Contractor vs. Employee – Which One Does Your Company Need?

Apr 3, 2025 12 min reading

This article applies only to the Czech Republic.

When running a business, you may need different types of collaborations for different types of tasks. Sometimes, you truly need an employee for 40 hours a week on a full-time contract, and other times, you only need them for quick, occasional tasks. Fortunately, you always have a choice. Depending on your needs, you can hire employees or independent contractors.

Both types of collaboration have their own specific advantages and disadvantages, so it’s important to understand the differences before making a crucial hiring decision.

Today, we’ll cover the basics of independent contractor vs. employee, so you can hire the right people, save money, and keep your business running smoothly. You’ll find out whether an independent contractor relationship makes more sense than hiring employees, helping you make better recruitment decisions.

Who is a contractor?

An independent contractor (often called a contractor) is an individual or a company that provides services to another business. If it’s an individual, the more commonly used term today is freelancer, meaning someone who works as a self-employed professional.

Contractors are typically hired for a specific project or task and are not considered salaried employees of the company they work for.

In most cases, contractors are paid per hour, per day (manday), or per project. They are not entitled to benefits such as health insurance, paid vacation, or other employee perks.

Independent contractors receive a fixed amount and are responsible for covering their own benefits, self-employment taxes, insurance, and other expenses.

Examples of independent contractors include:

A marketing agency creating content for your blog
A freelance designer making banners for your social media
A developer fixing your website

A contractor does not have to work for just one company—they can be hired by multiple businesses, depending on their capacity, and simply invoice for their services.

Who is an employee?

An employee is a person who works for a company under an employment contract, either for a fixed or indefinite period.

Employees are typically paid a salary (or a wage in the public sector). They usually receive employment benefits, which are guaranteed by labor laws (such as paid leave, sick days, etc.), as well as additional perks.

In short, employees receive a net salary, while the employer handles tax payments, benefits, and additional employment costs.

Employees also have the opportunity for salary increases and promotions within the company, unlike independent contractors, who usually have a fixed rate.

There are different types of employees a company can hire, such as:

Full-time employees
Part-time employees
Occasional employees
Fixed-term employees
Shift workers
Daily and weekly employees
Apprentices and interns
And more

Employees typically work for one employer, and in most countries, they cannot legally have multiple employers.

What is the difference between a contractor and an employee?

There are several key differences between independent contractors and employees that you should consider before making a hiring decision. While cost is a major factor, there are many other aspects to keep in mind.

Here are the most important ones:

#1 Employees are typically paid a fixed salary, while independent contractors are paid per hour, project, or task.

Your employees usually have a fixed salary for their position. Every month, they receive the same paycheck, regardless of how many hours they work. This means, for example, that an employed copywriter may work 10 or 40 hours per week, but their salary remains unchanged.

At the end of each month (or other agreed period), your company pays employees a salary. In contrast, independent contractors submit invoices for their completed work.

In other words, you pay contractors based on your needs. If you only need to revamp your website, you can hire a contracted designer for 10 hours, and that’s it.

In such situations, hiring a full-time employee doesn’t make sense because you only need a specific person’s services for a few hours a month. For your business, it’s more practical to hire a contractor who works under a different type of business relationship.

This allows for flexibility, as you can bring in independent contractors as needed. If their workload increases to 40 hours per week, you can offer them a full-time employee position at your company, changing their status from an independent contractor to an employee.

Keep in mind that an independent contractor’s hourly rate is higher than an employee’s salary because they have to cover their own taxes, work-related expenses, equipment, and more.

#2 Your company covers additional costs for employees, while contractors pay for themselves

If your company hires employees, you must pay more than just their salary. The exact costs depend on various factors, such as the employment agreement and, most importantly, the country’s federal and state laws.

You might wonder, how much does an employee cost an employer in the Czech Republic? The cost of an employee is not just about the gross salary. The employer must also cover health and social insurance contributions, which amount to approximately 34% of the gross wage. Additionally, there are costs for benefits (such as meal vouchers and pension contributions), work equipment, office space rent, paid leave, sick leave, and other expenses.

This means that the salary employees receive is only a part of what you pay as an employer. You can use a payroll tax calculator to understand the full financial impact.

An independent contractor, on the other hand, is registered as a business and must pay their own taxes and expenses. That’s why their hourly rate is significantly higher—it reflects the additional costs they have to cover themselves.

#3 Employees (mostly) work only for you, while contractors can work for anyone

When you hire an employee, they sign a contract stating that they work exclusively for your company. Regardless of their working hours, you are their sole employer.

In contrast, contractors can work for as many clients as they wish. In fact, they can even outsource some of the tasks you assign to them as independent business owners. For example, they may provide consulting services to any business entity.

This doesn’t mean that contractors are a worse choice. It simply means that there is a chance they may not always be available to complete tasks exactly when you need them. This type of working relationship isn’t for everyone, so as a small business owner, you should do your research beforehand.

#4 Employees use company-provided equipment, while contractors use their own tools

Your employees typically receive all the necessary equipment from you as their employer. Even if they work remotely, you provide them with a laptop or other required tools for their job.

Contractors use their own equipment, which may include hardware, specialized tools, software, internet connection, and office space. This means two things:

You should be mindful of what access you grant them and establish stricter company controls.
Due to these additional expenses, their hourly, daily, or project rates are naturally higher.

So, which one does your company need?

This depends on your specific needs and circumstances. You should evaluate the following factors:

How many hours you need the person to work
The type of tasks they will perform
How much you are willing to pay
Whether the work is required on an ongoing basis
What makes the most sense for your company legally

Ultimately, you need to assess your company’s needs in the long term. A poor decision can cost you valuable time and money and make daily operations more difficult.

Contractor vs. Employee: How to Decide?

