It’s a question boiling in the minds of thousands of IT, Engineering and Finance professionals. The status quo assumes that working as an employee is a better financial decision. However, all assumptions are usually not fully aware of all the implications of being an independent contractor.
Pros of Full Time Employment
- Job security
- Additional health and financial benefits being provided
- Eligible for both Workers Compensation (W.S.I.B.) and Employment Insurance (E.I.)
- Candidates may receive a severance package when employment is terminated
Cons of Full Time Employment
- In the current economic climate there is no job security at any level!
- Employers pay their employees 20 – 40% less than contractors to account for the benefits they supply them
- Personal income tax rates are the highest and have the least amount of tax strategies available
- Employees must pay E.I.
There is no more job security as an employee than there is as an independent contractor.
Employees might be looking to jump ship for the next better offer while employers are often either cutting costs or downsizing. Unfortunately, the idea of corporate loyalty only exists with a very few select companies that have gone above the norm when it comes to HR policies. In the uncertainty of today’s work environment and job market, opportunities seem to be diminishing. The only way to protect your job in the present and for the future, is to maintain a high level of quality performance.
Now, let’s take a look at the benefits and drawbacks of independent contracting.
Pros of Independent Contracting
- Lifestyle benefits
- Be your own boss
- Set your own hours
- Work from home
- Financial Benefits
- You can earn more than F/T employees
- You are not required to pay E.I. premiums
- Higher tax savings
- You are eligible to deduct business expenses, many of which are everyday expenses
- You can incorporate and take advantage of the small business tax rate of 12.2%
- You can access tax free loans from your corporation
On average, contractors are paid an hourly rate 20-40% higher than employees performing the same work. Employers do this because they pay for the cost of benefits for employees. Independent contracting is a win-win opportunity because it costs an employer less to hire an independent contractor, yet the contractor actually earns a higher salary and pays less tax.
Having the ability to set your own hours and working from home are very compelling motivators for young families. Simply having the chance to spend more time with their children is priceless and worth far more than any financial benefit. Similarly, the variation of work associated with contracting may be very appealing for some people. While some contracts can last years, contract work can allow you to change your job frequently especially if you choose short-term contracts. For those who tend to get easily bored, there is less likelihood of that happening if you are constantly working on new projects or for different companies.
Cons of Independent Contracting
- You must market your own services.
- Average contract length is only 6-12 months.
- Not eligible to collect E.I.
- Not eligible to collect W.S.I.B.
Choosing a contract position over a full-time is a lifestyle choice, and the way to ensure you have a job in the future is to become a master at what you do. Any benefits a company may offer can be obtained for far less than what you would be giving up. The financial savings are there, and it’s important to consider having the flexibility for a healthy work/life balance.
CPA4IT specializes in small business accounting in Toronto for more information call us 1-800-465-7532 today.