Basic Differences Between Employees and Contractors? A 2022 Remarkable Guide:

by | Jun 2, 2022

Dreading telling the difference between employees and contractors? Have no fear! As Yogi & Associates are here to clarify as much as they can to clear the concepts.

Understanding the differences between employees and contractors can be tricky. Each group has different roles and responsibilities. So, here’s what you need to know if you’re trying to decide which type of contract you want. Please give it a read!

1. Who Is An Employee?

Employees work in a company under a supervisor or do their assigned tasks by the manager.

“Always treat your employees exactly as you want them to treat your best customers.” – Stephen R. Covey

2. Who Is A Contractor?

The contractor connects with his clients. Moreover, a contractor completes his work projects and agrees to offer specific products. He performs the services defined in a contract and does not usually work at the employer’s location.

Independent contractors – a rapidly growing piece of the workforce – can often achieve the best quality of life. They can choose from where they work, whom they work for and for how long. (Maynard Webb)

3. Six Differences between Employees and Contractors:

Following are the facts that wil clarify the differences between employees and contractors:

Employees Contractors

Employment Standards Act (ESA):

Employees get the Employment Standards Act (ESA) benefits. These benefits include overtime pay, paid holiday benefits, etc.

Employment Standards Act (ESA):

Contractors cannot get (ESA) benefits.

Time limit:

Employees must give their full-time attention to their employers. They are sometimes not allowed to have a second job or side business.

Time limit:

They are not restricted to one client only. So they can have many customers at one time.

Earnings:

Employers’ earnings are liable to deductions from their pay for Canada Pension Plan (CPP), Employment Insurance (EI), and Income Tax.

Earnings:

They have to bring their tools and equipment to perform their tasks.

Facilities:

Employees get all the necessary facilities to perform the job. These facilities include the required tools and equipment.

Facilities:

Their income depends on the business they are running. So, if the company is not making profits, it affects its earnings.

Rules & Regulations:

An employee’s earnings don’t depend on the company’s profit or loss. Simply put, an employee doesn’t earn more if his company gains more profit.

 

Rules & Regulations:

They can do their work as they want to as long as they follow appropriate rules and regulations.

Independence:

Employees cannot hire someone else to do their work tasks. They are also not allowed to perform their work the way they like.

Independence:

They are self-employed. They can deduct expenses from their earnings on their tax return.

4. Pros and Cons of Hiring an Employee:

Pros of Hiring an Employee Cons of Hiring an Employee

Management:

As a business owner, if you hire an employee, you can guide him in your management techniques.

Management:

A business owner must have a proper management system to manage employees. This means you need more management staff and more expenses.

Time Limit:

You can set the work hours. This way, your employee will give proper time and attention to complete the work you assign.

Time Limit:

You must pay salaries plus other benefits. These benefits include healthcare, pensions, and paid leaves if you hire an employee.

5. Pros and Cons of Hiring a Contractor:

Pros of Hiring a Contractor: Cons of Hiring a Contractor

Taxes:

The contractors pay their taxes on their own.

Taxes:

Clients cannot deduct any of those costs from their corporate tax bills.

Equipment:

Employees don’t need to spend on tools, resources, or equipment. So, the contractors bring their instruments and equipment. As they manage these things on their own.

Equipment:

If the market favors contractors due to supply and demand, it would be more expensive to hire contractors than an employee.

Time Limit:

The contractors work without supervision as they manage the work task by themselves.

Time Limit:

Contractors are not available according to your convenience. So, they won’t even take time for you as they work with many clients.

Work Nature:

Depending on the contract, the contractor and his client can cancel the agreement if they want to.

Work Nature:

Contractors usually do not complete their work on your timeline. Instead, they set their period.

6. What Are The Tax Benefits Of Hiring Employees and Contractors?

The following are the tax benefits of hiring the employees and contractors:

Tax Benefits of Hiring an Employee:

1. The Canada Employment Credit allows the employee to offset a part of employment expenditures.
2. An employer can claim up to $2,000 annually under The Apprenticeship Job Creation Tax Credit (AJCTC) for a “Qualifying Apprentice.”
3. There are various tax benefits to encourage hiring students, older workers, and youngsters.

Tax Benefits of Hiring a Contractor:

There are no tax-saving benefits for hiring a contractor. But you are relieved of paying and managing all the taxes as contractors do. Thus, many businesses find hiring contractors is a more workable option as long as the proper employer-contractor relationship is maintained.

Wrapping it up!

Employees and contractors both have merits and demerits. So, you can select employees and  contractor according to the requirements of a project. But, if you’re still confused about understanding this concept, contact Yogi & Associates. We will assist you in learning more about their characteristics and duties at work.

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