Deciding whether to hire an employee or an independent contractor is not easy, especially for key roles in your company. It requires careful consideration and analysis of your business needs and goals—not just the specific task at hand.

Here are the key factors to consider when making your decision.

#1 First, think about how long you need someone for

If you only need someone for a short period, hiring an independent contractor may be more time-efficient. For example, if you require only five hours of design work per week, a contractor is a much better choice.

On the other hand, if you know that a person could handle design tasks for your website, social media, apps, emails, and other areas, you may want to hire a full-time employee.

A full-time employee will be in the office 40 hours a week and can take on multiple tasks. They will also always be available for new assignments that fall under their role.

You must carefully consider whether the amount of work you currently have justifies hiring a full-time employee. If you’re paying a salary, but the person actually works only 20 hours per week, hiring a contractor is more reasonable.

Additionally, if your business experiences seasonal peaks with extra workload, it makes more sense to bring in independent contractors to handle the additional tasks. For example, e-commerce stores often have a higher workload during the holiday season, and it’s common to hire extra staff for sales or customer support for just one or two months.

#2 Consider Your Budget

As mentioned above, the cost of hiring an employee is usually much higher than hiring a freelancer for a shorter period. You may not even have the budget to hire someone as a full-time employee.

In the short term, hiring a freelancer costs less. If they come in and do 20 hours of work, paying them a slightly higher hourly rate makes sense for your bottom line.

However, if you constantly need to bring in contractors every week for similar tasks, do the math—it might simply be more cost-effective to pay an employee 5,000 CZK per month rather than spending the same amount on a freelancer.

Overall, before making a final decision, sit down with your accountant (which you should have as a registered business) and go through the numbers.

#3 Think About the Type of Work You Need Done

Some tasks are better suited for contractors, while others are better suited for employees.

When hiring a freelancer, you’re essentially bringing in someone with a specific set of skills and expertise to complete a task or project.

Freelancers usually specialize in the tasks you need to be done, meaning they are likely to complete them more efficiently than your regular employees.

However, if you want your workplace to be full of people with a more comprehensive approach and the ability to multitask—handling multiple aspects of a role simultaneously—employees might be the better choice.

Employees may not be 100% specialized in one particular thing, but they can always make up for it by having skills in other equally important areas.

How to Ensure You’re Hiring the Right Person for the Job?

Whether you’re hiring an employee or a freelancer, you want to ensure you’re choosing someone capable of doing the job. Here are a few ways to ensure you’re on the right track.

#1 Check Qualifications

You wouldn’t want to hire a Java developer who has never written a single line of code—whether they’re an employee or a contractor. One of the key aspects of hiring is ensuring that the person actually knows their field.

Here’s what we recommend doing (in no particular order):

Verify their references (ask other small business owners, read online reviews, and, if hiring an agency, contact previous employers/clients).
Request their portfolio and work samples.
Conduct a background check (either yourself or by hiring a company that specializes in this).
Assign a paid test task.

In an era where impersonation is a real risk, taking these steps ensures you’re working with someone reliable and trustworthy.

#2 Set Clear Expectations for the Job

Whether hiring a freelancer or an employee, the person must know exactly what is expected of them.

For employees, these details should be included in the job description (JD). For freelancers, they should be outlined in their briefs.

To set the right expectations, be crystal clear about the following:

What the person needs to do.
How success for the job will be measured.
What milestones the employee/freelancer should achieve.
Who else in your team they will collaborate with.
What tools they’ll need to complete the job.
How long the work should take.

When hiring employees, more factors come into play. Besides the technical aspects of the job, you also want to hire someone who is a great team player and fits into your company culture—bringing us to the next point.

#3 Make Sure You Like the Person You’re Hiring

Freelancers, by nature, have less interaction with your in-house employees. They come in, do the work, and you can call them back when you need them again.

On the other hand, hiring an employee means adding a new person to your team—someone who will work closely with both their direct team and the company as a whole.

In both cases, you want to ensure you get along well in terms of culture and communication.

With employees, you can assess this during job interviews, where you can ask more personal questions.

With freelancers, this is trickier, as the person you talk to isn’t always the one doing the work. However, if communication feels off from the start, take it as a sign that you should look elsewhere.

For Employees and Freelancers Themselves

Are you wondering whether it’s better to work as a full-time employee or a freelancer?

Being self-employed offers more freedom, but it also comes with responsibilities—handling social security and health insurance payments, taxes, and providing your own work tools.

On the other hand, employees benefit from job stability, a steady paycheck, paid vacation, and other perks.

Switching Between Freelancing and Full-Time Employment – When Does It Make Sense?

If you’re considering moving from freelancing to full-time employment, you’ll gain more stability, a regular income, and employee benefits.

Conversely, switching from full-time employment to freelancing gives you more flexibility, the ability to control your earnings, and potentially lower taxes—but you lose employee benefits.

Can You Combine Full-Time Employment and Freelancing?

Yes, you can have both a full-time job and a freelance business, as long as you manage your tax and insurance obligations correctly.

This can be an ideal combination—providing job security while allowing you to earn extra income through freelancing.

So, Freelancer or Employee?

It all depends on whether you prioritize stability or freedom. Both options have their pros and cons—the key is finding the balance that works for you. 😉

Now You Know the Difference Between Employees and Contractors—So How Do You Choose the Best Option for Your Business?

Deciding between a contractor and an employee isn’t always easy. But making the right choice can lead to better workflows, smoother operations, and cost savings.

After hiring a new employee or freelancer, we also recommend using HR management tools like Sloneek.

With Sloneek, the onboarding process for new hires becomes seamless, thanks to its many automation features. Your HR team will love it, and you’ll save both time and money.

If you enjoyed this article, check out our other similar publications. Otherwise, thanks for stopping by, and good luck with your hiring! 🚀