Employer vs Independent Contractor

Employer vs Independent Contractor

With the current set up of businesses where there is an influx of people who prefer to do freelance work, offering their services for a specific duration, companies now have the option to enlist the services of independent contractors or to hire employees. One must know the difference of hiring one or the other, as they have different requirements, protections, and compliances.


What is the difference between an employee and an independent contractor?

In the context of the law, an employee is someone who has a relationship with their employer that creates obligations for both parties. An independent contractor does not have such a relationship with his or her employer, but may nevertheless be bound by certain laws and regulations.

In order for an individual to be classified as an employee, they must meet the following criterion: 


  1. The individual must perform work under the supervision of another person; 
  2. The work must be done within the scope of their duties; and 
  3. The employer must control how much time and effort is put into completing tasks related to those duties. This last criterion can often lead to confusion between different types of employees because it’s not always clear whether or not someone is being controlled by his or her employer when they’re working on projects outside normal business hours or during vacations or holidays—even though they may still technically be considered employees under some circumstances.


Employers who opt to hire employees should know that their rights and protections are provided for under the Labor Code, as well as the different guidelines set forth by the Department of Labor and Employment. It is important that the employer-employee relationship shall be well-supported by the law and the corresponding government agency. 


As an employer, there must also be compliance to the various financial protections enshrined in the Labor Code, such as but not limited to minimum wages, overtime payments, compensations, payments for work done during the holidays whether regular or special, 13th month pay, among others. Contributions of the employees to the SSS, Philhealth, and Pag-ibig, shall also be covered by the employer. 


For any grievances that an employee may have against the employer, the employee may turn to the Labor Code and the remedies afforded therein to find recourse against the employer. Included in this protection, is that employers shall only terminate the employer-employee relationship between them and an employee for just or authorized causes provided therein. The employer also must follow due process when terminating or dismissing an employee.    


On the other hand, independent contractors are not afforded such protections by the Labor Code. This is due to the fact that the Labor Code applies only to those who are considered employees. 


An independent contractor is someone who performs services for another party, but is not an employee.In order to be an employee, you must report to someone. An independent contractor is not required to report to anyone and therefore does not have a manager or supervisor. 


Independent contractors are responsible for managing their own work schedules and completing all necessary paperwork on their own time, so it’s important that they follow the rules set forth by the person who hired them (the client).


An independent contractor provides for his or her protections as stipulated therefore in the terms and conditions agreed upon when entering into a contractor agreement or a service agreement with the company, as the case may be. As to compensation, this shall be the payment that shall be stipulated in the contract between the independent contractor and the company. 


As an independent contractor, the processing of the contributions for SSS, Philhealth, and Pag-ibig shall be done by him or her personally, as there is no employer as to which it can course through. The financial protections and benefits provided for under the Labor Code does not also apply to the independent contractor. 


As mentioned, the independent contractor finds his rights and protections in the contract. The independent contractor and the employer may stipulate in the contract the different conditions that shall lead to the termination of the contract. They are also free to stipulate as to when their contract may end. However, when it comes to grievances arising from a breach of contract, the recourse to be made by the independent contractor shall be taken through legal action in the courts of proper jurisdiction.     


Need further information and assistance regarding being an employer or an independent contractor, talk to our team at FilePino to know more about the requirements and process. Call us today at 1.806.553.6552 (USA) or +63.917.892.2337 (Philippines) for more information.