Latest / Agency Uncovered / Independent Contractor vs Employee: Tax, Rights & Contracts Explained | Connor Robertson
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- What is the difference between an independant contractor and an Employee (00:00.289) Yeah. What is the difference between an independant contractor and an Employee (00:05.474) What is the difference between an independent contractor and an employee? We are here with Connor Robertson. So Connor, what's the difference between an independent contractor and an employee? Okay, so an employee obviously there's an employment contract and it well we're both they they both have contracts. And contracts is a very big important theme or or item. I'm going to talk about it a bit more in in like further questions, but It is essentially somebody who is controlled. You are given a fixed salary. You are given a time within which you are supposed to come into a office, whether you work at an office or from home. And you everything is is generated. It's it's told. You you are instructed on how and when everything should be done. And on top of that, you also have certain securities like your UIF and You know, your UIF, your workers' compensation and all of that is included in your employment relationship as well. With an independent contractor, you're essentially you work with the company, not in the company. I think that's the best the best way in which to explain it. An employee, you work in the company. A contractor, you are essentially an outside body working with the company. So you do not have the benefits of UIF or workers' compensation. All of those things are sort of your responsibility or very much your responsibility. And a independent contractor is essentially somebody who would set his own hours. So I feel or I've heard a lot of situations when we do tax returns where a client has said to me he's an independent contractor, but he is told to come into the office from nine until five that isn't necessarily an independent contractor. You're your hours are still determined. An independent contractor essentially you are telling the client I am giving you 20 hours a week or I'm giving you 20 hours a month in which from my own time I will give you in exchange for an hourly rate or a monthly rate we agree on. With an employment you're essentially given a stipend and What is the difference between an independant contractor and an Employee (02:27.946) you you don't have a hell of a lot of leverage or or negotiation around there. You can sort of in your interview process you will tell the person what's your expectation. But usually when there's an offer and you're in need of that employment, you genuinely tend to take it. So independent contractor is sort of the gateway to starting your own business in a sense where like you say There are certain things that are your responsibility. And if you were an employee, the company would naturally see to those other aspects of your job for you. Would you be able to elaborate as to is it better to be an employee or an independent contractor? Okay. So first of all, I'm very biased because I am myself a I wouldn't call it an entrepreneur, but I'm a small business owner. So I would say If you are after the flexibility and you are after making your own time, working and making that time worthwhile, I would say being an independent contractor is always better. I would almost say, like you said, an independent contractor is the gateway drug to entrepreneurship and owning your own small business. so in my in my humble opinion, I would say that. Being an independent contractor is a hundred times better. If I look at it from a perspective of if you work from home, you have a Wi-Fi as a deduction. For if you're if you're speaking about tax, you have Wi-Fi as a deduction. If I am going to visit a client and I fill in my logbooks correctly, I have petrol now I deduct from my taxable income. And then you've got so many others. You've got you've literally got your printing, your electricity, not everything. Obviously speak to a tax practitioner to discuss what those at home expenses would be because they are different for every independent contractor slash small businesses. But the means at which you can I always say play around with your taxable income. What is the difference between an independant contractor and an Employee (04:49.578) I always say you do not get these advantages being employed to somebody else. But being employed has its own form of security. Because at the end of the day, if you are going to a bank, if you're going to go buy a car, you do tend to be a better, they call it a better risk. You have a better risk portfolio when it comes to employment. So I have to mention both when when I talk about pros and cons. Because it is a bit more it is a bit more difficult to get a loan or a vehicle or a credit card being self-employed. Because being an independent contractor means you are self-employed. If I look at the job as a whole, everything is your fault. Everything is your fault. Whether you look at the job itself, everything is your fault. In employment, there's a hierarchy, your manager takes the fall and then he sort of disciplines down where you've at least got protection in that regard. I find as soon as I became self employed, everything was my fault. So if you've got the the I would say that it's not a drive thing. It's a personality thing. If you've got that personality where You want to learn new things, you want to really get in there and you also want to make the most out of your time, which is now your money. Independent contracting is is the way to go. But if you are looking for that security and that security is the thing that makes you comfortable, I would say becoming a employee, there is absolutely nothing wrong with it. I just think there's definitely a personality thing to it and you've got to just like investing. You've got to be able to know what your level of risk you wanna take and you've gotta go in wholeheartedly. I don't think if you're going to be an independent contractor, I don't think you want to like dabble a bit in the in the shallows and then see if you can swim. It's more dive in and then sort of figure out how you're gonna swim sort of thing. Like you say, when you're an independent contractor, you What is the difference between an independant contractor and an Employee (07:09.526) And it's very similar to owning your own business. You're solely responsible for how much money comes in every month. when things change you and need to be on your feet and willing to pivot and understand the risks but still move forward. Which as an employee, you take that for granted where, you know, whatever happens at the month, you still get the same salary and you and you fine. Same with the independent contractor, but the thing is it's the risk is still there of things not being as consistent. I definitely think you've got you're onto a point there because if I think about it as an as an independent contractor, remember you you're a slave to your own contract. So if if you're not stern enough, I mean the first can come along, the seventh can come along, the fifteenth can come along, and if your contract isn't stern enough and you're you're sort of I I feel like when you become a a independent contractor, you f you first try and make friends with your client where I I definitely feel like it's a similar thing to when you're working with colleagues. You're trying to become everyone's friends so that you can try and get everyone to to get on board. But when it comes to payment, you've got that you definitely have that risk. And once that risk hits you, I I'm not sure about you, but if I had to tell my my landlord I'm still