Employee vs. Contractor — What's the Difference?
By Tayyaba Rehman & Fiza Rafique — Published on September 22, 2023
An Employee is someone hired by a company to perform tasks under the company's control and direction. A Contractor is an individual or entity hired to perform a specific job but retains control over how the work is executed.
Difference Between Employee and Contractor
Table of Contents
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Key Differences
An Employee works directly for a company and is generally subject to the company's policies, rules, and control. They are entitled to benefits like health insurance, paid vacation, and retirement plans. Contractors, on the other hand, are typically hired to perform specific tasks and retain a greater degree of control over their own work. They are not eligible for the same benefits as employees.
Employees usually work on an ongoing, indefinite basis for their employer, often with the expectation of long-term job security. In contrast, Contractors are usually hired for a specified period or project, and their work arrangement has a set end date. They are also responsible for their own taxes, benefits, and business expenses.
In the realm of taxation, Employees have taxes withheld from their paychecks, and their employers also contribute to payroll taxes. Contractors, conversely, are considered self-employed and are responsible for handling their own taxes, including self-employment tax. Employees are generally eligible for unemployment benefits if they lose their jobs, while Contractors are not.
Legal liability also differentiates Employees and Contractors. Employees are usually covered by the employer's liability insurance, whereas Contractors are responsible for their own liability coverage. If a mistake or accident occurs on the job, the employer is generally responsible for Employees but not for Contractors.
Comparison Chart
Employment Duration
Indefinite/Long-term
Project-based/Short-term
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Tax Responsibility
Employer handles
Self-handled
Benefits Eligibility
Usually eligible
Usually not eligible
Level of Control
Employer controls
Self-controlled
Liability
Covered by employer
Self-covered
Compare with Definitions
Employee
Long-term Position: "An Employee typically holds a long-term position within a company."
Susan has been an Employee for five years.
Contractor
Task-specific Worker: "A Contractor is hired for a specific task or project."
Mike was hired as a Contractor to renovate the office.
Employee
Full-time Worker: "An Employee is a full-time member of a company's workforce."
Sarah is an Employee at a tech company.
Contractor
Independent: "A Contractor operates independently and is not subject to an employer's control."
As a Contractor, Angela sets her own work hours.
Employee
Salaried Worker: "An Employee is someone who receives a regular salary from an employer."
Jack gets a monthly salary as an Employee.
Contractor
Self-Employed: "A Contractor is considered self-employed."
Jane pays her own taxes as a Contractor.
Employee
Under Employer Control: "An Employee works under the control and direction of an employer."
As an Employee, Brian follows company policies.
Contractor
Short-term Engagement: "A Contractor is usually engaged for a short period."
Paul was a Contractor for a three-month project.
Employee
Benefit Recipient: "An Employee is often eligible for company-provided benefits."
Emily receives health insurance as an Employee.
Contractor
No Benefits: "A Contractor usually does not receive benefits from the hiring entity."
Lisa is a Contractor and therefore doesn't get health insurance.
Employee
A person who works for another in return for financial or other compensation.
Contractor
One that agrees to furnish materials or perform services at a specified price, especially for construction work.
Employee
An individual who provides labor to a company or another person.
One way to encourage your employees to work harder is by giving them incentives.
Contractor
Something, especially a muscle, that contracts.
Employee
One employed by another.
Contractor
A person or company that builds or improves buildings.
Employee
A worker who is hired to perform a job
Contractor
A person or company that performs specific tasks like electrical or plumbing work in construction projects.
Contractor
A person or company hired to maintain existing facilities like air conditioning systems, groundskeeping, etc.
Contractor
A person hired to do a job on a business contract, as opposed to a permanent employee.
Contractor
One who contracts; one of the parties to a bargain; one who covenants to do anything for another; specifically, one who contracts to perform work on a rather large scale, at a certain price or rate, as in building houses or making a railroad.
Contractor
Someone (a person or firm) who contracts to build things
Contractor
The bridge player in contract bridge who wins the bidding and can declare which suit is to be trumps
Contractor
(law) a party to a contract
Contractor
A bodily organ that contracts
Common Curiosities
What is an Employee?
An Employee is someone hired by a company to work under the company's control and direction.
Do Contractors get benefits?
Contractors typically do not receive benefits from the hiring entity.
Do Employees get benefits?
Generally, Employees are eligible for benefits like health insurance, paid vacation, and retirement plans.
Are Employees long-term hires?
Employees are typically hired for an indefinite period and have job security.
Who is responsible for a Contractor's work mistakes?
Contractors are generally responsible for their own mistakes.
What is a Contractor?
A Contractor is an individual or entity hired to perform a specific job, usually retaining control over how the work is executed.
Do Contractors need to bring their own tools?
Contractors are generally responsible for providing their own tools.
Who handles taxes for Employees?
The employer handles tax withholding for Employees.
Can Contractors set their own work hours?
Contractors generally have the flexibility to set their own work hours.
Who handles taxes for Contractors?
Contractors are responsible for their own tax payments.
Can Employees set their own work hours?
Usually, Employees work under set hours determined by the employer.
Who is responsible for an Employee's work mistakes?
The employer is generally responsible for any mistakes made by Employees.
Are Contractors short-term hires?
Contractors are usually engaged for a specific period or project.
Do Employees need to bring their own tools?
Employees are usually provided tools and resources by the employer.
Can an Employee become a Contractor?
Yes, an Employee can transition into a Contractor role, but this change affects taxes, benefits, and legal responsibilities.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
Co-written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
