What is a difference between a contractor and an employee?

What is a difference between a contractor and an employee?

Understanding the difference between a contractor and an employee is important for your business

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What is a difference between a contractor and an employee?

This is a common question and companies such as Uber are dealing with the ramifications of the fine line between employment and a contractor relationship with its service delivery providers. For example, Deliveroo in France recently suffered a ruling that said the delivery drivers were employees and not in fact contractors. Why do companies want to claim people are employees rather than employees? Well, the answer is probably cost.

What are the cost differences?

The costs of an employee and contractor are fairly similar in that you would need to pay a salary. Where they differ are the things such as employer's NI contributions, pension obligations and possibly even certain types of insurance that should be provided to employees. In the French Deliveroo case, the court found that Deliveroo was 'dictating to some extent' the work hours of the delivery people and in that case the ability to dictate the work hours indicates an employment relationship.

What are contractors?

Contractors are independent organisations, and that organisation can be a company of 1 person or a large corporation. Contractors can typically choose their own working hours, and exercise a level of independence from the organisation that is paying them. Employees typically cannot choose which hours to work as their contracts specify the work hours. In addition, one of the crucial tests is whether the contractor has more than 1 customer supplying it with revenue. If for example, you had a single person company, and you work only for 1 organisation, e.g. a construction then that in-effect is an employment relationship. What are the ramifications? It means that the employer in this case needs to check to see if the HMRC rules come into effect.


This is by no means a comprehensive article, so before identifying the category, we would recommend perusing the HMRC website on off-payroll workers and if necessary consulting an HR organisation.

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