An employee is a person with a fixed monthly salary, who will automatically be included in every month's payroll. XPayroll optimizes the salary structure to minimize tax, and automatically deducts and pays the required TDS (tax deducted at source). Provident fund, ESI, and professional tax are applicable only to employees.

A contractor, on the other hand, is not on the permanent rolls of the company and can be paid in an ad-hoc manner through the one-time payment feature of XPayroll.