Employee and Independent Contractor | Differences and Examples | Business Law | Management Notes
Write a 3 – 5 page paper address the following:
● Describe and discuss the differences between an “employee” and an “independent contractor.”
● Examine the labor laws that frame such categories. Illustrate how one can distinguish the two, and give real examples from one’s experience.
● Describe the type of work performed.
● If you experienced both, which position do you prefer, employee or independent contractor?
● Explain why, and what are the advantages and disadvantages you experienced.
● If you do not have the experience, provide examples from the literature. Also, use the literature to highlight such differences.
● Make sure you have at least six (6) peer-reviewed sources, as well as one of which being the U.S. Department of Labor website.
Employee and Independent Contractor
Both of the term ‘Employee’ and the ‘Independent Contractor’ represents the position or the designation that the company must take into account for the proper classification of its workers who are associated with the organization in any form. Employees are the people who are associated with a single organization at a time whereas the independent contractors are the people who might be associated with different companies at a time.
For the employees working in an organization, the companies provide them with the various employment benefits which are deprived by the independent contractors. In most of the companies, Employee works in a monthly basis but the Independent Contractor works on a contractual basis (Barron, 2008). If we look deeply we can see that these Independent Contractors possesses some specialized set of expertise that may require special training and education.
For the Employees working in an organization the company is liable to provide them with the various training opportunities but in case of the Independent Contractors they acquire training by their own interest and necessity. Employees in an organization are closely integrated with the operational process of the company which means that separating the employees or terminating the employees can affect the whole operational process of the company which might not true in case of the independent contractor. The independent contractors in an organization are subject to the application of employment and the labor laws.
The independent contractor working for the company has to pay taxes on their own which means that the company does not withhold taxes for them. Depending upon the nature of tasks and works both of the position of employment are chosen by the company so as to yield better result for the long term. In case of the employee they are not liable for the failure of the work but in case of independent contractor they are solely liable for the failure of the work that they have undertaken (Sheskin, 2018). Some of the differences between Employee and Independent Contractor are presented below in an precise manner:
Basis of Differences
|Association||Generally, associated with single company at a time.||Might be associated with several companies at a time.|
|Employment and Labor Laws||Applicable for them.||Not applicable for them.|
|Operational Process||If they are separated then it affects the operational process.||It does not affect the operational process.|
|Training and Skills Development||Organizations are responsible for the process of training and skills development.||Organizations are not responsible for the process of training and skills development they acquire it by themselves.|
|Payment and Salaries||Employees are normally paid on a monthly basis.||Independent Contractor are paid on a contractual basis.|
|Work Failure||They are not liable for the work failure.||They are solely liable for the work failure.|
|Taxes||Companies in which they are working withhold the tax.||Companies do not withhold tax rather they have to pay it by themselves.|
Employee vs. Independent Contractor: Labor Laws and Real Life Examples
There are certain Labor Laws that are imposed for the companies representing various industries regarding proper classification of workers (Zatz, 2011). Due to the increase in use of independent contractors by the companies especially the multinational companies, it is almost mandatory for the organization to define the work roles. In case of multinational companies, they mostly look for the independent contractor who can work for them even though without setting up the office locations. The companies are able to pool skilled manpower with independent contracting that can bring better result for the organization.
Labor Laws protections are not applicable for the Independent Contractors that the company hires on a contractual basis as well as other Employee Laws which means that they do not receive statutory rights of the employees. The responsibility of the client who contracts these independent contractors is only to pay for the agreed work and when the work is completed, the contractor holds no relationship with the client until the new project gets started. These independent contractors are generally self-employed and are self-responsible for the management of their tax payments, Social Security, etc.
- Most of the Real Estate agents are considered as the Independent Contractors.
- Those Freelancing Writers are also considered as Independent Contractors who write articles and sell it to the different publications.
- Especially in case of construction and trade there is high presence of Independent Contractors. Workers with the craft skills generally prefer Independent Contracting.
- Many of the Doctors, Dentists, Accountant, and Advocate also work as an Independent Contractor.
Personally, I have experience of both of the position of employment i.e.; being an Employee and being an Independent Contractor. I have worked as an employee for the first at some organization few months back. I have worked as an independent contractor by being a Freelance writer where I used to write article for the websites.
Having the experience of both of the position, I personally prefer being an Independent Contractor over being an employee because of the several reasons (Bidwell & Briscoe, 2009).
Benefits for the person working as an Independent Contractor
- Being an Independent Contractor provides you the freedom regarding for whom to work, choosing their own schedule, choosing their workload, etc. which is not possible being an employee at some organization(BUTLER, 2019).
- Being an Independent Contractor helps you to grab more opportunities by working at several companies remotely at a single point of time (Mckeown, 2016).
For example, if you work as a logo designer then you can do logo designing for the ‘X Company’ and ‘Y Company’ and ‘Z Company’ at once because you are not restricted to any form of Labor of Employment laws.
Benefits for the Company contracting Independent Contractor
- Having an Independent Contractor helps the Company to reduce their cost for the tasks that done without hiring an employee which is a long time consuming and costly process.
- Companies are free from many legal liabilities related to employment benefits, tax liability, social security etc. because the independent contractors are self-responsible for all these things. For example, the Multinational Companies can get benefit working with independent contractors as there is no necessity for them to abide with the employment and labor laws(Murray, 2020).
Both of the term ‘Employee’ and the ‘Independent Contractor’ represents the position or the designation that the company must take into account for the proper classification of its workers who are associated with the organization in any form. Depending upon the nature of tasks and works both of the position of employment are chosen by the company so as to obtain better outcomes.
Employees in an organization are closely integrated with the operational process of the company which means that separating the employees or terminating the employees can affect the whole operational process of the company. Labor Laws protections are not applicable for the Independent Contractors that the company hires on a contractual basis as well as other Employee Laws which means that they do not receive statutory rights of the employees.
Barron, M. H. (2008, December). Who’s an Independent Contractor? Who’s an Employee? The Labor and Employment Journal, 14(3), 457-473.
Bidwell, M. J., & Briscoe, F. (2009, December). Who Contracts? Determinants of the Decision to Work as an Independent contractor among Information Technology Workers. Academy of Management Journal, 52(6), 1148-1168.
BUTLER, D. (2019, August 14). What Is an Independent Contractor? Definition and Examples. Retrieved from TheStreet: https://www.thestreet.com/personal-finance/what-is-an-independent-contractor-15055746
Mckeown, T. (2016, November). A consilience framework: Revealing hidden features of the independent contractor. Journal of Management and Organization, 22(6), 779-796.
Murray, J. (2020, November 11). Independent Contractor Laws and Regulations: What Employers Need to Know. Retrieved from The balance small business: https://www.thebalancesmb.com/laws-and-regulations-affecting-independent-contractors-398603
Sheskin, J. H. (2018, October 23). What’s the Difference Between an Independent Contractor and an Employee? Retrieved from Office of Child Support Enforcement: https://www.acf.hhs.gov/css/resource/the-difference-between-an-independent-contractor-and-an-employee
Zatz, N. D. (2011, May 11). Beyond Misclassification: Tackling the Independent Contractor Problem Without Redefining Employment. ABA Journal of Labor & Employment Law, 26(2), 279-294.
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