In modern useage, a contractor is often an individual under contract to work for an employer for a specified period at a specified rate of pay. They are considered self-employed and pay for their own benefits and self-employment taxes including Social Security and Medicare payments. Some may have their own firms or corporations. When their contract ends, their job is over. They receive no severance pay, no pension, or any other benefits.
Certain companies, most notably Microsoft, have recently had their contractor hiring practices challenged. Challengers maintain that people claiming to be self-employee contractors were in fact employees. That would require payment of employment taxes plus back payments for vacation, holidays, and other benefits routinely provided to employees. To avoid such challenges, employers are increasingly hiring temporaries who work for employment agencies. These temps are employees of the temp agency and cannot be construed to be employees of the temp agency's client.
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