Pondering contract options?

There are many reasons why an employer may prefer to hire someone on contract over a permanent hire, including parental leave, project specific work and budgets constraints on full-time employees.? It can be a great option for a candidate who is in between permanent work, prefers the flexibility of a contract, or wants to take a company for a “test drive” before full time commitment.

As a recruitment firm that works with a lot of contract opportunities and contractors, we often get asked about the pros and cons of the different ways you can set up your contract. There are three ways to enter a contract, as a temp employee, as a corporation, or as a sole proprietor.?? I will attempt to briefly explain the differences between these and a few things to consider when deciding.?

The easiest way to enter your contract is as a temp employee.? You basically don’t need to do a thing (other than negotiate your rate but that’s for another post!).? You go on the hiring companies’ payroll and get paid like a regular employee.? Source deductions will be taken each pay period, a T4 will be issued at the end of the year, and you will be issued a Record of Employment when your contract is completed.? The advantage of being a temp employee is it is easy; the disadvantage is you may be leaving money on the table as you will not have any tax advantages.? Roneta recommends this for short-term contractors (3-months or under), for those using the contract as a stop gap between perm roles and for those who don’t want the extra work involved with incorporating.

The second way to enter a contract is to incorporate.? There is some work to do this, including preparing incorporation documents, performing a NUANS and naming your company, obtaining a business number, registering and paying applicable taxes, setting up a bank account and filing annual returns.? There are many advantages to being incorporated.? You can negotiate a higher rate, in part because it is a B2B relationship the employer no longer must pay the employee burden, which is approximately 17.5% on top of what they pay you (includes EI, WCB, CPP, and holiday pay). There are also tax advantages to having a corporation, including writing off business expenses, and retaining and growing pre-tax income within the corporation. The main disadvantages of incorporating are the work you need to do at set up, set-up cost, on-going compliance, and you are no longer covered by Employment Standards (including holiday pay and overtime).? You would also need to be aware of being a contractor and only having one client annually, which may trigger CRA to deem this a personal services contract which would take away some of the tax advantages.? Roneta recommends this structure for longer-term contracts, and for those who have decided they want to contract for the foreseeable future.

The third way to enter a contract is setting up a sole proprietorship.? It involves much of the same set up as a corporation, performing a NUANS and naming your company, getting a business number, and setting up tax accounts.? The advantage of setting up a sole proprietorship is it is less onerous than setting up a corporation, you have less administrative requirements annually, and you may be able to command a higher rate as there is less employee burden for your client as compared to a temp employee.? Some disadvantages of a sole proprietorship are you have unlimited personal liability, and the business income is treated as personal income which eliminates one of the key advantages of setting up a corporation.?

In summary, when entering a contract there are a few things to consider when deciding your structure, including length of contract, future goals and in your personal situation can you take advantage financially of incorporating?? The consultants at Roneta can help you with your journey, and consulting with a professional accountant is recommended.?

Roneta is a Calgary-based recruitment firm with a primary focus in the Finance and Accounting sector. Roneta is also a leader in providing Contingent Workforce Management.? Please visit our website at www.roneta.com for more information.?

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