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Independent Contractor vs Employee

Updated on March 20, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Independent Contractor and Employee

An employee is a person hired by an employer to work for them in exchange for a fixed remuneration. Based on their qualifications and experience, the employer hires an employee to work for them regularly. On the other hand, independent contractors work on a freelance basis, buy their tools, pay their taxes, work however they please, and are paid per project.

Independent Contractor and Employee

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Independent Contractor vs Employee Infographics

Employee-vs-Independent-Contractor-info

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Comparative Table – Independent Contractor vs Employee

ParticularsEmployeeIndependent Contractor
PaymentEmployees receive a regular, fixed payment in a salary or an hourly wage.Independent contractors are paid per project in the form of a project fee.
BenefitsEmployees receive various employer-sponsored benefits such as sick leave, paid vacation, health insurance, pension, and severance.Independent contractors are not eligible for such benefits and are compensated solely through their service fees.
ControlThe employer can determine the time and place where an employee will do their job.The employer only controls the outcome of an independent contractor’s work, not the process.
TaxationAn employer withholds taxes from an employee’s paycheck to pay the government.No taxes are withheld from an independent contractor’s fee. Instead, they must pay their own taxes.
EquipmentThe employer must provide their employees with the tools and equipment needed.Independent contractors must pay for their tools, equipment, and other work-related expenses.
RosterAn employee will usually only work for a single employer at a time.Independent contractors usually work with multiple clients at a time
PermanencyEmployees are hired for the long term and may work for their employer until retirement.Independent contractors are usually hired to do a specific task within a fixed period.
DelegationEmployees cannot delegate their work to another individualContractors can delegate tasks to others if it is specified under the agreement.

What Is an Independent Contractor?

An independent contractor is any self-employed individual hired to provide services on a temporary or on-demand basis. They usually work for multiple clients or employers at a time.

What Is an Employee?

Any worker who earns a fixed salary or wage to work regularly can usually be classified as an employee. Unlike independent contractors, employees work for only one employer at a time.

The Importance of Correct Categorization

Employers need to know how to categorize their workers for tax purposes properly. In 2016, ridesharing giant Uber paid about $100 million in the settlement, after class-action lawsuits in California alleging employment misclassification. 

There are many advantages and disadvantages to hiring either an employee or an independent contractor. However, ultimately, it is up to the employer to decide who fits their needs and expectations.

This has been a guide to Independent Contractor vs Employee. Here we discuss the top 8 differences between independent contractors and employees along with infographics. You may also have a look at the following useful articles –