The Differences Between An Employee and Independent Contractor

16/05/2019

Eeny, meeny, miny, mo

 

What’s the difference?

For a business owner, it is imperative to understand the difference between “employee” and “contractor or self-employed person” to comply with the different rights and obligations your business has depending on the qualification.

Independent Contractor 

An independent contractor or self-employed person is not employed by the company but rather serves as an independent expert who provides a service to the client on a self-employed basis.

Independent contractors are not protected by employment rights like company employees. The entire basis of the relationship between a client and an independent contractor or self-employed person is contractual and subject to less statutory regulation. This subsequently means that core duties of an employee such as some level of fidelity or confidentiality are not provided with an independent contractor. Thus, in some cases it might be useful to consider entering into a Confidentiality Agreement with the independent contractor.  

Employee

An employee is employed by the company and protected by employment rights as set out in his Employment Agreement as well as in statutory regulations. In return, an employee has more extensive obligations towards his employer, i.e. with regard to fidelity and confidentiality.

How to differentiate between “employee” and “contractor”?

Common factors:

Factor

Employee

Contractor or Self-Employed Person

Control over work procedures, working time and method

No – normally the employer decides.

Yes –  contractor typically sets hours needed for job at hand.

Ownership and provision of work equipment, tools and materials

No – usually employer will provide.

Yes – typically contractor will have tools needed for job at hand. 

Whether the person is properly regarded as part of the employer’s organisation

Yes.

No – usually a contractor or self-employed person is not considered part of the organisation of the client.

Insurance and tax responsibilities

Typically an employee bears no responsibility with regard to insurance or tax.

Yes – an independent contractor will usually be responsible for their own insurance and tax.

This list provides some guidelines. However, other factors may be considered to help qualify the relationship such as the traditional structure and practices of the trade or profession concerned or the payment structure (salary, lump sum, etc.). 

Bob’s got a nice office

Example Case : Bob The Programmer

Bob is a programmer. Your company contracts with him to write a program to manage the company’s inventory. Is he an employee or an independent contractor?

If Bob works within the premises of your company, has to comply with company working hours, your company owns and provides the work material and equipment (i.e. the IT tools to write the program), and your company bears the financial risks as well as the responsibility to provide insurance and pay taxes, then Bob would qualify as an “employee”.

However, if Bob works outside company premises with his own material and equipment (i.e. the IT tools to write the program) and is not bound by any working hours, but solely to deliver a product, then Bob would most probably qualify as an “independent contractor”.

Bottom Line

It is important to be aware of the qualification of  the relationship in place with the persons that work for you. In case a person hired qualifies as an employee, she will be entitled to more rights. Furthermore, while there is not a conclusive test and it highly depends from case to case, the criteria mentioned above can help identify the type of working relationship and related obligations.

For more information on when to outsource, hire independent contractor or prepare a Consultancy Agreement, check out the following:

For more information on hiring processes in general as well as pitfalls to avoid:

 

This article does not constitute legal advice.

Start managing your legal needs with Zegal today

 

READ MORE: 5 Tips For Handling Employee Complaints In Your Company

READ MORE: Learn About The Purpose Of The Contract Of Employment

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