Nov 10, 2021 Project Management

Contractors vs. Full-time Employees

Contractors vs. Full-time Employees

Putting together the right team of people can make a significant difference and either boost or ruin your business. Choosing between contractors and full-time employees imposes a whole new set of factors to consider.

There are many reasons business owners choose one over another, and it all comes down to your business requirements. The primary distinction between contact and full-time employment is in tax liabilities and the employer-employee relationship.

Contract employee: the definition

A contractor is someone you hire to do a specific job over a period of time. This term mainly describes an agreement between a company and an individual that functions on a per-job basis instead of offering full-time employment.

In most cases, contractors are considered as outside employees. They aren't an official part of the company, and they are rather hired to complete a one-time job. However, a company could hire a contractor to do consistent work over a certain period.

Usually, contractors negotiate rates per hour of work or per project. One of the reasons why companies tend to hire contractors is because they are cheaper. Businesses don't have to pay health insurance and fringe benefits, which isn't the case with full-time employment. Instead, contractors are responsible for paying their taxes on the payments they've received from the company.

Does contract work count as employment?

Technically speaking, contracted workers aren't employees, considering they offer a short-term service or work on individual projects. Compared to full-time employees, they don't have employment benefits.

Even if the company offers group health insurance to full-time employees, they don't have to extend these benefits to contractors. According to many, a contractor is not an employee but an individual who runs their entity, like a limited liability partnership, company, or sole proprietorship.

An organization hires them to work on a particular assignment or a project, and their relationship can be short-term or long-term. A contractor can work for a company but not be on their payroll. These individuals can also work for multiple companies at the same time.

Contracted employees and benefits

Whether contract workers get benefits or not mostly depends on the staffing agency or company they are working for. In most cases, contractors don't get the same level of benefits as full-time employees. In return, they are paid more.

Employers get to avoid unemployment insurance, vacation pay, and other benefits; that's why contractors are guaranteed to receive higher paychecks since nothing is being deducted. For many individuals, higher income outweighs paid time-off or health insurance.

Pros and cons of contract work

Contract position benefits primarily focus on the following.

Higher earning. Businesses are looking to hire contract staffing because they offer the flexibility they need; it saves resources, time, and money. Usually, companies will hire experts since they don't want to invest in training. A professional individual who knows how to get a job done promptly is worth the top dollar.

Flexibility. According to some estimates, nearly 85% of independent contractors reported being highly satisfied with their job. They are able to control their career path without having to go through the company's politics and fight for pay raises or promotions. Instead, they can negotiate the package that suits them the most.

Better tech and professional knowledge. If you are an expert in your field, you have something companies want. This type of focused work also sharpens your skills and allows you to work in different sectors while broadening your expertise.

On the flip side, when it comes to cons, here are a few you should consider.

Not financially secure. There is no guarantee you will keep working for the company when your contract expires. Also, you should know that a company can unexpectedly cancel the project they hired you to work on. All these factors affect your financial stability. If you don't work, you don't get paid.

You will be an outsider. Regardless of the money you earn per project, you'll always be an outsider. Contractors have a hard time connecting with the rest of the full-time employees, and long-term bonds are rarely formed.

Quitting a contract job

In most cases, you can terminate this type of employment. Signing a contract at the beginning of your project allows you to understand rights and procedures when leaving a job. This document usually features a list of rules which explain everything in detail.

Make sure to seek legal help if you have issues understanding these terms. If your contract doesn't allow termination, you should renegotiate the contract with the company and find a solution that works for both parties.

Full-time employee: the definition

A full-time employee is a person who is either employed on average at least 30 hours of service per week or 130 hours per month. There are two ways you can determine full-time employee status. For instance, we have a monthly method and a look-back measurement method.

The monthly method indicates that employees must clock in at least 130 hours of service each month. On the other hand, the look-back method determines the full-time employment status, which is also referred to as the stability period and is based on service hours.

Pros and cons of hiring full-time employees

When you hire full-time employees, they will work for you 30 hours or more; anything less will make them part-time employees. If we compare a full-time employee vs. contractor, we get to experience a couple of benefits:

  • These types of individuals will get the satisfaction of being part of a team while having job security.
  • Compared to a freelancer, the hourly wage for a full-time employee is much less.
  • You can always rely on trusted employees and delegate tasks, so you can focus on more pressing matters.
  • Full-time employees don't require training as the new staff does.

Full-time employment also has a couple of drawbacks:

  • Be prepared to pay benefits like maternity pay, sick leave, and holidays.
  • Even if your business is struggling, you will always have salaries to pay.
  • Specific payroll paperwork is required.
  • You are responsible for new staff training.

The difference between contractors and full-time employees

It's more than just semantics. Since these two roles tend to overlap, it's crucial to get familiar with relevant laws before you make any decision that will affect your business.

A full-time employee is a part of your company, who works more than 30 hours per week. On the other hand, a contractor is someone you will hire for a particular project. If you run a small business, employing contractors is more than enough.

As your company grows, you can offer more and more hours to your favorite freelances, and eventually, these people can become your full-time staff.

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