Differences Between Contracts of Employment & Contracts for Services

By Sara Melone
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In the business world there are many different types of work relationships between companies and individuals. Some positions come with benefits provided by the employer as well as certain legal obligations required of both the employer and the employee. Other types of positions might be temporary in nature or based on a specific contract drawn between the two parties. Employers and employees should be aware of the differences.

Contracts of Employment

A contract of employment establishes an ongoing employer and employee relationship.

A contract of employment is a formal agreement in which a company or organization hires a person as an employee. A contract of employment stipulates that the employer is extending an offer of employment to an individual. The contract will generally outline the duties and responsibilities of the position, the salary or wages the employee is going to receive in consideration of those duties and the required hours and other time commitments necessary for the position. If the contract is for a specified term, the expected length of employment will be indicated, or it could state that the employment is "at will," meaning it can be terminated by either party at any time.

Contracts for Service

Service providers are independently employed.

A contract for service generally states that a service provider will perform certain duties for a business or organization, although the service provider is not actually an employee of the hiring party. The service provider is usually referred to as an independent contractor. Generally, the service provider would be a self employed individual or a firm that offers services such as landscaping maintenance, office cleaning, childcare or other domestic service. Contracts for service can also be created for traditional office work or other business services. The service contract may be provided on a temporary or occasional basis. Often the contract allows either party to end the relationship at any time.

Key Differences

Obvious differences arise in a comparison between employment and service contracts.

There are some clear differences between a contract of employment and a contract for services. In a contract of employment, the individual is legally considered to be an employee. As an employee, she may be entitled to employee benefits like paid time off, training, health insurance, and she normally would be covered by state programs like worker's compensation and unemployment benefits. In contrast, a service provider is not an employee under a contract for services and normally is not entitled to any employer-provided benefits. Most service providers are responsible for their own taxes and insurance.

About the Author

Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.