The Differences Between Having Employees And Contractors On Staff

More employers are discovering the benefits of hiring contractors in their businesses.

With industry giants like Google following the contractor recruitment trend, more businesses are exploring the possibility of employing both employees and contractors in their firms. According to an internal document reviewed by the New York Times, Google now employees 121,000 contractor workers and 102,000 full-time employees. In other regions like the UK, the freelancing population has surged by 31 percent. With a growing population of both independent and employed workers to choose from, more businesses are finding themselves with a mix of both on their payrolls. To make it a successful balancing act, employers must first understand the key differences between employees and contractors in the office - and what it means for the business.

Control Of Workers And Their Job Duties

The legal framework separating employees from contractors centres around a four-stage test set out in Ready Mixed Concrete (South East) Ltd v the Minister of Pensions and National Insurance [1968] 2 QB 467. In it, employees and contractors are separated based on the mutuality of obligations, sufficient control, personal service, and other provisions of the contract, including financial risk and whether the worker supplies their own insurance cover. As a contractor, a worker is not obliged to accept any work presented; nor is the business obliged to consistently provide work for them. On the other hand, businesses retain more control over employees, since they can stipulate employee working hours, job duties, and place of work.

Entitlement To Paid Leave And Standard Employee Benefits

Another way of differentiating workers and freelancers in an office is their entitlement to employer-provided benefits, including paid annual leave, holiday pay, and any employer-supported tax and pension payments. All workers above school leaving age are entitled to 5.6 weeks of paid holiday per leave year as a minimum standard. Employers, however, can choose to offer more. Independent contractors do not benefit from this regulation. Often, this means that contractors are left financially vulnerable in the event of illness, unplanned vacations, or life events.

Enrolment In Pension Scheme

Most employees, whether part-time or full-time, enjoy an employer-supported pension scheme as a part of their employment remuneration package. This, in addition to the security of having a set, regular salary, can be very influential in deciding between employees and contractors. According to the Labour Relations Agency, employees enjoy auto-enrolment in pension schemes, while contractors do not. In fact, it is up to the contractor to choose a pension scheme option, such as a self-invested personal pension (SIPP) or stakeholder pension. Another notable difference is the regulations surrounding employer contributions to pension schemes. While there are no regulations for independent contractors, the federal law stipulates that all employers must offer and enrol employees into a pension scheme by law if they are eligible. They also must pay at least the minimum contribution amount, unless they earn less than £520 per month.

The rise of the gig economy has been a welcome development for both workers and businesses. However, as the employment modes become more blended, the differences separating these employee and contractor categories of workers must remain at the forefront of employers' minds. Knowing what separates the two gives you the power to tailor your approach more accurately to what is rapidly becoming the modern workforce.

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If you are a business looking to hire contractors or an individual looking to discuss our open opportunities or you are looking for some advice on the current market, please feel free to get in touch with Jill Johnston on 02890235456