Contract Labor: Definition & Laws

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  • 0:00 Definition of Contract Labor
  • 1:51 Laws
  • 2:34 Lesson Summary
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Lesson Transcript
Instructor: Rana Abourizk

Rana has a Masters Degree in Business Administration and is pursuing a Doctorial Degree. She has been teaching online for over a year. She has a strong business background.

Employers have the option of hiring people as employees or contract workers. Today we will discuss what contract labor is and review the laws. We will also analyze the differences between employee and contract labor.

Definition of Contract Labor

Sara is a student who was looking for some work on the side. Sara is studying journalism in college and needed some extra cash for books and daily life. She applied for many jobs, and one day she got a call about one. The employer found Sara to be a good fit for the company, and decided to hire her. She was hired as a contract worker, not a full time or part-time employee.

Sara asked the employer, about the difference, since she noticed that a lot of employers were hiring contract workers. The employer said that contract workers don't have to withhold taxes, are hired to complete specific work or projects for a specified time, and are not that involved in everyday business activities. They could become employees in the future, if the company decides to change their employment terms and hire them as an employee of the company.

Contract laborers work for themselves, have a contract with the company for a certain time period, use their own tools and techniques to do the job, and pay their own taxes.

There are several differences between contract laborers and employees:

  1. Contract laborers receive a 1099 form for filing taxes while employees receive a W2. This is because employees have taxes withheld and contractors typically pay their own taxes.
  2. Contract laborers don't have a set work schedule like employees. There might be a time that a job or project must be done, but there isn't a set work schedule.
  3. Contract laborers aren't as involved in daily activities like meetings.
  4. Contract laborers usually have their own materials unlike an employee who uses the company's materials.
  5. Contract laborers don't have benefits, such as sick days or health insurance, provided by the company.
  6. Contract laborers usually have to work for a period of time stated on the contract while employees can quit anytime.

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