What Is a Permanent Employee?
Key Points
- Permanent employees get benefits like health insurance and PTO.
- Contract workers manage their own taxes and lack company benefits.
- Permanent status provides more job security than contract positions.
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If you work a job that doesn't have an end date and you're on your company's payroll, chances are you're a permanent employee. A permanent employee is someone who's hired by a company and receives an hourly wage or salary. In this article, we'll cover the difference between a permanent employee and a contract employee and how being a permanent employee affects your finances.
A permanent employee is someone hired and directly paid by a company and whose employment doesn't have a predetermined end date. Both full-time and part-time workers can be permanent employees.
The benefits of being a permanent employee vary by company. But if you're a permanent employee, you'll often get the following perks on top of a steady paycheck:
While a permanent employee is on a company's payroll for an indefinite amount of time, a contract worker is someone who is not on the company's payroll and who's paid a fee for their services. Contract workers are sometimes referred to as freelancers, gig workers, independent contractors, or self-employed individuals.
Permanent employees have taxes deducted from their paychecks by their employer and receive a W-2 form at tax time. Contract workers receive a 1099 and are responsible for their own tax withholdings.
Permanent employees and contract workers may fulfill similar job duties. While contract workers are often hired for a specific project or a set period of time, some companies employ long-term contractors.
However, not even a long-term contractor is entitled to employee benefits like health insurance, PTO, or a retirement plan. Contract workers also don't have protections like unemployment insurance. If a company declines to renew a worker's contract, that employee must find another way to earn the income.
Some of the advantages of being a permanent employee include:
Some of the drawbacks include:
Suppose you're hired to be a web developer for a tech start-up as a full-time W-2 salaried employee. Because you're on the payroll and there's no end date for your employment, you're a permanent employee. The company also employs independent contractors, but they're paid per project.
Now, let's say that this once-promising start-up runs into tough times. You're still a permanent employee, so you will continue to collect your paycheck even though there's less work to do. Meanwhile, those contract workers may get fewer projects, which means they will earn less money and have to look elsewhere.
Conversely, they might get even more work from your company. Some employers encountering tough times try to save money on taxes and benefits by laying off permanent employees and replacing them with contract workers.
Regardless, the word "permanent" isn't quite accurate for any employment agreement, as you discover when you get laid off or the company goes bust. However, because you're a permanent employee, you're able to receive unemployment benefits and possibly negotiate a severance agreement. But if you were a contractor, you'd get nothing.