Differences Between an Independent Contractor and an Employee

The Philippine workforce has experienced many significant changes over the past several years as more independent contractors and freelancers enter the job market. For businesses, knowing the differences between independent contractors and employees becomes even more important to ensure compliance with legal requirements.

Differentiating between employees and independent contractors is essential since the law treats both groups differently. While employers are obligated to comply with Philippine labor laws in regards to their employees, the same obligation does not apply to any independent contractors they hire.

On this page, we’ll take a closer look at several differences between employees and independent contractors.

Wages and contributions

Employers are bound by law to pay wages to their employees. These wages should comply with the minimum wage established by law. Additionally, they are required to cover the employer’s share for contributions such as their employees’ Pag-Ibig, Philhealth, and SSS.

These obligations do not apply to clients of independent contractors. The payment given to an independent contractor is compensation that is agreed upon in the contract provided by their client. Independent contractors are also responsible for their own contributions to Pag-Ibig, Philhealth, and SSS.

Benefits

Certain benefits under the law are provided to employees that independent contractors are not entitled to, such as overtime pay, premium pay, holiday pay, and 13th month pay, among others. Some employers also provide non-monetary benefits such as maternity/paternity leave and parental leave.

Termination

There are key differences between terminating the relationship between an employee versus an independent contractor in terms of basis, procedure, and consequences.

Employers have the right to dismiss an employee only due to reasons that are stated under Labor Code Articles 297 [282], 298 [283], and 299 [284].

The causes for termination stated under Article 297 [282] are due to actions committed by the employee such as serious misconduct and willful disobedience, gross and habitual neglect of duties, fraud or willful breach of trust, commission of a crime or offense by the employee against the employer or his duly authorized representatives, and other analogous causes. Article 298, on the other hand, states causes of termination due to installation of labor-saving devices, redundancy, retrenchment and closure of the business. Lastly, Article 299 [284] permits employers to terminate a contract between an employee when the particular employee is suffering from any disease whose continued employment is detrimental to their own health or the health of other employees.

Clients who hire an independent contractor include valid reasons and the procedure involved for terminating the relationship in the contract. Both parties may also agree to cancel the contract at any point in time. In situations wherein there are no valid reasons or procedures stated for terminating the contract, the contract can only be terminated through filing a case in court.

These are just some of the differences you need to be aware of when deciding whether to hire an employee or get the services of an independent contractor, especially when considering tax matters and compliance with the law. The decision, however, still depends on the employer itself, their specific goals, and the current scenario.

Need more information on the differences between hiring an independent contractor and an employee? Talk to the experts at Duran & Duran-Schulze Law. Call us today at (+632) 478 5826 or send an email to info@duranschulze.com for more information.