Working as a Contractor Versus Employee: Pros and Cons

Keep this handy for the next time you move from contractor to full-time or vice versa—it could make a tough decision much easier. Either way, it’s your responsibility to understand and align with any relevant tax regulations. If you fail to meet the requirements in any country, you may receive penalties and fines from the tax authorities.

For most companies, not having to provide benefits, handling income taxes, or covering insurance and security is a profitable trade-off for higher rates of contractors. In addition to this, with onboarding costs eliminated, companies can free up millions in funds to direct towards artificial intelligence-based services or core business applications. As the title suggests, full-time software engineers are permanent employees a company hires at a definite rate to work for a set number of hours every week. They receive benefits like medical insurance, dental, retirement savings, legal protection, and paid sick leaves and vacation days, among others. Full-time employees are heavily dependent on their employers and vice versa.

Advantages of Being an Independent Contractor

The length of an IT contract can vary from a few months to a year or more depending on the complexity of the project and the skills required. For some IT professionals, working on a 6- or 12-month contract is preferable because it provides them the opportunity to gain experience on many different projects over the course of their career. They can learn about and work in various companies and industries giving them broader insights and knowledge. Additionally, contract projects are likely to use different technologies, platforms, and processes, allowing contractors to learn and apply new skills and continuously add new experiences to their resume. One of the biggest advantages of being a contractor is having independence.

Notably, the study’s participants said the benefits of flexibility and choice outweighed any economic insecurity. At least 57 million Americans, or 35% of the U.S. workforce, freelanced in 2019, according to a survey by Upwork and Freelancers Union. But depending on your field, it’s probably impractical to quit your job to open a brick-and-mortar store, nor would you know how to start. That doesn’t mean you can’t find independence in other ways — like freelance contract work.

What Is a Contractor?

I am grateful for them especially since they are always willing to look for roles for me when I am in between contracts. Now that you have a better understanding of how it works hiring contractors vs. employees, you’re in a better position to make informed decisions about your business. Our free tool allows you to compare insurance coverage and pricing to find a plan that suits your needs. Additionally, you may be able to claim your tax deductions if you cover health insurance costs for your contract workers. Some of your business expenses are tax-deductible, but you’ll want to make sure you have a thorough understanding of your eligibility.

• They give up job security and full-time benefits for greater flexibility in managing their schedule and pace, higher paychecks, and a chance to work with multiple companies through their careers.
• Compared to 1099 independent contractors, it may seem like you’re earning a lower pay rate.
• Contract workers are becoming an increasingly attractive option for businesses.
• As an independent contractor, you’re self-employed, meaning you must pay both the employer and employee portions of payroll taxes.
• If you’re scaling and growing a company, contractors are an excellent option as they allow you to move quickly and flexibly.
• As a result, there can be little to no expectation of a long-term working relationship with your contractor, and you will always need a plan in place for how you will proceed if the contractor becomes unavailable.

As Orr points out, contractors still have to consider paying taxes, healthcare, any 401k contributions and the general lack of job security. After pursuing business ownership, which pretty much is a glorified full-time employment, my wife and I decided to split our time and became part-time employees. I became a personal trainer and my wife returned contract position vs full time to help at the grocery store. It allowed us to manage our own schedule in a way that where we can continue to contribute to our clients while still having time for our family. Full-time employees are often curious what it’s like to be a contractor while a contractor will often aspire aspire with curiosity to belong to a company full-time.

Comparison of disadvantages between a contractor and a full-time worker

However, if you decide to employ someone in a different country, you need to follow the employment and tax laws of that person’s country. To understand these laws, comply with them, and manage all your other obligations requires local, on-the-ground expertise. Allowing contractors to use their own equipment is safer from a legal standpoint, but poses other threats, such as security and data protection.

As a 1099 worker, you will have to buy your own health insurance, and that can be very expensive. You’ll also have to buy all of your own equipment like a computer, desk and office chair, and cell phone. And you won’t get a 401k match, and “paid vacation” doesn’t really exist for 1099 workers—if you don’t work, you don’t get paid. However, if you are looking for a short-term fix, the amount of work required doesn’t justify a full-time employee, or you just want to set up a more casual arrangement, then a contractor agreement may be a good fit.

Also, we now may say that college degrees aren’t strictly necessary nowadays. This recent adaptation of the job market has had an impact, especially regarding full-time positions. But in general, it depends on what the job is about and if demonstrable experience in the field is what brings in the results a company looks for. With all of this being said, it’s now time to look at some of the most noteworthy advantages of both of these types of employment.

But if you do continue or choose to remain in a contract role, Orr ensures that contract work is not job hopping. She also emphasizes that regardless of your time with a company, it’s part of your career story and has made you the professional you are today. It was the position that I felt was the most secure and would pay me the most. When I got my first Full-time gig at a financial company in which then progressed at a reputable consulting company, I was set. I got my 9-5 filled with numerous activities and extra curricular training to get myself up the ladder. The pay also was great for a single guy with a studio half bath in San Francisco.

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. As a professional worker who have had the opportunity to work these three different employment types, I want to share with you a few pros and cons for each. It is not my intention to tell you which one is best, but it is my intention to share with you my experience, and my opinion, so you would be well informed in case you need to make an adjustment to your work situation. However, the amount of infrastructure that a consultant uses is significantly less than that of an employee (not to mention the fact that the consultant doesn’t receive any benefits from the company).