Difference between employees and individual contractors

The difference between an employee and an individual contractor

Linkilaw Employee Regulations

Whether you are running a start-up or an established business, assembling the right team is as important as the product or service you deliver. It is important for the founders and the management to decide on the employment status of their team and whether these members are classified as full-time employees or as contractors.

Below we discuss the difference between the two classifications as well as the benefits of each.

What is an employee?

Simply put, an employee personally provides their services to an employer in return for guaranteed work, a salary and accompanying employment benefits.

While an employee can still work on a temporary, part time, fixed term or flexible basis, they are obliged to do a minimum number of hours work, cannot delegate their work to someone else and need to provide a certain amount of notice if they would like to leave the company.

What are the benefits of being an employee?

An employer has certain responsibilities towards their employees and these are referred to in an employment contract. The employer will take on any financial risks relating to employees and other financial responsibilities such as the deducting income tax, national insurance and pension from the employee’s monthly salary as well as provide insurance for the work done.

Employees receive employment benefits from a company. These include paid holiday leave, sick pay and parental leave, the right to equal pay, protection from unfair dismissal and discrimination in the workplace as well as the right to receive minimum wage.

The list above is not conclusive of all employee benefits in the UK however it is clear that there are many benefits of being an employee in a company.

What is an independent contractor?

Independent Contractors are otherwise known as persons who are “self-employed” or as “consultants.” In most cases, they either register as a sole trader or set up their own independent company that they operate through to provide the services and/or product’s.

Independent contractors do not receive the same benefits as employees however they operate more flexibly in the workplace. As well as bearing all of their financial risks, contractors are responsible for all the tax and national insurance deductions in terms of the income they earn.

Additionally, they do not receive renumeration without invoicing for the work and are often remunerated on a ‘per job’ basis. Contractors are not eligible for paid parental, holiday or sick leave and will need to plan ahead as they may not receive an income during these periods.

What are the benefits of being an independent contractor?

While contractors do not receive employment benefits, they undoubtedly have more flexibility under this employment status. Contractors have full autonomy over when and how they work and the option to delegate certain responsibilities to others.

Lastly, they have the ability to work for more than one company at a time and in many cases can decide where they work from.

Final thoughts

Deciding whether your companies’ team are employees, individual contractors or a combination of both is one of the most important decisions to make in the early stages of your company’s operations. It can have a significant financial impact as well as affect the company’s growth.

The legal contracts are key to the status of these team members and specifying the relationship they have with the company. By having these contracts in place, you can avoid issues in the future.

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