EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Employee and an Independent Contractor

BUS 602: Business Law

Presidential Business School

Westcliff University

December, 2020
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Abstract

This paper is a part of professional assignment which emphasize in the concept of independent

contractor and employees. This paper general definition of employee and independent contractor

and highlights major differences in a tabular form. Further the paper discusses legal framework

which distinguish between independent contractor and employee which includes factor like tax,

benefit entitlement and limitation of use. This paper also highlights types of work that are

performed by Independent contractor and employees. Further the paper also discusses the

advantages and disadvantages of being independent contractors and employees. Further paper

also includes some of the real life example and what I have experienced currently working as an

employee in the Bank.

EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Employee and independent contractor

Both employee and independent contractor for the company to achieve certain mission.

Organization generally decides to hire independent contractor or employees according to their

requirement.

An independent contractor is a person or company who provides work for other

individual or organization with a contractual agreement among them (Glassman, 2011). This

contracts regulate what is the work of independent contactor rather than how the work is

being performed (Shurbi,2017).

Employees are the people who are hired by an organization usually to achieve long-term

vision. Along with the work, the contract between employees and employers govern how the

work should be done. Employees are hired for longer run.

The differences between employees and independent contractor.

Basis of difference Independent contractor Employees

Source/ frequency of payment Onetime payment after the Given in periodic

completion of specific project basis( weekly or monthly )
and paid as salary.
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Nature of the work Specific work or project with Regular activities required for
the deadlines to complete. business for its smooth
operations.

Time and workstation The time and workstation to The time and workstation to
perform given task depend on perform given task depend on
the discretion of Independent the discretion of Independent
contractor contractor

Work freedom There is more freedom to They are bounded by the

work since only output is the time , place and ways to the
concern it does not control work by employers due to
other factors like time, place which there is less freedom to
and ways to perform. the employees.

Benefits Independent contractor do not Employee can enjoy various

get the regular benefits like other benefits except salary.
bonus, welfare , medical
expenses and so on

Table 1 Difference in Independent contractor and Employees

EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Organization makes a hiring decision based the nature of work it requires. Similarly, individual

also can work for the companies as independent contractor employee depending on their

requirement.

Legal framework differentiating Independent contractor and employees

Some of the legal framework differentiating Independent contractor and employees are

a) Tax

During the payment of wages to employees, a company is allowed to withhold tax. The

salaries given to employees can include incentives and allowances that employee is entitled

which are in favor of employee from the view of tax. Whereas. company should withhold the

applicable taxes in case of independent contractors; however, the payment paid might not be in

the form of salary. However, both the employee and independent contractor/s would be entitled

to report their income tax returns according to the law (Ress, 1975). b) Benefit Entitlement

There is no formal right to an independent contractor to such privileges. Terms and

condition on the agreement among employee and independent contractor governs the benefits

(Buzogany & Mueller, 2010). Employer-employee relationships, including contract-contract

labor relationships, are regulated by a contractual arrangement and all statutory benefits apply to

these relationships. The advantages including but not restricted to the provident fund, savings

plan and payment insurance scheme, insurance for employers, workers' compensation, service

charge, statutory allowance, maternity allowance, leaves and vacations (either under federal or

government laws). It should be remembered that it is the duty of the employer to ensure that the

employees enjoy these advantages in the cases of independent. c) Limitation of use

EMPLOYEE AND AN INDEPENDENT CONTRACTOR

While there is no limitation for the use of Independent contractor while in case of

employees obliged to provide salary and other benefits. Other important considerations are

if (a) the process, service or other job is incidental to or required for the company, trade,

exchange, production or invasion; (b) it is permanent in nature; (c) it is typically performed

by daily employees and (d) it is appropriate to hire a large number of full-time workers.

Labor Laws distinguishing the Independent Contractors and Employees Some

of the labor laws that described independent contractors and employees are explained

Employee:

• Regular income (Weekly/monthly) depending on organizational policy.

• Income tax are deducted prior giving salary

• Overtime work is paid additional to the salary Independent Contractor:

• Income on project basis (They usually charge for the completion of specified given

project.

• They are paid is gross and income tax is not deducted from their pay.

Types of work performed by Independent contractor and Employees

Any companies should have multiple consideration while deciding to hire people. The

requirement tenure, time, control required along with the need of work like explained with the

figure (Partners, 2020).

EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Independent contractor is generally fitted for the work which requires specific skills and

can be completed in specified time frame. For example, in banks, independent contractor is hired

to develop software required for the business. Bank negotiates on certain price and pay them

after the completion of their work. Independent contractor itself can be another company serving

to their client with their own terms and conditions.

Similarly, Employees are hired for the regular activities required for the company to

achieve it mission. The nature of job is more regular rather than catering specific need of
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

employers. For example, bank hires employee in various field like operation marketing activities

to ensure smooth business operations.

