Differences Between an Employment Contract and a Professional Services Contract

When hiring human talent, it is very important to conduct an analysis to determine which type of contract best suits the needs and expectations of the hire.

For this reason, understanding the key differences between each contract type is essential, not only to start the relationship on the right foot but also to avoid unforeseen contingencies due to lack of information.

If you need to hire a person who is subject to orders, works specific hours, wears a uniform, must be punctual, asks permission to be absent, cannot refuse assigned tasks (it should be clarified that no one is obliged to carry out illegal orders), with immediate or delayed supervision, and where you define the salary to be paid, you are looking for an employee under an employment contract.

What does hiring someone under an employment contract imply?

It implies compliance with labor guarantees as outlined in the Labor Code, including among others: payment of a Christmas bonus, minimum wage, vacation, inclusion in Social Security, coverage for work-related accidents, tax withholding when applicable, etc.

If you are looking for a professional with their own judgment, independence, an office, work tools, a defined fee, who works based on objectives, receiving general instructions, and has control over their own time, an independent contractor could be a suitable alternative.

What does hiring a professional under a freelance contract imply?

This involves signing a contract governed by civil and/or commercial law, issuing invoices for the service in accordance with the tax authorities’ regulations for the given period, and ensuring the independent contractor provides their own insurance, as the responsibility for this will not fall on the contracting party. However, there is an obligation for the professional to ensure this coverage. It is also common to request liability insurance depending on the type of service being contracted.

At this point, I would like to clarify that, due to the general nature of this article and in the absence of a specific case, the advice of an expert lawyer is always recommended, as cases may not be straightforward and could involve “grey areas.”

You may wonder, what is the key characteristic that differentiates them? Jurisprudentially, it has been said that subordination, understood as:

The possibility that the employer has to impose regulations, issue orders, and ensure their strict compliance, is the most important factor that makes the employment relationship inherently subordinate. This subordination can be potential, meaning that even if it is not exercised, there must always be the possibility to do so. (DAJ-AE-616-2006)

Subordination is equivalent to a limitation of the employee’s autonomy, subjected to the employer’s authority by reason of the contract and in the performance of their services, with the authority exercised by the employer aimed at maximizing production and the company’s benefit. (G. CABANELLAS: Compendium of Labor Law, Buenos Aires, OMEBA Publications, 1968, p.394)

If this characteristic is present in the contract, it constitutes an employment relationship.

Why is it important to understand the difference?

Because if you choose the wrong type of contract, you may be exempting yourself from legal obligations that could lead to significant financial costs.

We hope this information is useful to you. Until next time,

Marcela Acosta
Partner at Quatro Legal

Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to constitute legal advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change. For the most accurate and up-to-date information, please contact our office directly. Some images may be AI generated.