Differences Between Independent Contractors and Employees

Under employment law, many often wonder about the differences between an independent contractor and an employee. In this article we will explore some of the differences between the two. 

Broadly, the difference between independent contractors and employees is to do with the legal and financial obligations of both the employee and the employer. Given below are some points that outline the key differences between independent contractors and employee.

Taxes & Benefits:

Employers are responsible for paying employment taxes, including Social Security and Medicare taxes for their employees in Australia.  Employees may also be entitled to benefits such as health insurance, paid leave, and superannuation payments.

On the other hand, independent contractors have to pay their own taxes and provide their own benefits.

Control & Supervision

Independent contractors typically have more control over how they perform their work, including the tools and equipment they use and the hours they work. 

Employees, on the other hand, are generally subject to more control and direction from their employer. 

Duration of Employment

While employees are typically engaged for an ongoing and long-term relationship with the employer, an independent contractor is engaged for a specific project or service. 

The project that the independent contractor works on has a specific start and end date. Employees on the other hand, may be engaged on a long-term fixed basis. 

Liability

It is true that Employers are the head to become liable for the action of their employees while they are performing work-related duties. Independent contractors are generally responsible for their own actions and may be liable for damages caused by their actions. 

Employment Laws

Employees are covered by a range of employment laws. For example, minimum wage and overtime laws, anti-discrimination laws, and workers’ compensation laws can provide protection to employees.

These specific laws may or may not cover independent contractors. But they can be protected by certain general laws such as contract law and tort law.

Training & Development

Because an employee is hired on a long-term basis, the company also invests in the training and professional development of the employee. When an employee is hired, the experienced staff of the organisation often trains the employee. Whereas, because independent contractors are hired for specialised tasks, they are expected to be trained in what needs to be completed.

When do Employers Hire Independent Contractors?

Employers hire independent contractors when they need personnel for some specific tasks or projects. Generally, these projects require certain specialised skills. For example, a real estate agency that is responsible for building a house may employ plumbers for specific plumbing tasks during the building process.

Hiring an independent contractor is less-expensive as compared to hiring a full-time employee. This is because independent contractors are responsible for their own benefits and taxes. 

Generally, the decision to hire an independent contractor versus an employee is based on the specific needs of the employer or organisation. Each employer carefully considers the advantages and disadvantages of hiring any worker. 

Author info:

John Bui is one of the popular Principal Solicitors of JB Solicitors – it is a Sydney based firm in Australia.