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The Difference Between Contract and Full Time Employment

The Difference Between Contract and Full Time Employment

When it comes to hiring it can be a difficult business decision between picking contract labor or full-term. Which is better? You have to decide whether to hire a contractor or a full-time employee. Both types have their benefits and their drawbacks, so in this article we will explain to you the difference between the two types of employees, and which one is better for your business.

What is the difference between a 1099 and W-2 Employee?

1099 – Independent Contractors

Man with laptop and text "Question: Who should be an independent contractor."

A 1099 employee or a “contractor” is someone who does not take a regular salary but instead takes payment for competing for temporary tasks for the business. These are specific services as defined by a written contract. The employer can renew these contracts if they want to continue their services.

W-2 Employees

A W-2 employee is what you might consider a regular employee. A regular worker receives a salary. In addition, they usually are asked to work a specific number of hours per week. Most of the time they have very little control over their work.

On the flip side, as full-time employees, they are entitled to all the benefits. As the employer, your company should offer these to employees that meet the full-time employment status as defined by the laws in your state.

Image of a w-2 form and a 1099 for from the IRS with Clarity  HR logo

In order to be considered a contractor, they must pass the right of control test by the IRS. To pass the test they must meet these three criteria:

  • Behavioral: To pass the behavioral test, the company must not have control over what the worker does and how they do their job. As an example: the employee does not have a set number of hours and does not tell the employee how to do their job, then they are a contractor. The contractor has complete control on how to complete the task within the contract’s parameters.
  • Financial: To pass the financial test, the company must have minimal control over the business aspects of the worker’s job. If the worker bought their own equipment and does not require much financial support from the company, then they would be considered a contractor.
  • Type of Relationship: To pass the relationship test, the company must not have employee-type benefits. These include things like benefits, payroll taxes, paid sick leave, and so on. A contractor usually performs temporary tasks, which are not central to the business.

When should I hire contract work vs full time?

If the job is a temporary or one-off job, then it makes more sense to hire a contractor. It is common for seasonal jobs where extra help is needed for a brief period. Jobs central to the business in a long-term position, are considered to be a full-time. However, hiring a contractor gives you more budget flexibility. If you are a smaller business, it might make sense to hire a contractor over a full time employee.

How can Clarity HR help?

You do not have to worry about all of the complications of hiring the right type employees for your business. We can worry about getting you the best talent for your company. Clarity HR takes the stress off of your plate. CONTACT US TODAY

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