Employees vs. Subcontractors: What's the Difference?

By Indeed Editorial Team

April 29, 2021

Employees and subcontractors can complete similar jobs, but there are important differences between them. A company may hire employees to work consistently over a long period of time, while they may hire subcontractors for specific, temporary jobs. It's important to understand the differences between employees and subcontractors so that you can make the best decisions for your career or your company's needs. In this article, we explain what an employee is, what a subcontractor is and key differences between them.

What is an employee?

An employee is someone who works for an employer on either a full-time or part-time basis. Employers usually hire employees to fill permanent positions and work on long-term projects and tasks essential for the company's operations. Employees receive pay and benefits from their employer, including insurance plans, vacation time and more. Typically, employees receive specific assignments that they must complete in exchange for hourly or salaried pay.

Employees usually form long-term relationships with their employers, management and team members. These relationships can help them work more efficiently on projects with similar structures, know who to contact for assistance or specific questions and develop skills over the long term with professional feedback. You might apply for positions as an employee if you're looking for consistent work and pay or healthcare and insurance benefits.

An employee might be the right fit for your company if you need someone to complete work that is essential to the mission of your company or if you have a long-term position that needs to be filled. You might hire an employee if you want to have more supervision or control of the employee's work.

Related: How To Be a Good Employee

What is a subcontractor?

A subcontractor is a person who works for a contractor. A contractor is a person or company who works with businesses on a contract basis and is paid for completing projects. Like contractors, subcontractors are self-employed, and they can help contractors on projects that require additional help or skills to complete. Subcontractors often possess specialized skills for their industries, which often include construction, technology, retail and creative fields. Working as a subcontractor might provide benefits like more flexible scheduling and greater specialization within your field.

Subcontractors can contribute skills and expertise to a company's specific, short-term projects. A subcontractor might be best for your company if you need work done that is not essential to your company or that you do not need to supervise. Hiring a subcontractor can also be effective for small businesses to get expert help on specific tasks before they hire several employees. Enlisting help from subcontractors rather than hiring employees can help to reduce costs.

Related: What Is a Subcontractor? Types and Tasks

Employees vs. subcontractors

Employees and subcontractors can perform similar types of work, but there are important differences between the two. Understanding how they are different can help you determine which working situation might be a better fit for your career, or whether your company should hire an employee or a subcontractor. Here are some of the key differences between employees and subcontractors:

Work schedule

One difference between employees and subcontractors is their work schedules. Employees usually have a predetermined work schedule set by their employers, although certain jobs can offer flexibility. Subcontractors, however, control their work hours, as they operate separately from the company. Subcontractors may take time off between jobs, while employees may not be able to take frequent time off between different assignments.

Project type

Whether an employee or a subcontractor would be a better fit for a certain situation can depend on the type of project. A company working on a long-term project or program may find that hiring an employee provides stability and budget efficiency. A company looking for extra help on a short-term project may hire a subcontractor to avoid the long-term costs of a permanent employee. Companies typically train their employees thoroughly, but subcontractors usually have experience in their field and don't receive training.

Related: What Are the Benefits of Hiring an Employee vs. A Contractor

Taxes

Another key difference between subcontractors and employees is the way they pay taxes. Typically, employees have their taxes automatically deducted from their paychecks, but subcontractors file and pay taxes on their own.
Related: What Are Employee Payroll Taxes?

Pay structure

The pay structure of subcontractors and employees is also very different. Companies pay employees consistently with set pay periods. Subcontractors receive pay once they finish the job they're working on. Employees have their pay rate set by their employers, and it usually remains consistent from paycheck to paycheck. Subcontractors can set their own pay rates depending on their industry, experience and geographic area.

Benefits

Employees usually receive a benefits package through their employer. Employee benefits can include insurance plans, paid time off and healthcare. Subcontractors don't receive benefits from their contractors or from the companies they work with.

Related: Employee Benefits: Examples of the Most Common Employee Perks

Resources

Another important difference between the employees and subcontractors is how they get the resources to do their jobs. An employer generally provides employees with the resources they need to do their jobs, including a place to work and necessary equipment. Subcontractors usually provide their own tools and supplies.

Consistency

The consistency of available work for employees and subcontractors can also vary. Employees usually work consistently as long as they are employed, since the company has permanently hired them. Subcontractors may experience gaps between projects since they work on a temporary contract basis. However, subcontractors can work for more than one contractor, so they can schedule work for more than one project at a time to fill calendar gaps.

Relationship

Another key difference between employees and subcontractors is their relationship with the company. Companies can usually think of their relationships with contractors and subcontractors as business-to-business relationships, usually relatively short-term relationships that only span the length of the project. Companies' relationships with their employees are generally more permanent, and can involve professional development, advancement and training.

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