Contract Worker vs. Full-Time Worker
There isn’t a specific definition for full-time or contract workers, but the key differences between them are the amount of control over the employee and who does the tax reporting. A brief look between the two include:
- Contract worker – Works independently of the business that hires them and pays the taxes for any money the company gives to them for their work.
- Full-time worker – Works with the business with the employer directly supervising them. Their employer takes care of all tax reporting.
Businesses may find it cheaper to hire contract workers (as there are no payroll taxes, health insurance, or other paid benefits). Some companies, knowingly or unknowingly, have gotten into serious trouble by mislabeling their full-time employees as contract workers. This has led to stiff fines and tax penalties.
The Internal Revenue Service has provided small business owners guidelines on how to define workers – something they can use to ensure proper classification. It’s imperative that businesses understand the differences between the two when they’re ready to grow beyond their current situation.
A Look At Contract Workers
Contract workers, called an independent contractor or 1099 employee, is a person who works for a company under the premise of a contract. Simply put, they do a job for a fee. For one to be regarded as a contract worker, there are three key stipulations:
- Must handle all their taxes themselves
- Use equipment and supplies they buy to do the work
- Submit an invoice when the work is completed per the agreement
These types of workers are not employees as their services are short-term. They also do not get benefits the business has to offer, such as group health insurance.
