Contract employees work for businesses on a project basis and may control how, when and where they work. A direct hire employee performs services for a business and has no control over the details of how those services are performed.
Contract employees work with a business for a length of time determined by the terms of their contract. Direct hires work for a company indefinitely unless they quit, get laid off, or are fired.
Contract employees are self-employed so they pay for their own taxes and benefits. A business takes care of taxes and may give benefits to direct hire employees.
Direct hire employees help businesses provide efficient service for their customers. Contract employees work with businesses on overflow or outsourced work.
Direct hires receive a regular paycheck and have set work schedules. Contract employees control their own time, can negotiate their rate of pay, and can write off some of their expenses on their taxes.
Self-employed contractors pay taxes on a quarterly basis, so they should meet regularly with a tax professional to find out which records to keep and which taxes they need to pay.