waiting for a payment, they don't care. But if I think of someone maybe starting out and then they say they apply for a job, maybe it's for an overseas company, they don't really read too much of the fine print because they need the job, so they once they get the offer, they sign on. For someone in that position, how can they tell whether they're an employee or an independent contractor? Okay. So my first piece of advice, whether I put on my tax practitioner cap or I put on my labour relations cap. Labor relations advisor cap, you have to read your contract because your contract's gonna tell you exactly what you are. Yeah, an employee will always speak about tax and deductions and times you have to come into work and essentially hybrid, non hybrid. A independent contractor is this is the services that you're gonna be providing at this rate. This is when we What is the difference between an independant contractor and an Employee (09:35.862) you know, we want these deadlines because it's usually project based. A lot of the times you're dealing with somebody who either nobody's going to to give you a service level agreement that doesn't have like a time period. Usually it's a year or so on, or it's project based. I find a lot of the times you're dealing with s with a client who comes to you and they they want your assistance for a specific project. And essentially they they'll let you know They need these services like web development, whatever. They need these services for this period of time or for this specific client of theirs or project of theirs. So I think your contract's always going to tell you what you are. And and don't be fooled by the the meeting, because often I cannot tell you whether it is South African businesses or offshore businesses, oftentimes People are trying to employ other people, they just do not want the hassle of paying their tax. So you've really just got to look at your contract. What rights do independent contractors have compared with employees? I think you touched on it a little bit earlier. Yeah. So if if I'm gonna be very honest with you, independent contractors don't have I'm going to say this and it's gonna sound nasty. But they don't have rights in the same way that an employee would have rights because employees are essentially protected by the Labor Relations Act, the Basic Conditions of Employment Act. But because it's a civil contract between a client and a service provider or independent contract, you are essentially, it sounds once again terrible, but you're a slave to the contract that you set up between you and your client. So I think in order to protect yourself, that contract needs to be so ironclad because if it's not and you're essentially getting a contract from the client and you're just signing at the dotted line, you are essentially going to be a slave to it, whether it's a good contract for you or it's a bad contract. This is very important when it comes to payment because like I said to you earlier, the first can come along, the fifth can come along the seventh, the fifteenth, and next month can come along. What is the difference between an independant contractor and an Employee (11:57.326) But if you're not stern on your how you want to be paid, remember a client is going to read your contract. You should do the same. And remember, I th I always encourage any of my clients to say a contract makes everything neutral. It doesn't make it personal. It doesn't make it it doesn't make it like an issue. It's just a contract that we both agreed on. So when it comes to payment, because payment's the big, the big be all end all, right? So when it comes to payment, it's like, but we we said on our contract that payment is 30 days, payment is 15 days. So I really need you. It's not my fault, right? Remember you've w people work with people. So the biggest way to to continue that relationship without it being about money because money is always going to be an issue and it's always an a thing that destroys the working relationship. In order for that to for you to uphold your relationship or your working relationship with your client, you need to make a bad guy. But I would rather make a non tangible item the bad guy than you yourself the bad guy. So it's like, listen, unfortunately, I don't set up my contracts. I've got a lawyer who set up the contract. This is just to look after our interests. I hope you understand. Instead of going, yes, the contract states. Because now you're the you're the villain in the situation. So I think it's so important for you to have these contracts set up by a professional. And when you bring up the c contract, just go, listen, I don't set up these contracts. I paid a lawyer to do it. He's looking out for my interests. I hope you understand. Because then the lawyer's the bad guy, not you. And then your working relationship is saved. Yeah. It is a it can be a bit of an awkward conversation, but that transparency is what is key for a long lasting healthy relationship because there's so much that does pop up between a client and a service provider. You did also touch on this a little bit earlier, but what are the What is the difference between an independant contractor and an Employee (14:11.224) biggest pros and cons of working as an independent contractor? No. Okay. So the con is once again, everything is your fault. Whether things go right or things go wrong, everything is your fault. you don't have a a 15-day, you know, leave you can take with you and your family. especially the first three years, I would say, is where you're really grinding. So your hours could be anything from eight two five if you're lucky. Or it could really be eight until nine, which was my case until until I met my beautiful wife. And and obviously business grew and you know the things those things do take place. But often you are essentially you're your HR. You are the the owner. You are the project manager. You are you're the administrator. You have so many hats it's it's a bit crazy. And that is both a a pro and a con because you're essentially just learning business on so many levels that I think if you ever had to go back to to the workplace, which I honestly couldn't right now, I'll be very honest. I've been doing this for nine years and I honestly couldn't go back. But if you had to go back, you would have such a greater understanding of what your manager the director is going through, but essentially everything is your fault. And then if I look at and and that I would say is like your biggest con, but your biggest pro is essentially if you have a salary, if you look at what you would be paid as a salary compared to if you had to break down an an actual effective professional hourly rate, the two on The two you can never compare because one hundred percent if it's your time, you're definitely getting paid more. The problem comes in that you have to go get your clients. You have to make sure you keep your clients. And then on top of that, you essentially have to continue to build your brand. Because as somebody who's been doing my company for nine years, my brand is something that's that's some it's that's something that I had to grow. What is the difference between an independant contractor and an Employee (16:36.458) over time. And that comes in with the negative reviews. That comes in with the positive reviews. And honestly, you're you're you're it's more like boxing to be fair, because sometimes you're just weaving and and playing defense. And often you're when you're hot, you're really hot. And when you're not, you're really not. Right. No, that's a fantastic analogy. And Connor, thank you so much for your insights on this topic. We really appreciate you giving your time. Thanks so much.