1. Employee vs Independent Contractors

The arrangement between an organization and its independent contractors are that of a contract for service. A contract for service implies an agreement wherein one party undertakes to provide services to or for another in the performance of which she or he is not subject to detailed direction and control but exercises professional or technical skill and uses her/his own knowledge and discretion whenever appropriate. It is a fairly common amongst organizations in India to engage individuals as independent contractors, especially given the need for flexibility in managing manpower owing to market conditions.

The arrangement between an organization and its employees is that of a contract of service. A contract of service implies a relationship of master and servant, involving an obligation to obey orders in the work to be performed, its mode and manner of performance.

The key difference between an employee and an independent contractor is that:

1. The relationship between an employer and an employee is typically exclusive, whereas the arrangement between an organization and an independent contractor is on a non-exclusive basis. This means that the independent contractor has the flexibility to work for other organizations as well (including the direct and indirect competitors of organizations), while performing services for the employers.
2. A company can exercise far more control and supervision over its employees in comparison to its independent contractors.
3. A company is required to make statutory payments and social security contributions with respect to its employees. For independent contractors, a company is not required to undertake any statutory payments or compliances.