Equipment

• An employer must provide employees with work equipment. A contractor has to purchase tools that are necessary to perform the job, such as wrenches and hammers, and has to replace and maintain these tools, as well. The contractor is also responsible for the costs of setting up a workspace, which can include rent, installing equipment and furniture, and paying power bills. A contractor may report a loss on an income tax return because of these extra costs.
  
  

Qualification

• A contractor may still have to go through a background check, obtain a bond or satisfy other security requirements to work on a project. An employer usually pays these costs for a permanent employee. If a contractor must gain additional training, certification or licenses to perform a job, the contractor must pay all the education and testing expenses. Many employers pay these bills for an employee.
  
  

Project Length

• Employers often hire contractors for limited-duration projects. A business may need extra workers on a single project that lasts a few months. This flexibility makes it easier for a contractor to find work, but the business does not guarantee renewal of the contract, so the contractor may not be able to find another business in the area that is hiring when the contract period ends.
  
  

Taxes

• The business also takes a risk by hiring a contractor. The business does not have to pay into Social Security and Medicare for the contractor. However, it must make sure that it treats contract workers as independent professionals. According to Washington University, St. Louis, the business should not establish certain working mandates such as requiring the contractor to work fixed hours, to perform the work only onsite or to perform tasks under management supervision in a specific order, unless that is needed to complete the job. Otherwise, the Internal Revenue Service may classify the the worker as an employee.