The biggest social obstacle we have in evolving into the digital era of work is the misunderstanding and assumptions both the employer and the job seeker have about what it means to be a contractor or an employee.  Some of our behaviors are just programmed: I need a job, I apply for a job, I get a job, I get paid for a job, etc.  I need work done, I market what I need to be done, I find a job seeker, I hire the job seeker, I get work done.  Wouldn’t that be lovely if we were back to the basics of getting work and getting work done?  Since we aren’t, I want to ask you to stop and think of the “I need a job and I need work done stage” to explain the most important decision you will make in the entire process. That is to understand the difference between a contractor and an employee.  Some of this is very dry but hang in there, it’s worth more than 30 secs of your time. 

It all starts with understanding employment status.  

Simply put, employment status is essentially a term that groups other terms together to help the law decide how your taxes are paid, what laws you are protected under and the legal boundaries between an Employer (the person or institute offering the work for compensation) and a Talent (the person providing a skill to earn compensation from employer).   

Terms that describe employment status:  

Full-Time or Part-Time = refers to the number of hours in a work week you work 

Internship or Apprenticeship = lets people know you are learning on the job 

Exempt = means your job doesn’t require compliance with time-related work laws  

Non-Exempt = obviously means the opposite 

You can be a contract part-time intern, contract full time, an intern who is an employee, full-time exempt employee, but you cannot be a part-time non-exempt contractor. Confused? Just for a little bit of labor law crossword trivia exempt and nonexempt are terms reserved for employees only.  This is because they are terms that require compliance for employees. 

Terms like gig, side hustle are trendy words that get used to describe work you get paid to do that has no relationship with your fulltime work. Those terms have nothing to do with your employment status because the DOL is still reviewing adding those terms to the glossary (I’m just kidding … I think) 

None of these terms determine the amount you get paid or the likelihood that you will get a job.  

The DOL says that you are an employer if you dictate where and when a person works. When that happens any laws governing that relationship are in play.  That does not mean that the government is dictating your labor agreements. In fact, I think they are encouraging employers and job seekers to think about how you get work done to protect yourself.  The types of employment and labor contracts are at the discretion of the employer and the talent.  

What’s the difference between Contractor and  Employee? 
Elements of Work Life Contractor Employee 
Pay Minimum set by the contractor Minimum set by Federal and State governing body 
Overtime pay None, unless negotiated Must comply with Federal and State governing body laws 
Taxes Contractor manages the payment and must pay all self-employment tax (Social Security and Medicare) and income tax. Employer manages the payment and shares half the cost of your Social Security and Medicare taxes (known is to as FICA Federal Insurance Contributions Act) and income tax (both federal and state) 
Medical/Health Benefits None *see notes below Minimum requirements set by Federal and State governing body laws 
Legal Rights to own your Work Efforts Only activities and produced work related to the scope of agreed tasks are the ownership of the employer, all other work efforts related to that persons skills are owned by contractor All activities related that can be associated to the benefit of the employer are the ownership of the employer 
Right to Sue pre-agreement (this means before you even agree to work together) Civil Rights, Disability Rights, Fair Labor Rights * Civil Rights, Disability Rights, Fair Labor Rights, local rights to work laws* 
Right to Sue post-agreement (this means after you agree to work together) Very few protections under labor-related laws. boundaries of assumed risk and responsibly are set in contract* Protected under Federal and State governing body laws even though boundaries of assumed risk and responsibly are set in employment contract* 
Age Limitations None Set by Federal and State governing body laws. Must be of legal age to begin work, the amount of time you can work and the age you should stop working 
Time off Contractors Choice Must comply with Federal (ie. Family Medical Leave Act) and State governing body laws, some absentee time must be paid by the employer and some is unpaid  
Time Controls on when and how long you work each day Contractors Choice  Must comply with rules set by Federal and State governing body laws determined by industry and age in correlation with safety standards 
Safe Work Environment Human Rights Acts, OSHA Human Rights Acts, OSHA, additional mandates set by Federal and State governing bodies vary by industry  
Tools to complete the job Contractors responsibility unless otherwise negotiated Provided by the employer and are the property of the employer and all malfunctions, errors, and issues are required to be addressed by the employer in compliance with industry and safety mandates. 
Location of job Agreed upon by both parties Agreed upon by both parties 
Right to Separate A contract is bound by terms of the contract and both parties can determine at any time when they don’t want to work for  Each state can determine if they are At-will, right to work. Depending on industries you can have unions involved as well. Each determines when, how and the terms of separation 
  • Anybody can sue anyone with an attorney and conviction 
  • Medical benefits are typically accessible under private plans 

What do we recommend for employers?   