An accountant can be an example of employees who is obliged to maintain the

accounting of the day to day transaction and settle at the end of the day. They are subject to get

regular salaries is bound to work on the time and place specified by hiring company.

I currently work in Machhapuchchhre Bank Limited. There is both an employee and an

independent contract at the location where I work. Employees are responsible for operating a

normal fixed-wage operation per month, while independent contractors are working for a certain

amount of time only. They are normally employed where particular abilities need to be employed

to execute such activities, such as software development, ATM machine installation, deployment

of kiosk machine, organization of any events and so on

Employee or independent or contractor?

I have been working in Machhapuchchhre Bank Limited from three years as an employee.

Being an employee I have subject to perform a regular task like reporting, monitoring the

performances of branch, launching marketing campaigns and handle regular customer disputes in

digital banking product. While there are certain restrictions to work as employees as all the work

are under the description of company less of our own. While the strict 9 to 5 work is tiring can

sometimes get monotonous, one cannot deny the benefits that employees get from the company

apart from the regular salary. On other hand, independent contractors have less restriction form

the company and can work at their own terms However, they do not get other benefits except
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

their fix payment after the completion of specified project. The other benefits include bonuses,

medical allowances, travel allowances, welfares, insurance that employee can enjoy.

I would prefer becoming an employee since there is job security, regular source of

income and other benefits.

Advantages and disadvantage of independent contractor

Advantages

a) Freedom and flexibility

Employers only has only control over the outcome of the work and less about

how the work is performed. Their work are more flexible since they are not obliged to

specific time, how the work should be done and where should be done. This also allows

them freedom to work with multiple other companies simultaneously

b) Higher earning

According to the skills and company they are working more, independent

contracts earns higher than regular employees. This is also because they are not getting

any other benefits from the company.

Disadvantage

a) Lack of job security

Many contracts would only run for a short amount of time, because they can be

terminated with little to no warning, based on the terms, in some situations. Usually, for

consultants, this warning time would be much shorter than for workers in the similar
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

position. No budgetary safeguards, such as disability or redundancy pay, are also

available to fall back on.

b) Additional Burden
There are a lot of extra pressures that independent contractors will have deal with.

This requires the detailed and prompt completion and reporting of tax returns and annual

reports. Independent Contractors will need to tract the expenditure and income which is

an additional burden.

Advantages and disadvantage of Employee Advantage

a) Employee benefits

The additional benefit that employee gets from their company is the most

attracting part of becoming an employee including benefits from multiple sources like

medical insurance, life insurance, retirement benefits, fringe benefits, paid time off, social

security and other specialized benefits.

b) Job-Security

Employee are secure since they are involved in an organization for a longer term

and will get their salary out of it on a regular basis. The provides Job security to the

employees.

c) Regular source of Income

Unlike, independent contractor, employee get salary every week or month

depending on organization rue. This helps them to manage their finance and their life

tend to be more stable.

EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Disadvantage

a) Less freedom and flexibility

Unlike independent contractor, employees usually do not have freedom at work

where they can decide their own time and ways to perform the given job. They have to

work as specified by their employee and therefore it is less flexible to work.

b) Less Income

Since employee can enjoy other organizational benefits, there pay generally tend

to be lower than of Independent contract. Irrespective of tiring full time job, they get paid

lesser than what independent contractor would charge for their work.
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

Conclusion

Organizational generally takes a decision to hire employee or independent contractor on the basis

of their requirement. Indent contractor are fitted for one time work where hiring them for

temporary period of time can give organization required outcome whereas employee is fitted for

the regular work which ensures organization smooth operations. There are own advantage and

disadvantage of becoming employee and independent contractor. While independent contractor

can enjoy the freedman d flexibility at work along with the negotiation power on the pay.

Employee do not have such flexibility and power. They have to work according to the

organization policy. However, employee has added perk of additional benefit they get such as

medical and travel expenses, holidays, bonus, welfare, provident fund and so on along with the

regular salary which an independent contractor cannot enjoy.

Independent worker is hired for short interval of time and subject to get terminated once the work

is done whereas employee is hired for longer term and therefore they cannot be easily terminated

from their work.

References

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332-402.
EMPLOYEE AND AN INDEPENDENT CONTRACTOR

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Journals, 52(12), 8-10.

Mathieu, C. (2016). 2016/12 ‘Independent contractors’ working in a subordinate relationship

may in reality be employees (FR). European Employment Law Cases, 1(1), 36–38.

https://doi.org/10.5553/eelc/187791072016001001013

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EMPLOYEE AND AN INDEPENDENT CONTRACTOR

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EXTENDING POLITICAL ACTIVITY SPEECH RIGHTS TO PERSONAL SERVICE

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