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What Is a Permanent Employee?

By Motley Fool Staff – Jun 30, 2017 at 1:07PM

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Permanent employees enjoy steady paychecks, workplace benefits, and a degree of job security.

In today's economy, having a steady job is something not to be taken for granted. That's why it pays to be hired as a permanent employee. A permanent employee is one who works for and is paid directly by a specific employer without a predetermined end date for the employment arrangement at hand. Permanent employees are paid on a regular basis, typically either weekly, biweekly, or monthly, and employers are required to withhold taxes from their paychecks. Permanent employees are often eligible for additional benefits, like paid time off, health insurance, and retirement plan access.

Permanent employees versus independent contractors

One major difference between a permanent employee and independent contractor is that the former usually must work on a preset schedule and at a specific location. Independent contractors, on the other hand, often get to dictate when and where their work will be performed. On the other hand, independent contractors are only paid for the work they actually go. Permanent employees, by contrast, are paid regardless of productivity.

Smiling female employee at desk


Though independent contractors typically enjoy more flexibility than permanent employees, permanent employees have a far more stable work arrangement. Though most companies employ workers on an at-will basis, which means they're technically allowed to let employees go for any reason whatsoever, there are certain ramifications for terminating permanent employees that don't come into play when independent contractors are no longer needed. Furthermore, permanent employees who aren't fired for cause are eligible for unemployment benefits, whereas independent contractors are not.

Additionally, by law, employers are required to withhold taxes from their permanent employees' paychecks. Independent contractors, on the other hand, are responsible for paying their own taxes, and must cover their self-employment taxes to boot.

Finally, permanent employees are typically entitled to workplace benefits, like health insurance, paid time off, and access to a 401(k) plan. Independent contractors receive no benefits outside of their agreed-upon rate -- benefits that could be worth thousands of dollars, depending on the package a company offers.

For example, a company that pays 100% of its permanent employees' $500-a-month health insurance premiums is essentially giving each worker an additional $6,000 a year of compensation, only instead of getting that money in cash, it comes in the form of fully subsidized medical coverage. Along these lines, an independent contractor who takes two weeks off to go on vacation won't get paid a dime during that period unless he or she does actual work. On the other hand, a permanent employee who gets two weeks of paid time off can go away and continue getting paid on schedule.

While it's true that independent contractors often get the benefit of working from home and setting their own hours, there are numerous advantages to being hired as a permanent employee. Though there's no such thing as a guaranteed job for life, you're more likely to attain job security as a permanent employee than as an independent contractor.

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