When it comes to compensation, contractors and full-time employees are quite different. Contractors typically negotiate their own rates and pay for their taxes. Companies request a W-9 or W-8 form from these contractors, and sometimes they might not need to withhold any taxes when the year ends. Compensation and employee benefits are key factors to consider when thinking about the financial aspects of employment.

Similarities Across All Types

1. The classification difference between contract vs. full-time employees is vital.
2. For the W2 employee, the business either directly pays for or reimburses the employee for all supplies needed to complete the job efficiently.
3. Contractors have greater flexibility in managing their work-life balance.
4. Many freelance independent contractors work part-time or non-traditional hours, and most work for more than one client at a time.

By weighing these factors carefully, professionals can choose the path that best suits their unique needs and aspirations. Assessing these differences allows for strategic hiring, ensuring your team is equipped to handle project demands efficiently without straining resources. If you’d like the ability to also pay your contractors through our platform, pricing starts at $25 per person/month. Consider hiring a full-time employee if you need someone for an ongoing, long-term position, such as a salesperson or human resources manager. Which type of worker best fits your company depends on your unique needs.

Benefits

The contractor is self-employed and responsible for making any necessary income tax payments themselves. However, the company must provide the contractor with any required tax documents at the end of the year. At first glance, it seems like a good way to give employees flexibility and save companies on health insurance and other benefits. But the decision to hire a contractor or a contractor vs full time full-time employee runs much deeper than that. You can maintain a low overhead by only providing workstations, benefits, and job security to key employees. You can attract young, mobile talent by offering temporary (and even off-site) employment opportunities.

Operational Differences: Full-time Employee vs. Contractor

As businesses adjust to this new way of doing things, it’s important to know the difference between contractors and people who work full-time. This simplifies how organizations make better decisions about workforce design that match their strategic goals and operational needs. Long-term contractors are commonly brought in under staff augmentation, offering continuous expertise while allowing companies to avoid the obligations of full-time employment. Integrating someone into a team is about more than skills—it’s about cultural fit. While companies need to determine payment terms when hiring contractors (and spell them out in the contract), they are not responsible for payroll taxes.

The primary differences lie in pay and benefits, work schedules, and job security. Full-time positions often offer benefits and greater job security but may have less flexibility than contract roles. For a short-term project, it’ll be cheaper to pay for an expensive contractor instead of hiring a full-time employee. But in the long-run, a loyal employee will likely offer greater value at a lower cost. In this guide, we’ll take an in-depth look into the key differences in compensation, benefits, legal obligations, and operational considerations of both work arrangements.

They often show dedication to their employers, advocate for them in their social circles, and work for the long-term benefit of these businesses. These workers want to do an excellent job, impress their temporary employers, and move on to serve other clients. Hiring a contract employee requires a far different pay structure than bringing someone on full-time, meaning you need to embrace a unique set of trade-offs.

If you’re a W-2 worker, then you work for someone else, and they are probably responsible for those costs and employment benefits. “Good work” no longer just extends to what you provide for your employees. It includes how your hiring affects the economy, future job prospects, and your company’s long-term health.

Choosing between contract workers and full-time employees

There’s no need to worry about whether the employee will be a good fit or will consume company resources. If you run a small business and have finally realized you can’t do everything (at least not very well), hire contract workers. If you engage in a traditional hiring process, you can only hope for the best.