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Understand the Difference Between Employment and Contracting

Does it matter if your career plan is to be hired as an employee or take on work as a contractor? You bet. Knowing the difference between these working relationships will help you better understand which career path is right for you.

In some occupations, such as agricultural commodity inspectors, almost everyone works as an employee. In others, such as midwives, almost everyone works as a contractor. And there are many occupations, such as floorcovering installers, where both paths are an option.

Employees work in an employer-to-employee relationship with supervisors or managers assigning the work duties.

Employees may be paid

  • An hourly wage
  • A weekly or monthly salary, based on a standard set of hours
  • Either minimum wage OR incentive-based pay such as commission (for example, a percentage of each car sold)—whichever is higher for that pay period.

Some employees work for a company that hires their employees out to another company. If you’re employed by a temp agency, for example, you may work at a warehouse as a short-term receptionist, but you’re employed and paid by the temp agency.

Contractors work in a payer-to-contractor relationship. Contractors bid for work projects, agree to provide specific products or services outlined in a contract, and generally do not work at the employer’s place of business. They may or may not be incorporated. Many work in sole proprietorships or partnerships and could be defined as contractors.

Contractors can be also known as consultants or freelancers. Consultants are usually independent professionals such as engineers. Organizations often take on freelancers for short-term or smaller projects, such as designing a brochure or doing the makeup for a photo shoot.

Why does the difference matter?

Whether someone is a contractor or an employee decides:

  • Who is responsible for what such as equipment or other supplies used in the job
  • Who has certain benefits and the types of benefits
  • Who is legally responsible if something goes wrong
  • Who pays for things like different taxes or insurance

This difference will affect the responsibilities, benefits, and legal liabilities of:

  • Employees
  • Contractors
  • Employers
  • Payers or users (the people or companies that hire and pay contractors)

What do you want your working relationship to be?

To help figure out whether you’d prefer to work as an employee or contractor, explore the working relationships.

Although different government authorities use different factors to decide if a worker is an employee or contractor, those working relationships are generally defined by:

  • Who decides when and how the work is done
  • Who owns what (facilities, supplies, tools, etc.) and who is responsible for them
  • Who may make or lose profits in the working relationship
  • Whether you feel you’re in business for yourself, or you feel you depend on your employer for work

Regardless of whether you are an employee or a contractor, your working relationship will typically be captured in a contract.

What’s in a contract?

Contracts describe the expected services, products, timeframe, and cost of the work or services, along with the responsibilities of each side in the contract relationship.

Items in a contract may include:

  • Work or project schedules and number of hours
  • Workplace location(s)
  • How and when the payor will assign the work
  • Who is responsible for finishing the work, and if assistants or subcontractors can be involved
  • Who can end the contract and what conditions have to be met before ending the contract
  • Who provides the equipment or tools needed to do the work
  • Who holds the copyrights or owns the completed work
  • Who is responsible for any training that is needed to get the project finished
  • Who the contractor reports to
  • Required results of work

In an employer/employee relationship, a contract of employment can be written or spoken. If the employee agrees to the terms, the contract is valid.

Who will need to know if I’m an employee or contractor?

The following government agencies deal with the rules and responsibilities specific to income taxes, pensions, benefits, and workers’ and employers’ rights:

Each of these agencies decides whether someone is a contractor or employee based on the laws they are responsible for upholding. If you’re unsure, get advice directly from them.

Employee vs. Contractor - Finding the best fit for your career

This quiz helps you explore the differences you might face as an employee or contractor. For each scenario, pick the answer you think you would enjoy more. When the scores are counted at the end of the quiz, you will have a better sense of which type of career might be best for you.


All career and work search choices have their pros and cons. And the decision to pursue a career as an employee or a contractor will be easier if you do your research and understand the differences between the two. Your preferences will continue to evolve long after you choose your initial career path. Your career can evolve as well. Consider revisiting this quiz every now and then to see if your needs have changed.

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