Everyone working for you will not be called as an employee. Some individuals may come under the contractor category, but what is the actual difference between an employee and a contractor? Why does it is significant and which option is suitable for your business?
As a small business accountant who provides high-quality HR advisory service, we particularly ask these questions. It is required to find the difference between the two, the answer which is more suitable for you is subject to the requirements and motivations of your organization.
Why is it required to know the Difference between an Employee and a Contractor?
It is relevant to explain the employment relationship status, as employees are eligible to particular advantages and employment rights that contractors are not. If failing to categorize the form of relationship accurately has many financial and legal consequences.
While knowing this relationship, it is worth to know who conducts the required work. Is it the individual or can they send a replacement according to their choice? If it is the individual, then possibly they will be an employee and if it is a replacement then it is possibly the contractor.
Another factor is who controls the work and where and when it is conducted. If you have this control such as the worker has established work time, place of work and duties then they are most preferably an employee as against a contractor who works independently.
It is also significant to examine how compelled are you to provide work, if you are compelled to hire someone for a 40-hour week at a predefined wage and they are compelled to accept it then they are called as an employee in contrast with a contractor who refuses such work.
To whom you should select?
There are many advantages of having an employee in contrast to the contractor, employees are unknowingly more devoted, more productive and you have additional control over them such as the timing of their work, the timing of taking their annual leave, how much they are paid. You can also save money with them as with the training of new staff.
It is worth to note that the Employment Rights Act 1996 protects the employees’ interest and are eligible to obtain a statutory redundancy payment, paternity, maternity and adoption leave and pay. This act provides the right not to be unreasonably abandoned. Issuing a contract to them becomes your authority and to manage their pay, NI deductions, and tax as against contractors who are self-employed.
Contrarily, you can hire contractors when you need them and they are more flexible and you are not obligated to offer work. They do have their own liability insurance and are specialist so you do not have to spend money on their training. Their own pay and deductions get managed once you pay for their invoice. The contractors can, however, be less devoted if they work for many companies and there pose a risk then can turn you down and go to a competitor.
After having considered the above parameters as an employee, you will be responsible for making an informed choice as to what is beneficial for you be it having employees or contractors.