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Employee vs. Independent Contractor: Differences you need to know



Employee vs Independent contractor

When Mr X got hired, he was excited about his new job but the person who hired him called him something he did not quite understand. That’s “An independent contractor.” What does this mean? What are the effects? Does an independent contractor have the same rights as an employee?

The importance of defining your status, prior to employment, cannot be overemphasized, as an employee who is misclassified as an independent contractor loses all the rights and privileges of an employee and vice versa.

Who is an independent contractor?

An independent contractor is a self-employed person, that is, a consultant, lawyer, accountant, engineer or any other person who provides services to other organization for a fee. Common law principles further define independent contractor status by method of payment. If a person is on an employer’s payroll and receives a steady pay, clearly that the person is an employee and not an independent contractor.

An independent contractor is free from any control or influence of the client. He can apply his discretion concerning the manner and method of completing the task and whatever the outcome of the task, the independent contractor is responsible for it.

Who is an employee?

An employee is a person who works for the employer on a regular basis, in return for a remuneration called ‘salary’. The terms and conditions of the employment are described under a contract known as a ‘contract of employment’. An employee gives up elements of control and independence, is eligible for certain benefits and works within constraint of workplace.

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Why is it important to know a worker’s status? 

The distinction between an employee and an independent contractor is very important. Apart from the fact that there are incentives for employing laboru, an employer must withhold Federal and State income taxes, Social security/Medicare from employees, but not from independent contractors.

If an individual is working as an independent contractor, the “employer” does not make any of these deductions and the independent contractor must pay his or her own taxes along with income tax on earnings.

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What are the factors to consider?

Although there is no conclusive evidence, the factors to consider when identifying someone as an employee or an independent contractor are:

  • What is the nature of work? – When work done is considered integral to the business, it is more likely that the person is an employee. On the other hand, work that is temporary and non-integral may imply independent contractor status. For example, a cleaner would not be doing ‘company’ work if he or she were working for a bank.
  • The economic realities test – This test examines the dependence of the worker on the business for which he or she works. If a person gains a large portion of their salary from that business, chances are that person qualifies as an employee. The test also factors in such things as level of skill, integral nature of the work and intent of parties.
  • What is the degree of control over work and who exercises such control? – When the hiring party controls the way work is carried out, the relationship between the parties is employer/employee. If the worker can set his or her own hours and works with little or no direction, he or she is probably an independent contractor.

What is each party’s level of loss in the relationship?

Is there any training? To perform tasks in a defined manner, an employee undergoes requisite trainings. An independent contractor on the other hand does not undergo any training for the provision of services.
Who has paid for materials, tools, supplies and equipment? – An independent contractor uses his own tools and equipment in carrying out a specific project but if the tools are provided by the business, it may imply an employee status.
The absence of a formal employment agreement – The presence of a written employment contract is a strong indication of an employer/employee relationship.
What type of skill is required for work?
Is there a degree of permanence? – An employer/employee relationship has a higher degree of permanence as there is a greater level of job security.

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Written employment contract

The presence of a written employment contract is a strong indication of an employer/employee relationship.

Under the Labour Act, an employer must give its employee, a written employment contract, no later than three months after the start of the employment period.

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The employment contract must include the following information:

  • the name of the employer or group of employers;
  • the name and address of the employee and the place and date of their engagement;
  • the nature of the employment;
  • if the contract is for a fixed term, the date when the contract expires;
  • the period of notice to be given by a party wishing to terminate the contract; and
  • the rates of wages, their method of calculation, and the manner and periodicity of payment of wages.

Any terms and conditions relating to:

  • working hours;
  • holiday and holiday pay;
  • incapacity to work due to sickness or injury, including any provisions for sick pay; and
  • any special conditions of the contract.

Are there any grants or incentives for employing people?

Labor intensive industries are entitled to tax concessions. Concessionary rates are progressive so that;

  • Industries employing 1,000 persons or more benefit from a 15% tax concession.
  • Industries employing at least 200 persons benefit from a 7% tax concession.
  • Industries employing at least 100 persons benefit from a 6 % tax concession.

Before coming to a decision as to whether to employ a person or hire an independent contractor, you have to realize what the nature of the job is, what are your requirements and expectations? You also have to consider if it saves more money hiring an employee or an independent contractor.


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    Financial Literacy

    Steps to take to bag international scholarships

    Here are the steps you should take if interested in pursuing international scholarships.



