization.
Contractor
A worker with control over work details.
The contractor sets her own working hours.
Employee
A person hired for wages or salary.
She is an employee at the local bank.
Contractor
A person providing services under a contract.
The contractor finished the remodeling on time.
Employee
A worker protected by employment laws.
The employee is entitled to paid leave.
Contractor
A worker handling own taxes and insurance.
As a contractor, he pays his own taxes.
Employee
One receiving benefits from the employer.
The employee enjoys health insurance benefits.
Contractor
A person hired for a specific project.
They hired a contractor for the software development.
Employee
A person who works for another in return for financial or other compensation.
Contractor
One that agrees to furnish materials or perform services at a specified price, especially for construction work.
Employee
An individual who provides labor to a company or another person.
One way to encourage your employees to work harder is by giving them incentives.
Contractor
Something, especially a muscle, that contracts.
Employee
One employed by another.
Contractor
A person or company that builds or improves buildings.
Employee
A worker who is hired to perform a job
Contractor
A person or company that performs specific tasks like electrical or plumbing work in construction projects.
Contractor
A person or company hired to maintain existing facilities like air conditioning systems, groundskeeping, etc.
Contractor
A person hired to do a job on a business contract, as opposed to a permanent employee.
Contractor
One who contracts; one of the parties to a bargain; one who covenants to do anything for another; specifically, one who contracts to perform work on a rather large scale, at a certain price or rate, as in building houses or making a railroad.
Contractor
Someone (a person or firm) who contracts to build things
Contractor
The bridge player in contract bridge who wins the bidding and can declare which suit is to be trumps
Contractor
(law) a party to a contract
Contractor
A bodily organ that contracts
FAQs
What defines an employee?
Someone hired by a company for wages with some level of control by the employer.
What defines a contractor?
Someone providing services under a contract, often self-employed.
Do contractors get company benefits?
Generally, contractors don’t receive benefits from the client.
Can employees work for multiple companies?
Usually, they work for one company but may have side jobs.
How are employees taxed?
Employers withhold taxes from employees' paychecks.
Do employees get benefits?
Typically, employees receive benefits like health insurance.
Do employees have fixed work hours?
Often, yes, as set by the employer.
Can contractors set their own schedule?
Typically, they have more flexibility in scheduling.
Do contractors use their own tools?
Often, contractors use their own tools and resources.
Can employees work remotely?
It depends on the company's policy.
Can an employee become a contractor?
Yes, sometimes employees transition to independent contracting.
Can contractors work for multiple clients?
Yes, contractors often work for multiple clients.
How are contractors taxed?
Contractors are responsible for their own taxes.
Are employees protected by labor laws?
Yes, employees are covered by various employment laws.
Are contractors covered by employment laws?
Generally, no, they are considered independent businesses.
Do employees use company tools?
Usually, employees use resources provided by the employer.
Do contractors have more location flexibility?
Generally, yes, especially if it’s not specified in the contract.
Is job security different for employees and contractors?
Employees often have more job security, while contractors have project-based security.
Who handles a contractor’s insurance?
Contractors typically handle their own insurance.
Can a contractor be hired as an employee?
Yes, a contractor can be offered an employment position.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
