Contractor vs employee

Two legally distinct ways of engaging someone, with different tax, control and IP implications.

Example

A contractor invoices, controls their own hours and supplies their own tools; an employee does not.

Important

Misclassifying an employee as a contractor is a real legal and tax risk in most jurisdictions, and the rules differ by country. This is a professional-advice topic.

Related terms

• IP assignment — A signed agreement transferring ownership of work product to the company.
• Hiring — The process of defining a role, finding candidates, assessing them fairly and bringing someone into the company.
• Payroll — The system that pays employees and handles the tax and contributions withheld on their behalf.

Lessons that explain it

• Owning your own product — The single most common thing to derail due diligence. If contractors built part of it without an assignment, you may not own it. (12 min)
• The contracts you will actually need — Founders agreement, employment and contractor agreements, customer terms, privacy policy, NDAs. What each is for, and which ones matter. (12 min)
• Should you hire at all? — A hire is the biggest recurring commitment a startup makes. Four cheaper options to rule out first. (10 min)
• Contractor or employee? — Two legally distinct arrangements with different tax, control and IP consequences. Getting it wrong is a real risk. (12 min)
• Hiring across borders — Contractors, employers of record and local entities. Three ways to employ someone abroad, with different costs and risks. (12 min)

All 176 terms in the Founder glossary