What is a contractor? It's an independent entity who agrees to supply services, goods, materials, equipment, or personnel that meets stated requirements. A contractor may work for a company, but they aren't a company employee. Instead, they work according to an agreed-upon contract for a set period of time.

What Is a Contractor?

If you're a contractor, you operate much like a business owner. You work for yourself, you negotiate deals, and you have your own clients. You're often rewarded by how hard you work.

In many cases, contractors earn more working this way versus being company employees. They put in the effort of finding clients, so they enjoy all the profits of their work.

Contractors may also be any of the following:

  • Someone who oversees construction sites
  • Someone who manages vendors and trades, serving as the central point of communication for all parties
  • Someone who coordinates projects, including assessing documents or determining sites for renovations

A contractor may hire subcontractors to do some or all of the work they're contracted to perform. They'll draft subcontractor agreements, which protect them and the subcontractors they hire.

A contractor agreement outlines which services and materials will be provided. It also details the cost of the job and any included warranties.

The following sections outline some of the pros and cons of working contract-to-contract for contractors.

Contractor or Freelancer

Although some people use "contractor" and "freelancer" in much the same way, the two terms aren't interchangeable. Rather, they're two different terms for similar professional fields.

A freelancer is a professional who supplies specialties to various clients. Freelancers have no permanent contracts or clients. They have a great deal more flexibility than contractors and company employees. Freelancers have the potential to earn a significant income in their specialty field.

Contractors, on the other hand, are under contract. While freelancers may provide a service for a business and move on, contractors are bound by the contract. They're contracted to fulfill their part of an agreement.

How Contractors Work

Because contractors are professionals who work through their own company, they're not in the same tax bracket that company employees fall into.

Although contractors may work for a business, they're not actually employed by the business. Instead, they're self-employed individuals who work on a contract basis. They don't enjoy company benefits that certain employees are entitled to, but they also avoid some of the downsides that come with employment.

Since contractors don't fill a permanent role at a company, they can work on their own schedule, provided they fulfill their duties and don't breach their contract. Being able to work on their own schedule gives them flexibility, which is seen as a plus in today's working world.

When you're under contract to work with a company, you'll take direction from the company about the specific work they want you to do. Depending on the job you're assigned to do, you may need to attend meetings, track the time you spend on a project, and use the company's computer and software.

The company may also request that you bring your own laptop. You may have to sign a non-disclosure agreement, as well. If so, you shouldn't put the work you've done for the company in your portfolio without asking their permission to do so.


Contractors may be more vulnerable to financial insecurity than employees, so contractor insurance is important for protecting them from potential losses. Contractors receive no pay for sick leave or accidental injury. If they get sick, make a mistake, or have an accident, they're on their own because they don't have the coverage that an employer provides.

There are different types of contractor insurance that provide for the following:

  • Negligence coverage
  • Breach of duty coverage
  • Sickness coverage
  • Neglectful misrepresentation coverage

It's usually worth the cost of insurance to have this important protection.

Contractors often enjoy a great deal of flexibility, which is why many people choose to work this way. As long as you understand the pros and cons of contracting, this may be suitable for your working plans. Being a contractor is best for people who are disciplined about finishing a job and can work with minimal supervision.

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