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Global Work Glossary

Who is a contract employee?

A contract employee, also known as a freelancer, contributor, or independent contractor, is a self-employed individual hired by a company to complete work on a project basis. Unlike permanent employees, contract employees are typically not on the company's payroll and are responsible for their own tax obligations. They often own their own business, which can be a sole proprietorship or a limited liability company/partnership.

Distinctions between contract employees and permanent employees are important to consider when determining a worker's status. Factors such as autonomy, relationship permanency, and exclusivity play a role in classifying a worker as a contract employee. In the United States, misclassification of independent contractors by employers can lead to legal consequences, including unpaid taxes and other statutory obligations.

Contract employees can fulfill various roles across different industries, including web designers, social media managers, content creators, digital marketers, consultants, accountants, online teachers, and translators.

There are several benefits to hiring contract employees for businesses. They offer cost-effectiveness by relieving employers of certain taxes and benefits obligations associated with permanent employees. Additionally, hiring contract workers requires less investment and fewer resources, as they are responsible for their own equipment, training, and development. Contract employees also provide access to specialized expertise that may be needed for specific projects or tasks.

However, there are also disadvantages to hiring contract employees. Communication may be limited, as they may not be as available or present as traditional employees. Employers also have less control over the process, as contract employees operate independently and may work with multiple clients simultaneously. Additionally, the partnership with contract employees is not exclusive, meaning they may prioritize other clients' work over yours.

Contract employees are typically paid by the hour, per project, or a flat fee, depending on the nature of the work and the agreement between the employer and the contract worker. Payment methods can include checks by mail or direct deposit, and it's essential to have a written employment contract outlining payment terms to protect both parties in case of disputes.

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