January 26, 2022

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Seven Differences between a contract for and contract of employment

Seven Differences between a contract for and contract of employment
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As an individual, you can be employed either for yourself or an organization. In anyways you are into an employment contract and therefore, you must pay taxes. This article takes a look at the differences between the contract for and of employment. To avoid repeating words, the first paragraph is on “contract of” while the other is on “contract for” employment.

Differences between a contract for and contract of employment

Definition

A contract of employment is one between an employer and employee in which remuneration is paid to the employee.

However, an contract for employment is one when a person is engaged as a contractor for a fee.

Relationship

He or she has an employer and employee (worker) relationship.

While, under the here, he or she is self-employed.

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By Payment

The payment here is the remuneration or salaries and wages. This is paid to the worker or employee.

Here, the payment is a commission or contract fee. It is often called workmanship or service fee. After deducting all expenses from the fee, what remains is called profit. The profit is assessable to tax.

The basis for assessment to tax liabilities

A person under the contract of employment is assessed to tax on an actual year basis.

Moreover, a person under here is assessed to tax on a preceding year basis.

Name of tax paid

Under this type, the individual is assessed on Pay As You Earn (PAYE). That is, he or she is charged tax based on when salary is earned.

Here, he is assessed based on the profit earned for the year after deducting allowable expenses. And adding back non-allowable expenses.

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Other taxes paid

An individual under the here is not required to pay taxes other than PAYE. He or she is not liable to VAT unless he or she is self-employed.

But, on this term, the self-employed person must register for value-added tax (VAT) and pay the liability to the relevant tax authority.

Laws

A contract of employment is governed under the labor act. In such a case, the employee has several rights. Such as the right not to be unlawfully dismissed and the right to redundancy payments like leave allowance.

Here, the self-employed individual is not protected under the labor act. But may seek protection under contract law.

Conclusion

In final words, a contract for employment refers to an employer and employee relationship. Salaries, PAYE, and labor law are what makes it different from a self-employed individual. While the self-employed make profits from a contract or service he or she rendered and must pay VAT to that regard.

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