What is Contract Labor

Author: Halley Harrelson Published: October 2022

What is contract labor?

Contract laborers are workers who work under individual contracts. They are never hired full-time by a company; however, they can work just as many hours as a traditional employee.

Here are some examples of what sets contract labor apart from traditional employees:

• The worker can negotiate the number of hours they work.

• The worker can use their equipment to complete the job.

• The worker submits their invoices.

• The worker can be let go at any time, assuming it does not break the contract.

• The worker does not receive benefits.

• The worker is given a 1099-MISC tax form.

Contract labor workers require a contract agreement before they can begin working. The terms of the contract may include

  • the maximum amount of work hours per week,

  • conflicts of interest,

  • a copyright agreement,

  • an injury liability clause,

  • a clause that states early termination scenarios, and

  • a breach of contract clause.

Companies typically hire attorneys to write these contracts. Then, there is a new contract created for each role. For example, a contract for someone hired to drive a forklift will require a different arrangement than one hired to design the company website. Once contracts are created, they can be used as templates as long as job requirements and labor laws do not change within this time.

Benefits of labor contract workers

• Contractors typically cost less than employees. Contract labor typically costs 20-30% less than employees.

• Contractors can maintain flexible positions. Contractors require no actual time frame in terms of employment length.