The Difference Between Independent Contractors and Employees 

As start-ups and newly formed businesses map out their growth and hiring plans, its not abnormal to prioritise a mix of full-time employees and independent contractors for various reasons. There are important distinctions between independent contractors and employees that impact various operational and financial aspects of a start-up. We have outlined the differences between independent contractors vs employees and the advantages and disadvantages of each. 

The Difference Between an Independent Contractor and an Employee  

The biggest differences between independent contractors and employees are how they’re managed, taxed, and compensated. 

Employees 

Anyone who performs services for you is your employee if you can control what will be done and how it will be done. An advantage of hiring an employee is that you have control over work results and when and where the work is performed. Employees provide more predictable costs to businesses. Additionally, they may be more invested in the success of your business. However, hiring in house may be more expensive than hiring an independent contractor. They require upfront investment in time and money.  

Independent Contractor  

An individual is an independent contractor if the payer has the right to control or direct only the result of the work, and not what will be done and how it will be done. The advantages of working with an independent contractor include access to specialised experts for short-term projects, more flexibility to scale work to meet business demands and typically less expensive than full-time employees. On the other hand, disadvantages include having control over work results only, having no control over subcontractors used for projects and less predictable costs. Independent contractors tend to work for an hourly rate or project fee.  

Important Differences: Independent Contractor vs Employees 

There might be some project circumstances when hiring independent contractors are a smarter alternative to hiring permanent employees. When your company has a limited term project, hiring an independent contractor may be the best option. We have outlined some of the important differences and considerations when choosing your workforce.  

Skill Set & Training  

Independent contractors are usually independent contributors who bring their specialized level of expertise to a client’s specific task or project, as compared to permanent employees who may work collaboratively across teams and projects within the organization. As a result, employers don’t need to train them like they would with their regular workforce. 

Contracts & Scopes of Work 

Unlike regular employees whose job description might include a general list of tasks and duties, an independent contractor is only responsible for completing the job that’s outlined in the contract or Scope of Work. A thorough Scope of Work, builds a foundation for a strong working relationship, highlighting the hopes and expectations for both parties.  

Payment for Work/Service Performed 

An employee’s pay check is based on either a set hourly wage and their hours worked, or a set annual salary paid in regular intervals throughout the year.  

An independent contractor will work on a set project fee or hourly bill rate, and submit invoices to the employer for work completed.  

What is The Best Choice for Your Start-Up Business?  

If you have a limited-time project that’s currently outside of your core business services, considering an independent contractor may be your best option. Your accounting or finance team can help you discuss which option is best for your business.  

Why Work with Gallagher Keane Chartered Accountants? 

Gallagher Keane provide professional accounting, tax, and financial advice to many start-up businesses. This helps them make informed business decisions to reach their goals. Gallagher Keane provides cloud accounting services to clients, giving start-ups a modern accounting solution.   

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