The difference between an employee and a contractor | Heat Recruitment

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The difference between an employee and a contractor

Difference between employee and contractor

As an employer, you’re always going to want the best people for the job. No two individuals have the same set of skills, experiences and personality traits, so some workers will be more suited to certain projects than others.


That’s why many businesses choose to have a mix of employees and contractors working for them at any one time. This gives employers access to a wider range of people who can carry out work to the highest standards possible.


So what’s the difference between an employee and a contractor, and what are the benefits and downsides of both?

What is a contractor?

A contractor or freelancer is a self-employed individual who carries out work for your business. They can be hired on a temporary basis to complete certain tasks or projects, and are usually chosen because of their specific skills or experience. This may be because a business does not have the skills in house, the correct amount of staff to do the work or the required work is very specialist and highly skilled.


Contractors mostly aren’t paid through PAYE, and they don’t have the same employment rights as your employees. They’re able to refuse any work you offer them, and they have control over how their work is done and their schedule. They can also get someone else to do the work you’ve assigned to them.



What is an employee?

An employee is someone who works under the terms of a contract of employment within your business. Unlike contractors, an employee has to do the work themselves (instead of hiring someone else to do it), has to accept work from their employer and is usually paid an annual salary rather than paid per job or by a daily or hourly rate.


As their employer, you control what work your employees carry out and the hours they do it in.

Why it’s important to know the difference

It’s essential that you keep track of the employment status of everyone who does work for you, and that the correct type of contract is given to each person. This is because there are different legal obligations that you have as an employer, depending on whether the individual is an employee or a contractor.


If you don’t properly classify a worker, you’re leaving yourself open to a fine or even a court case. It’s not uncommon that a business uses a contractor so regularly that over time the relationship evolves into an employer and employee. That’s why it’s important to regularly review contracts to keep employment status clear for both parties.


Using a recruiter to help you find a contractor will also go a long way to ensuring boundaries and relationships don’t become blurred.

Benefits of using contractors


Here are some notable business benefits of hiring a contractor to do work rather than using an employee:



Saves time and money

Since contractors are hired for their specific skill set, they’ll already have the knowledge and expertise they need to complete the job to a high standard. This will save you having to train an employee to get to the same level, which can be time-consuming and expensive.



Provide an outside perspective

Your own employees can sometimes be too close to projects to be able to identify flaws or better ways of doing things. When you hire an external contractor for a task, they’ll offer a fresh perspective that’s not coloured by the way things are usually done within your company. This could help you to think more creatively about how your business could improve.



A flexible option

Due to the temporary, short-term nature of contractor work, you can bring people in as and when you need them. This means that if you suddenly get an influx of new work, are short-staffed or take on a project that requires a different set of skills than your staff have, then you can hire a contractor to bridge that gap and keep your business running smoothly.



Less admin

Since contractors are self-employed, there’s no need to carry out half as much of the admin tasks needed when you hire a new employee. When hiring a contractor you won’t be responsible for their PAYE or National Insurance, and you won’t have to organise sick pay or annual leave for them. This means the individual can get stuck into the work right away without you having to worry about filling in endless forms.



The hire risk is low

When taking on a new employee, even after you’ve interviewed them and read their reference, there’s always the risk that they’re just not as good as they appeared to be. You then have to go through the whole process of replacing them, with all of the time and costs that go with it. Alternatively, when you hire a contractor, they’ll already have a list of completed projects behind them, and you don’t have to continue using them if their work isn’t up to the standard you require.



Challenge your competitors

Thanks to their refined skill sets, contractors can offer amazing opportunities for your business to advance within its industry. They’ll bring with them new approaches and new experiences which can be shared out amongst your own employees, helping your company to innovate and stay ahead of the competition.



Considerations when hiring a contractor


Although using a contractor can be a great option, there are some factors you should take into consideration to ensure it’s the right decision for your business.



Contractors need to be adaptable

Despite having detailed knowledge about the work they do, a contractor won’t be an expert about your specific business and how it works. This means you might have to invest some time explaining the processes or demonstrating how equipment works so that the contractor can get on with the job in hand.

However, the nature of contract work means that a contractor will easily adapt to your business, and any time invested will be small in comparison to training a new employee.



They work in their own way

One of the key definers of a contractor is the fact that they have the control over how they do the work and their hours. This could get frustrating as you may have a preferred method or you might want them to be working at certain times. However, letting them work autonomously and do what they do best will free up a large chunk of your time and allow you to focus your attention on more important work.



Good contractors stay with companies that treat them well

Even though they aren’t an employee, contractors want to work with businesses that they can build relationships with. Bear in mind that  a contractor has no obligation to stick with your business. They’re well within their rights to refuse work from you, ask for a higher rate of pay or even to work with one of your competitors. If you keep your pay rates realistic and treat them well, then they’ll stick with you as long as you need them.



To sum up

When choosing between an employee or a contractor to do certain work, there’s no right answer. You’ll need to weigh up each project or task and the individual’s expertise to decide what the best solution is for the job. Just remember to keep employment contracts clear and up-to-date.

If you need any help with clarifying employment status or any other contractor services, the Heat team are here to help.


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