    United Kingdom opens window of job opportunities for international students

    Studying abroad gives you exposure among many other things, and that is precisely why many Nigerians have been looking for ways to study abroad. However, not everybody is privileged with the resources to study overseas and this is where the international scholarship option comes in.

    If you are interested in studying abroad and don’t have enough funds, you should consider applying for international scholarships. This article lists the steps you can take to bag international scholarships but before delving into that, here are some types of scholarships available to you as an international student:

    • Location-based scholarships
    • Course or program-based scholarships
    • Sports-related scholarships
    • Research-based scholarships
    • University-funded scholarships
    • Organization-funded scholarships
    • Government-funded scholarships

    Having discovered the types of international scholarships available to you, here are the steps you should take to bag any of these international scholarships.

    Research: Research is vital if you don’t want to miss out on good opportunities or make mistakes during your application. Research scholarship opportunities available in your prospective college or location and be on the lookout for hidden scholarships.

    Check your eligibility: Having done thorough research and discovered the available scholarship opportunities, check to see if you are eligible for them. Many international scholarships have their criteria and requirement, so you should confirm that you are the right fit first.

    Get the required documents: After confirming your eligibility, you should get the necessary documents. If the scholarship requires you to write an exam, prepare for the exam, write a good statement of purpose and prepare all other documents.

    Start your admission process: Some international scholarships require that you start your admission process and probably get the admission before starting your scholarship application.

    Contact past scholarship winners: You might want to contact the previous scholarship winners to know what they did right and how you can learn from them.

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    Apply for the available scholarships: The last step is to apply to every available scholarship.

    The best way to get funds for your undergraduate, postgraduate, or PhD pursuits abroad is by applying for international scholarships. If you do thorough research, you can find fully funded scholarships that won’t require you to pay any amount. One of the essential steps to getting an international scholarship as a Nigerian is staying abreast of current information and this will require you to network with others.

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    Financial Literacy

    How to stay employable amidst massive unemployment

    Here are some ways to stay employable amidst massive unemployment.



    With the advancement in technology and change in traditional job roles, the workspace is constantly changing. The recent Covid-19 crisis and its consequent economic downturn have rendered many people who were employed jobless, thereby increasing the rate of unemployment. Surviving in an ever-evolving and uncertain labour market, therefore, becomes a great deal of work which requires improved thinking pattern, continued professional development, life-long learning, and the ability to adapt.

    Here are some ways to stay employable amidst massive unemployment:

    1. Build your expertise

    Companies and organizations are looking for individuals with ideas and knowledge that will shape the company’s growth. Learning more about your field will give you an edge over others. It will also enable you to discover new tools and strategies to adopt, that will keep you marketable and make you an attractive hire.

    2. Be receptive to change and emerging innovations

    Life-long learning is a habit that has to be encouraged if anyone hopes to stay employable. To remain relevant in the workforce, you need to build your competence beyond past qualifications and ideas. Receptiveness to change and emerging innovations will keep you abreast with what is in your career field.

    3. Enhance your job-related skills

    Landing a job is challenging. It is even more difficult during an economic downturn when companies are laying off workers. One of the strategies to stay marketable is to find ways to improve your job skills. Individuals can learn skills that align with current employability needs by taking up training and courses relevant to their career scope.

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    4. Be Savvy on Social Media Platforms

    The recruitment sector is gradually gaining a presence on social media. Many recruitment agencies take to social media to look for and assess prospective candidates for some job opportunities. Building a strong social media profile and network will help to build relationships with peers and potential employers. This network will increase your chances of landing a job. Building a network in career fields of interest will keep you abreast of information and opportunities in your career path.

    5. Refine your soft skills

    As traditional work environments are replaced gradually by remote or virtual workspaces, companies are looking for individuals with soft skills like leadership, managerial competence, creativity, time management, good communication skills, etc. Individuals looking to stay employable have to develop soft skills that will help them remain economically viable. Many organizations do not just want to hire skilled people but also self-regulated and innovative individuals able to carry out tasks independently.

    6. Be Confident 

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    Self-confidence will make you more assertive about your skills, knowledge, and abilities. Confident individuals can communicate their ideas more eloquently and convincingly. This personality will make them stand out and portray them as relevant hands needed in any organization.

    Staying employable in today’s ever-changing and competitive work environment is a process of evaluation, learning, and adaptation.

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