What’s the Difference Between a Contractor and a Full Time Employee?
We picked eleven main differences between permanent employees or individual contractors, based on local laws and procedures we’ve seen in different countries.
Published on May 6, 2020
Having to comply with local laws of different countries is definitely the most challenging part of hiring internationally. Typical workaround is hiring people as contractors as opposed to hiring them as permanent employees. Although it is a bit easier with international contractors, you still need to comply with local employment law which is the leading source of complexity on the legal side. If you're wondering what is the best way to hire a remote worker, just keep reading. We picked eleven main differences between permanent employees or individual contractors, based on local laws and procedures we’ve seen in different countries. This should help you decide how your workers should be hired.
⏳ Do they have control over their work and time?Full Time Employee (FTE) Are expected to work at certain hours or to work from a specified location or a particularoffice. You control their work and time at work.Independent Contractor (IC) They have a lot of autonomy and control over their work. For example, if you are hiring an expert or a consultant, you don’t necessarily instruct them on how to do the job. You rather expect a certain outcome and then use their expertise to achieve that.
🤝 Can they hire someone else to do the work?FTE You want the person you are hiring to do the work, you don’t want them to subcontract someone else.Independent Contractor Can legally subcontract someone else.
🛠️ Are they paid for the time they spend fixing their mistakes?FTE When they make a mistake, you continue to pay their salary even during the time they are fixing the error. IC They fix mistakes in their own time. They commit to deliver a certain outcome and if an error occurs on the way, it doesn’t change the value of the result.
💰 Does their pay depend on how long the job takes to finish?FTE Get paid by every hour. Technically, the longest it takes them to finish their task, the more they get paid for it.IC Get paid by the effect, not by the time they spend on the task, so it doesn’t matter how much time they spend on it.
👥 Can they or do they work for more than one client?FTE You can prohibit them to work for someone else by adding non-compete or exclusivity clauses in the agreements.IC Some countries prohibit self-employees from working for only one client. Contractors should be allowed to have another source of income, a side project for a different company, etc.
📈 Can they generate a loss or a profit?FTE No, it’s enough for them to show up to work to make a profit. Since they don’t have any materials they need to pay for, they can’t make a loss.IC Yes, they can spend more money than they earn, for example, on materials.
🏖 Do they get paid time off?FTE Yes, though paid time off varies from one country to another.IC Shouldn’t get paid for time off.
💻 Do they buy their materials and equipment?FTE No, the employer provides them with all needed equipment and materials.IC Yes, ideally they’d purchase their equipment.
📋 Are you obliged to provide them with work? Are they obliged to perform it?FTE Yes, a contract they sign is a mutual agreement to provide and perform work on given terms.IC No. Even though a contractor would probably like to get such a guarantee, it cannot be stated in the contract.
🚒 If something goes wrong, whose liability is it?FTE When employees do the work, and they make a mistake, unless they were negligent, it’s a company’s liability. You, as an employer, are responsible for your employees’ work. IC An agreement should specify that they repay you for their actions which ended up harming your business.
📖 Is more than 50% of their income coming from their skills, knowledge, expertise or efforts?FTE No, more than 50% of their income is selling their time.IC Yes, more than 50% of their income is coming from their skills, knowledge, etc.For most of the early-stage companies contracting makes more sense as it gives you and your workers more flexibility. Thanks to that, you don’t have to deal with all the complexity of local employment laws and run payroll. However, if you go through the above questions and you realize that your contractors should become permanent employees, we will be happy to help you with that. With Pilot, the conversion from contractors to full-time employees is smooth and painless.
The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
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