Realize that not all skilled talent are looking for an employer -they are looking for work to get paid for their skills and time. Realize that there are people looking for work that want to take personal accountability for their work life. You are the one setting the boundaries of the employment status but you could miss out on great Talent with the work ethic you need. 

What usually deters employers from being flexible is not knowing the rules and the risk-reward of how to hire people using various employment statuses or how to manage the various types after hire. Or what’s worse is you fall into the adding more cost to your labor and recruiting by bringing in staffing and outsourcing firms- just to avoid thinking about it.  We say, if that’s the case, match with the contractor directly and improve the wage and communication to get the work done.  

What you have to do is determine what you need to be done in the business.  Please do not start by naming a role or job title. That’s an internal thing that’s only relevant to you. That doesn’t help you define the skills that you need for the work that needs to be done and what type of employment status you are going to offer. Ask questions like, how long should I wait to offer employment? What boundaries and legal responsibilities do I want to have? Don’t get lost in the perception that categorizing Talent as a contractor or employee gives you more control over that person’s actions. It doesn’t.  The controls are determined by how well you ask for what you need done and measure the outcomes of the work. The punchline here – contractor or employment agreements are a position of agreed risk and responsibility. 

What do we recommend for Talent (job seekers)?  

It doesn’t matter if you are looking for shift work, project work, have general skills or very specialized trade, technical or creative skills- getting paid for your skills is the ultimate goal. The job market is like that question of the chicken or the egg. Whether it’s a Talent market or an employer’s market depends on season, mergers, type of job and lots of other fun details. It changes all the time.  So, your decision to market yourself as someone looking for contract or employment is not about having an opportunity to work, it is a statement of responsibility. Being an employee doesn’t give you more job security than being a contractor, people get fired or separate for their work every day with employment contracts. It also is not related to how much you want to work or that you are willing to settle for less money. In fact, if the employer has done the math they should be offering a fairly competitive wage for what they need you to do.  

A decision now isn’t a decision forever.  

What I liked to do as an operator was to start all of my job openings, yes, all of them, as a contractor. I don’t like dealing with unnecessary third parties, adding additional admin costs to systems or paying temp-perm fees or headhunting fees. I wanted to pass the savings to my wage budget increase my base wage and after a few months of seeing if the Talent can do the work they say, groove into the working environment and that my own revenue pipeline could sustain the position for the near future, I would extend an employment agreement. Leaving the person at the competitive wage, setting them up for higher compensation over time with raises (merit increase) and any additional per employee cost for the administration and compliance tasks would typically be offset by my lower rate of churn and lost productivity had I jumped into a relationship with the Talent to soon.  Sometimes the person was happy being a contractor. This was true for my jobs for a cashier to a technical architect.  

This is the way that we think about things at pepelwerk. 

Work is a choice. Who you work for, where you work and what you do-all are choices. They are infinite and global in today’s digital era. What you get paid, whether you like it or not, is based on the market price of your job (which we will address in a separate blog) and the value it has to an employer.  

We believe that everyone has the right to a clean, safe and non-abusive work environment and being a contractor or employee doesn’t change that. We also don’t believe in waiting for the opportunity to sue, we believe that if an employer isn’t doing the right thing for you- leave. Contracts are boundaries of expectations at the end of the day when things aren’t working out you should have the right to respectfully exit. Having no employees is the best consequence that Talent can deliver to employers. No people to do the work, no work gets done and the business closes. It's pretty simple. Lawsuits don’t always bring about the change or the financial gains that we are expecting.  

We are all about giving information to empower all of our users to make informed decisions about their work lives. Deciding your employment status is just the beginning.