What is the difference between a Full Time Employee and a Contractor?

Ashley Luk
Ashley Luk
  • Updated

Knowing the distinctions between an employee and a contractor will help you make informed decisions about your business’s needs. Especially when there are country-specific nuances. Some of the differences are subtle, but being clear about the type of worker you’re hiring can help you avoid issues with the IRS and other tax agencies.

Employees provide companies with long-term services and job functions. They are employed by Oyster to work for your company, not for themselves.

Contractors often provide companies with specialized services for short-term or project-based needs. They work under independent written contracts to provide services for companies and are self-employed (their own business entity).

Main Differences Between an Employee and a Contractor

Below are some of the key differences between an employee and a contractor.

 

Employee

Contractor

Type

A person employed by Oyster on your behalf

A person or business temporarily paid through Oyster for some business purpose

Hiring

Third party entity, Oyster enters into an employment contract with a Team Member who will provide services to you

Direct, services agreement is directly between the contractor and the customer

Compensation

Receives regular, fixed payments

Two options: 1) Fixed auto-generated invoices where you are paid the same amount each pay period, or 2) Pay As You Go invoices that are manually created each pay period

Taxes

Shares taxes responsibility with the employer 

Responsible for self-employment taxes and filling out necessary tax forms (files W-9, 1099, or W-8 forms); receive a flat fee with no deductions

Tax Rates

Country-specific individual taxes that are deducted by employers

Self-employment tax rates vary by country; consult a local qualified tax consultant for more information

Benefits

Receive all mandatory statutory benefits according to country of employment. These can include health insurance, paid time off, sick leave etc (as these may vary)

Doesn’t receive statutory benefits, but employers have the option to provide Oyster Health benefits. Note that any paid time off or benefits associated with eligible contractors becomes the responsibility of your Company rather than Oyster

Flexibility

Employees receive instructional oversight from their employer

How and when you fulfill the service agreement with an employer is up to you

Oyster Pricing

Varies by country

$29 USD/month per contractor

Misclassification Risks

If you misclassify an employee for a contractor, you could face stiff penalties and fines as repercussions. The consequences for misclassification vary depending on whether the misclassification is deemed intentional. To avoid this, use our Employee Misclassification Analyzer to learn more about employee classification and country-specific legalities.