Know the difference between contractors and consultants

Question:

What is the difference between a Consultant and a Contractor?

Answer:

The short answer is that the Consultants role is evaluate a client's needs and provide expert advice and opinion on what needs to be done while the Contractors role is generally to evaluate the client's needs and actually perform the work.

However, these terms, Contractor and Consultant, have become blurred over the years and at times have been used interchangeably. Especially when the Consultant, after having given his or her professional opinion or advice on what has to be done, then enters into an agreement (contract) to provide the services required. At that point the Consultant may be said to become a Contractor. The terms have also become blurred as industry has incorporated them into employee job titles.

Generally, a Consultant is a self-employed independent businessperson who has a special field of expertise or skill. The consultant provides professional or expert opinion, advice or services regarding information or materials in his or her field of knowledge or training to assist others in making decisions or in performing tasks.

On the other hand, a Contractor is a self-employed independent businessperson who agrees (contracts) to do work for another usually for a fixed price. It is usually an 'arms length' transaction. The individual hiring the contractor defines the desired results and the schedule. The contractor may supply labor only or labor and supplies. The Contractor generally retains control over the work to be done including the means and methods used to do the job, the scheduling of the underlying work, who performs the work and determines how the work will get done within the standards and time requirements set. A contractor will generally use his own tools and work equipment and may employ others to do the work for them.

The definition of the terms becomes critically important when a trying to decide whether an individual is an employee, contractor or consultant. Generally, contractors and consultants are not employees. They are individuals from outside of the organization that perform services for the organization and are not subject to the various state and federal payroll withholding tax laws. Contractors and Consultants are more likely to be paid without a withholding and issued a federal tax form 1099 for any monies received. There are some 20 or so factors used by state and federal agencies, including the IRS, to determine which category, contractor -- consultant -- employee) an individual falls into.

If you need more detailed information or have any further questions you should contact an attorney with expertise in this field in your local area.

Visit the Q&A section of CIO magazine to learn more about employment and labor law.

This story, "Know the difference between contractors and consultants" was originally published by CIO.

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