Even the most self-sufficient business owner occasionally needs help, which is why it pays to know the difference between temporary employees vs. independent contractors. Both can handle projects without becoming full-time employees, but before you hire either one, it’s important to understand the differences in their work arrangements, relevant employment laws, and payroll implications.
What you’ll learn
What you’ll learn
Updated: May 9, 2025
Key takeaways
- An independent contractor is a self-employed worker who is typically hired to complete a project or a specific task for your company and generally works in their own space on their own schedule
- A temp worker is a short-term employee of your business or a temporary staffing agency and can be part-time or full-time as well as seasonal
- The Economic Reality Test can help you determine if a worker has independent contractor classification, focusing on whether you have behavioral and financial control of the worker, as well as your overall relationship
- One key difference between temp employees and gig workers is that temporary employees may qualify for employment benefits, while independent contractors do not
This guide will outline your responsibilities when it comes to temp worker and independent contractor status, as well as the implications for taxes, benefits, and labor laws you need to adhere to.
Key characteristics of temporary employees
There are benefits of temp staffing as well as drawbacks. Overall, the key characteristics shared by temporary employees include:
- Contractual obligations: Temp employees typically work under a signed contract that states their expectations, pay rate, and schedule. The contract is set out either by your business or by a temporary staffing agency, which gives you the power to set the tone and parameters for temporary work. They will generally work 1,000 hours or less for your organization.
- Employer relationships: Whether your temp employees work directly for you or through a staffing agency, you can determine projects and timelines – just like your regular employees.
- Role in routine business tasks: Your company will determine a temp worker’s role in business tasks, such as whether they participate in team meetings or record hours like your permanent employees do.
Ultimately, you have more power to determine the work scope for a temporary worker than for an independent contractor.
Key characteristics of independent contractors
In a nutshell, the benefits of contract staffing revolve around flexibility and control. The key characteristics of independent contractors and gig workers include:
- Autonomy and control: Independent contractors have the power and the ability to set their own schedules and determine their availability for a given project. Simply put, if an independent contractor wants to take the next month off and they haven’t already agreed to perform work, they can choose to do so.
- Engagement in trade or business enterprise: With that in mind, independent contractors will likely be less engaged in your day-to-day business operations, but that doesn’t mean they lack industry knowledge or experience. An independent contractor might be heavily involved in the graphic design industry, for instance, but they will play less of a role in regular business operations for your company specifically.
- Independence from hiring entity: Unlike temp workers, independent contractors are not members of your staff. They work for themselves, independent from hiring entities. Again, this provides them with the flexibility to say yes or no to work, and payment terms for contractors can be quite different from standard payroll.
Clearly, the term “independent” is meaningful when it comes to an independent contractor vs. a temporary employee. Businesses must distinguish between these roles or else they could face serious consequences.
Legal and financial consequences of employee misclassification
It is important for your business to correctly classify both temporary employees and independent contractors. There are both legal and financial consequences associated with the misclassification of employees.
For instance, if you misclassify temp workers as contractors, your temporary employees may be missing out on income and labor rights. In this case, they can choose to come back and request this income.
In addition, you can face serious financial penalties, including having to pay back taxes and interest on unpaid taxes. Finally, your business might be subject to legal action by the IRS, other US tax authorities, or the Department of Labor (DOL), even in the event that the mishap is unintentional.
All in all, it pays to correctly classify workers, for both your business and the people working for it.
Did you know?
OnPay’s worker classification checker can help you determine exactly what kind of workers you are hiring and what your payroll and tax responsibilities are.
Best practices for employee classification
Fortunately, several best practices for employee classification can help you get it right the first time and avoid financial penalties and other consequences.
Recognizing industry standards and needs
Depending on your industry, it might be more beneficial to use one option or the other. For instance, temporary workers can be great to fill seasonal gaps in retail or cover for a maternity leave in your administrative team.
Independent contractors, on the other hand, can be an ideal option if you need to develop a new website, take pictures for an event, or help you with graphic design, or for freelance content creation. If you are a member of an industry association, you can ask for recommendations.
Implementing effective classification policies
Once you are clear on the difference between temp workers and independent contractors, it’s time to create standardized classification policies and procedures that your HR team can refer to when hiring. You should have standard policies that apply across your business to make it easy to determine classification status.
Monitoring and maintaining compliance
It makes good business sense to make sure your HR team is up-to-speed on employee classification and that everyone in your hiring team is educated on the difference between independent contractors and temporary workers.
Keep in mind that employee vs. independent contractor status also plays a role in payroll. Temporary employees generally receive a W-2 form, while independent contractors generally receive a 1099 form, so this classification is important to ensure that everything is in order when tax time comes around.
Industry-specific considerations
Specific industries often rely on either temporary workers or independent contractors to fill short- and longer-term needs, or both at the same time. Common industry-specific considerations include:
- Restaurants: Interestingly, restaurants can turn to either temp workers or independent contractors, depending on their individual needs. For instance, a food truck that is serving a wedding might hire a contractor for the day to handle dessert, while a restaurant with a line cook on maternity leave might opt for a temporary worker to fill in.
- Technology and startups: Technology companies and startups often use independent contractors to help with projects, coding, website launches, and more.
- Construction and manual labor: Because construction projects and manual labor often involve short-term needs for specific projects, an independent contractor can be a great choice.
Healthcare, administrative office, and retail roles can often be a great fit for temp workers to replace regular employees on leave. Marketing, ad agencies, and other professional services may prefer independent contractors with specialized experience and expertise.
If you are unsure which option might be the best fit for your business, an HR pro can help you examine your needs and determine whether independent contractors or temp workers could best fill them.
Takeaway: Knowing the differences between temp workers and independent contractors makes good business sense
Any business that’s looking for short-term help (or those who may need it down the road) can benefit from understanding both temp workers and independent contractors. While both have their time and place, employers should familiarize themselves with proper classification, efficient hiring practices, and accurate distribution of W-2s and 1099s during tax season. There are also many contractor payroll services available that make it simple to take care of it all. Best of luck as you grow your team and connect with the talent you need to take your company up a notch!
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.