You must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to employees. You do not usually withhold taxes for a contractor or pay toward other benefits; they take care of that themselves. Costs also may be lower with part-time vs. full-time employees because you’re not required to offer health insurance coverage to part-timers and most employers reserve other benefits for full-time employees too. However, your responsibilities as an employer vary from state to state, so consult a lawyer to understand the requirements in your state. It’s common for employers to define full-time employees as anyone who works at least 32 hours per week, but some may require more or less. For salaried workers, some employers might not set expectations for hours worked at all.
The public safety net — the budgets for fire departments and social services — is already strained, he says, by the area’s opioid problems, among other things. It’s emblematic of the kind of contract work expanding into every corner of the economy. Machines are siphoning off basic tasks, and temporary workers allow flexibility to size up and down.
Why Employers Use Contract-to-Hire Roles
For some, the freedom to choose projects, and the flexibility of working for themselves, make the challenges worth it. Many freelancers in a gig-centric economy transition to independent contractors who work on a contractual basis to provide goods or services. Independent contractors may have a registered legal business name, earn any necessary certifications or licenses, and pay their estimated taxes quarterly to the IRS. An independent contractor is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a non-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. Harman noted that employees are hired to perform specific work at the employer’s direction. On the other hand, independent contractors are typically given a job or project to work on without the company controlling when and how they do it, he said. If you decide to offer your contract workers health insurance, it could hurt your bargaining power with the health insurance company.
Compared to full-time employees, part-time employees are less likely to receive benefits such as health insurance, dental insurance, or 401(k). While there’s no legal definition of part-time vs. full-time employment, most part-time employees work 35 hours or fewer per week. Assuming each shift is an eight-hour day, that adds up to approximately a four-day work week. Again, if you have at least 50 FTEs, then you’ll be on the hook for either providing health insurance that meets the ACA minimum requirements or making an employer shared responsibility payment. If you have under 50 FTEs, you’re considered a small business, which means you don’t have to offer health insurance (but you still can if you want to). For example, if you classify employees who work 32 hours a week as full time and offer them benefits, such as PTO, you have to update an employee’s classification in your payroll system if their average hours increase.
- 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.
- Here’s a breakdown of some of the pros and cons for both independent contractors and employees.
- Check out our free IT job search resources and join us as we compare contract and full-time employment to discover their unique advantages and disadvantages.
- In the legal field, there are online platforms that match freelance lawyers with clients.
- Contracting allows employers to test workers out, he says, but he ultimately is hoping to land a full-time position, with benefits.
Because you aren’t paying employment taxes and providing benefits for them, contractors can often cost less than full-time employees. Employee misclassification happens when workers are contract position vs full time mislabeled as independent contractors rather than employees. If you misclassify employees, you aren’t paying unemployment and other taxes on your workers when you really should be.
How to List Contract Work on Your Resume: A 2023 Guide
The business also provides necessary office space and equipment to ensure that the employee can be effective in his or her job performance, including furniture, technology and other equipment needs. This is a required cost of hiring W2 employees, regardless of whether employees work on-site or in a remote capacity. With each paycheck, W2 employees will have a predetermined proportion of income taxes automatically withheld, as well as any other benefits for which they’ve authorized payment. For the most part, these employees won’t have to think about taxes again until filing their annual return each April, when employees might be entitled to a refund based on the amount withheld from their regular pay. It isn’t unusual for an independent contractor to be working on projects for several clients at any given time. Frankly, they generally have to in order to make ends meet; simply by virtue of being independent, the contractor is likely to hold less loyalty for any single company.