Many times I get asked this question. Allow me to share some the key differences of being an employee versus being a contractor.
Let's take a look:
1. What is an independent contractor?
Independent contractors are self-employed people who control what work they do, how it's done and are responsible for filing their own taxes.
- It is their decision as to where they will work or how they will work
- It is their decision what holidays to take
- It is their decision what hours to work
- It is their decision what rates they get paid (at least they should have an input into what they are)
2. The contractor uses their own revenue to support the business when needed
- This could help work towards a successful exit or sale of the business in the future
- They can use their own revenue to continually grow the business if wanted
- All responsibility falls on their lap (good and bad decisions are their responsibility)
3. It is the contractor's responsibility to get the work done
- The contractor can hire others if required
- The contractor must pay third parties
- If they can’t do the job (e.g. they become sick) it up to them to organise a replacement
- They will not be paid if they stopped work, or left without completing a particular project
- If the job is not completed on time, they must work on their own time to finish it
Ok, what are the responsibilities of an employee?
These are the characteristics of an employee:
- The employee carries out all work themselves
- Their manager tells them what to do and when (within reason)
- The employee gets paid a specific rate (hourly, weekly or monthly)
- The employee works set hours, or a given number of hours a week or month
- Works at the premises of the person they are working for, or somewhere that person decides
- The employee works on an "employment contract"
- The employee is generally not allowed to work for anyone else, but this is not always the case
- The employee has to follow the rules of the employer
The business owners responsibility when using contractors
You don’t usually have to worry about PAYE and other deductions. There are certain exceptions so be sure you are clear on your legal requirements here.
This area can sometimes be confusing, so if you have any other questions then please get in touch with us at Gahan & Co chartered accountants.