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The Importance of Being Classified as an Employee vs. a Contractor

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When looking for a job, the dilemma is to decide if to offer your services as an employee or a contractor. The truth is that there are several differences between the two and this article describes them broadly. In the end, both options have pros and cons that are worth considering. Our focus is on the importance of being classified as an employee over a contractor.

But before anything, this is what it means to be regarded as an employee and not a contractor:

  • Your employer takes care of the operating expenses and provides the tools, equipment, and supplies needed for the job.
  • You are entitled to employment benefits the same way as the other employees.
  • You report to someone superior, who can either be a manager or supervisor.
  • You are expected to work for a determined pay.

Having said that, here are the advantages that employees enjoy which may be lacking in contractors:

  1. Income Guarantee

Being hired as an employee means agreeing to a pre-determined salary. So, unless you are fired, you are guaranteed to receive your payment at the end of the week or month. Unfortunately, this can’t be said about working as a contractor. Reasons like business slowness and unreached targets may be given to delay or deny you a pay.

  1. Employment Benefits

This is probably the main reason why most professionals prefer to remain employees than working as contractors. One major benefit that you are entitled to when serving as an employee is health insurance. In case you get sick on the job, you are protected by this coverage. So, you may not have to get into your pocket to pay for your medical costs. Other employment benefits attached to working as an employee include retirement benefits and stock options.

  1. Workers Compensation

When injured on the job, your employer through the Workers’ Comp Insurance program needs to compensate you. Unfortunately for contractor workers, this program is not applicable. This is why working as an employee is a better move. You are protected by the Workers’ Comp and this means you can always work wholeheartedly without fearing your safety. Additionally, you are entitled to unemployment compensation following work termination.

  1. Zero Operating Expenses

Operating as an employee implies that you are exempted from the operating expenses. From the transport of supplies to energy bills, it’s upon the employer to ensure that the expenses are met and that you have everything in place to work. This is contrary to the experience of working as a contractor where you are expected to shoulder all your operating expenses.

  1. Zero Tool/Equipment Expenses

Working as a contractor usually means being independent. So, you are required to bring your tools and equipment to the job. Unfortunately, this may mean additional expenses on your part if you have to buy the supplies. Working as an employee, however, does not come with such expenses.

Since you are part of the staff, all you have to do is suggest the tools and equipment that you need for the job and the employer will make the purchase. The downside is that the supplies remain property of the company you are working for, so you can’t claim them.

  1. State/Federal Employment Laws Protection

Serving as an employee means you are protected by both state and federal employment laws like:

Such laws, unluckily, do not exist when working as a contractor. Not only do the statutes guarantee work safety but they also offer you job security and fair pay. You want this when you have a family to support.

  1. Work Training

Lastly, you are expected to inject your expertise when hired as a contractor and are not offered an opportunity to learn. This can be a problem if it’s a new and different field that you want to try out. So, the better option would be to be classified as an employee. At least, it allows you to receive some training on the job. Remember, you’ll receiving instructions from a manager or supervisors and some of them may come in form of training.

Generally, choosing to be classified as an employee means choosing to enjoy the above benefits. It doesn’t mean, however, that being a contractor is bad. The classification enjoys advantages like business ownership, time flexibility, and delegation that are absent when serving as an employee.