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What is the difference between a contractor and an employee?


Recruitment can be a complex area for an employer, especially if it is a relatively new business. When you recruit a new worker, you have to be sure that they are legally entitled to work in the UK, while also following employment law to the letter. This may be tricky, especially if you don’t know the difference between a contractor and employee, so consider working with management accountants who can usually deal with the recruitment of workers.

What is an employee?

An employee is hired by you and will work the hours you set out for them, agreed in a contract. You will pay them a set rate, making sure that you comply with regulations for the National Minimum Wage and the National Living Wage. Employment law means that you will have to operate Pay As You Earn (PAYE), along with paying for sick absence, holiday entitlement and other absences from the workplace.

What is a contractor?

A contractor will work the hours that suit them, and will generally demand a higher rate of pay than an employee. Although there are many advantages to hiring a contractor, you will only have access to this resource when they are happy to work for you.

How to distinguish between an employee and a contractor

There are some questions you can ask that will determine whether you are recruiting a contractor or a permanent member of staff. How you pay the individual will indicate whether they are an employee or not. If you pay an agreed hourly rate on a regular basis, for instance every week or month, you have probably hired an employee. A contractor is more likely to be paid a one-off set fee for a job and wouldn’t expect to receive a regular weekly wage.

How work is completed will also indicate their employment status, as an employee is given work by you and has to complete it within a set period of time. If the worker is able to hire someone else to do the work, they are likely to be a contractor.

Employment regulations

If you hire a contractor, and they work for you on a continuous basis for two years, they may be covered by employment regulations. Contractors generally have a break between periods of work so that they don’t become ‘employees’.

For an informal chat about hiring employees, contact us to arrange a meeting.