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ALL YOU NEED TO KNOW ABOUT CONTRACT LABOUR LAWS

All countries have various labour laws that protect workers that are not conventional employees of firms or contract workers that are hired for specific, time-bound projects. Contract labour exists when an organization hires an individual to complete a project. For example, a phone company may require the help of a workforce to manufacture and package a particular model of phones it aims to release into the market. Such a workforce is being employed during the entire process until the project is completed. Contract labour is most times preferred to long-term employment based on the fact that it saves costs. If the project involved is seasonal or one-off, then it would be ideal to hire contract labour. With contract labour, you can hire a group of skilled worker for the time the project will last than an individual.

Labour contracts are integral aspects of a workforce. They are legally binding documents that connote the agreement established between an employer and independent contractors. A labour contract covers certain aspects of labour which include:

  • The duration of the project.

  • The estimated costs of the project.

  • The amount a labourer would receive from the employer.

It is important to understand who a contract labourer or an independent contractor is. Unlike an employee who is bound to the work schedules of a company, is on the company’s regular payroll, gets benefits, and work in the company on-site, an independent contractor work at any time, get paid per job done, receive no benefits, and work remotely for various individuals and firms. Also, the independent contractor signs a 1099 tax form when needed for a contract, while an employer signs a W-2 tax form when employed by a firm.

In addition to this, there are certain guidelines that are created by the Internal Revenue Service (IRS) that differentiates an employer from a contractor. Most times workers are being classified as employees by the IRS, except if the firm can prove otherwise. There are certain criteria that define a contractor which are used for tax purposes. To determine the status of a worker either being an independent contractor or an employee, there would need to be an assessment from the IRS. To begin with, one would need to obtain, fill, and submit a request form known as Form SS-8. The status of the worker is then determined by the worker’s classification, rather than the title… and this is being defined by the amount of control the employer wields over the worker, not the payment mode. A worker can be considered to be an employee if the employer has greater control over such a worker. An employer’s paycheck and reporting prerequisites can be influenced by a worker’s status. For this reason, there should be a critical assessment of workers before they are being classified in either employment or labour contracts. The legal protections backing regular employers are vast in comparison to those backing independent contractors. Nevertheless, some employers do wrongly categorize workers so as to avoid certain legal protections. For example, an employer can avoid paying payroll taxes for Medicare and social security by categorizing an employee as a contract labourer. This way, some rules embedded in the Fair Labor Standards Act may not apply to the employer.

A worker can be considered as an employee if such a person is dependent on an organization in terms of finance and behaviour. However, contract labourers charge based on their own terms, make use of their own tools and do not get reimbursed when extra expenses are being made. A worker that is being paid regularly and listed on a company’s payroll can be classified as an employee. On the other hand, independent contractors are not employed by a company to work on a daily basis, even if they work for the company. An example of an independent contractor is a security guard. While security guards work for a company, they can not be classified as employees there. They are usually hired on a short-term contract and then paid when the contract expires.

Being an independent contractor comes with a lot of benefits, which include the freedom to complete a task anyway that deems fit. However, there are downsides to it:

  • An independent contractor would have to pay self-employment taxes.

  • There will not be benefits available to take advantage of. These include the likes of health insurance.

  • If such individuals want to enjoy the benefits, they would have to pay into worker’s compensation and unemployment funds.

  • They have limited legal protection as compared to employees. An example being the unavailability of minimum or overtime wage.

Examples of contract labouring jobs include but are not limited to the following:

  • Cleaning services

  • Accountant

  • Photographer

  • DJ

  • Barber/hairdresser

  • Security guard

  • Taxi driver

  • Writer

  • Tutor

These are some of the examples that provide an avenue for a worker to be a contract labourer. Also, there are cases whereby an independent contractor may end up as an employee of an organization due to multiple contract extensions and tasks. Based on IRS evaluation, a worker can be deemed an employee if such a person works a total of 130 hours plus monthly, and it gets trickier for those that do not have hourly pay.

WHAT MAKES HIRING A CONTRACT LABOURER BETTER?

Companies prefer to hire a contract labourer based on these factors:

  • It Is Ideal For Temporary Jobs

There are times when some certain projects may not need the service of an employee due to the short or temporary timeframe needed to get it done. For this reason, an independent contractor is needed, as it is flexible and cost way less than hiring an employer. Besides, the expenses spent ends when the job is completed. An employer would not need to spend unnecessarily as payments are made based on the work done. However, having an employer implies that such a person is entitled to be paid whether there is a task to be accomplished or not.

  • It Requires Fewer Costs To Achieve More Tasks

It is important to note that it costs 20-30% less to hire an independent contractor than an employee. The reason for this is that extra costs such as health insurance, training costs, and other remuneration aren’t needed to employ the service of a contractor. Training is time-consuming and requires that the trainer gets paid. However, an independent contractor is already trained and ready for the job.

  • Less Paper Work Is Needed

The hiring process of an employee takes a great deal of time and lots of paper works, in which there needs to be verification. However, generally, it does not require much paperwork to hire a contractor as such person would have been vetted by the contracting firm, with all the paperwork covered. In terms of taxes, it is much easier to deal with a contractor than an employee.

WHAT ARE THE BENEFITS OF BEING AN INDEPENDENT CONTRACTOR?

  • You Get To Select The Volume Of Work To Accomplish

Despite the fact that you may have a contract job with a firm, you get to decide how the work should be accomplished. Also, with more jobs available, you can be able to map out your work schedule.

  • You Can Work Remotely

Being an independent contractor gives you the luxury of working from home in some cases. Employees are not provided with such a luxury as they would have to resume at work every day. Working from home is also beneficial to those that are not physically fit to go to work. They can comfortably work from their homes. It is also beneficial to new mothers who may need to cater for their young children. Unlike new mom employees that would have to resume at work once their maternity leave is over, independent contractor mothers can work from home and still take care of their babies.

  • It Gives You The Opportunity To Do What You Love

The benefits of being a contract labourer include you having the freedom to do what you love. Rather than work for someone else, with all your time, will, and other important resources dedicated to such a person, you can build your own business and work as you deem fit. As your business expands, you will have more opportunities to partner with more firms.

FACTORS TO CONSIDER WITH CONTRACT LABOUR CONTRACTS

It is important for independent contractors to sign a contract before commencing a job, as this will ensure that they do not have issues getting paid. There are some factors that must be considered prior to one signing a contract to ensure that both the independent contractor and employer are in mutual agreement.

  • Intellectual Property: Who owns the rights to the project or invention.

  • Expectations: What is expected of the job.

  • Deadlines: What the timeframe for the work is. Such a timeframe must be clear and feasible.

  • Additional tasks: It should be clearly defined if a contractor may need to take a single job until it’s completed before working on any other available ones.

With these factors in mind, it will be clear if a contract is worth signing or not. If you wish to learn more about contract labour laws and other related aspects like contract rules and taxes, please visit this link: Contract labour

About RJ Frometa

Head Honcho, Editor in Chief and writer here on VENTS. I don't like walking on the beach, but I love playing the guitar and geeking out about music. I am also a movie maniac and 6 hours sleeper.

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