Contract vs Full-Time Employee: All You Need to Know

The reason behind this is simple – the company will not be responsible for their unemployment benefits. From an employee side, contracting can be very attractive because you can have multiple jobs, negotiate to work favorable hours, and depending on the industry, work remotely. Just be careful once tax season comes around – many workers fail to realize that companies tend to cover half of your tax benefits, so you will likely pay a higher rate. The standard relationship between employers and workers is changing as more people choose to be independent contractors. Being an employee means having a boss, receiving an hourly pay or salary with benefits, and often working full-time on a set schedule. After all, training any new worker requires time and funds — and these are two things small-business owners don’t always have an abundance of on hand.

Make sure to look into employer health insurance requirements as you approach that threshold. Most countries support indefinite contracts over fixed-term contracts and independent contractors; paying particular attention to the drafting of employee-favored laws that relate to lawful dismissals. Though it is worth nothing that in some countries there are restrictions on offering indefinite employment contracts, such as the prohibition on indefinite contracts for foreign workers under Vietnam labor law. Simply put, contractors can help you complete projects that require skills and experience your full-time staff does not have.

You may be missing out on a 66.5% salary hike*

If a contract specifies a limited period of time, employers need to clarify if and when the contract can be renewed. Those negotiating salary from contract to contract must be sure to begin the discussion well before the term of the contract expires. Firstly, an employer is not required to apply for a dismissal, which means they do not need to take into account relevant notice periods and notice prohibitions (unless a premature termination is involved). Regarding employees, there is less freedom to decide one’s own schedule and try different types of work, when compared to casual or fixed-term work.

• This level of flexibility can be seen as a benefit or a limitation, depending on the type of work-life balance the person seeks.
• In addition, many employees may wish to negotiate their salary from contract to permanent.
• This is because candidates may not find the prospect of a short-term contract as attractive as an indefinite one.
• Therefore, you have to calculate the cost of all benefits you pay full-time employees, even if they are not included in their salary.
• At the end of the day, an employee isn’t necessarily better than a contractor; it depends what the needs of your business are.

At the end of the day, an employee isn’t necessarily better than a contractor; it depends what the needs of your business are. As a “professional worker”, I have been lucky enough to have experienced these three methods of employment. Every company and situation is different so there’s no “one size fits all” answer here.

Legal considerations for permanent contracts

For many companies, part-time work is considered 30 hours or less per week; however, the Fair Labor Standards Act (FLSA) does not specify the exact hours of full- and part-time employment. Employers looking to hire a workforce need to know the differences in compensation, expectation and employer responsibility for hiring contract, part-time and full-time employees. Each of these types of workers has different tax implications, varied responsibilities and separate legal requirements on the part of the employer. Indefinite term contracts come with stronger employee rights and employer-side obligations, most notably the right to reasonable notice upon termination. This generally makes indefinite contracts more appealing to employees, as there is a greater sense of long-term job security.

A few federal laws govern your responsibility as an employer to your employees based on the hours they work. Under most federal labor laws, including the Fair Labor Standards Act (FLSA), an employee’s full-time vs. part-time status is irrelevant. Most employees are entitled to the protections under these laws, with few exceptions. Culturally in the United States, we imagine a full-time employee as someone who works around 40 hours a week.

What is usually in a permanent employment contract?

Experts project that by 2020, contract workers and freelancers will make up 40 percent of the workforce in the United States of America. Employers will lose valuable opportunities if they recruit one type of employee. This level of flexibility can be seen as a benefit or a limitation, depending on the type of work-life balance the person seeks. For example, contractors can take time off whenever they feel like it, but they do so at the cost of not making money during that time.

Offering benefits like health insurance, paid time off, and 401(k) contribution matching is a key opportunity for employers to entice talented workers to join the team. Helping employees to strike a work-life balance will ensure employee satisfaction and effectiveness. Full time permanent employees work between 35 and 40 hours a week, while part time employees with a permanent part time contract work under 35 hours. An indefinite contract (also known as an indefinite-term contract or permanent contract) is the most common type of employment contract throughout the world. The modern employee wants flexibility in their work life — and no one wants to be stuck in a job where they are not a good fit. The short-term nature of a contract-to-hire position gives the employee a trial run of both their position and the company.

In this case, it would not benefit you to hire a full-time employee if you only require these skills to complete a short-term project. If you think this will deter top talent from applying to contract-to-hire positions, think again. The upside here is that for many candidates working with a staffing agency, contractors are able to receive benefits through the agency if working as a W-2 employee.

• Although the IRS has no absolute definition of either the independent contractor or the W2 employee, they do have a 20-point checklist to determine employee status.
• It essentially gives businesses the ability to “hire on-demand;” enabling them to meet their exact capacity at any given time with contract hires vs. direct employees.
• Once a candidate has moved through these stages of the process with the staffing agency, they will be passed along to the client for any final interviews.
• This is particularly beneficial if the project is quite niche or technical in nature.

In addition, as employees, they don’t have to deal with their income taxes – the employer covers them by deducting the designated amount of money from the employee’s gross pay. Contract-to-hire is when the employee (or contractor) is placed in a short-term position for a set period of time, with the possibility of being brought on as a full-time, direct employee at the end of the contract. A contract-to-hire employee is still under contract to work for a company but is technically employed by the staffing agency that recruited them. Contract-to-hire employees should not be confused with freelancers or independent contractors, who are self-employed.

I-9 Compliance: Guidance for Employers for Ensuring Employment Eligibility

Any part-time or full-time employee would be entitled to overtime pay when they work more than 40 hours in a given week unless they’re classified as exempt per the FLSA. The FLSA applies to all nonexempt employees, regardless of full-time versus part-time status. It entitles non-exempt employees to the federal minimum wage — $7.25 per hour as of this writing — and to time-and-a-half overtime pay for hours worked over 40 hours in a work week. Under the ACA, the IRS explains, an employee is considered full-time if they work an average of at least 30 hours per week or 130 hours per month.

If you secure a new client, extend a project, or expand the scope of an existing contract, you may not be prepared to meet capacity. So, you may be wondering how to scale up your business on such short notice. This is a solution that helps you stay productive during these times of unexpected growth by making it possible to quickly hire the help you need.

When contract workers know that they may be able to save money by working for your company, they might be more willing to sign a contract. On the other hand, you may enjoy a few benefits if you offer your contract workers health insurance. A few years after when I was ready to go full-time, contract position vs full time I was offered a contracting position. It felt like I was part of a company, but did not have some of the perks that my co-workers had. I didn’t get invited to their events, participate in training and found that some of the things they discussed in the internal meeting, inapplicable to me.