Work Like a Contractor, Think Like an Entrepreneur

December 16, 2014

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Over the last decade, we’ve seen a huge rise in the contract workforce – a trend which continues to grow, particularly for the supply chain field. There are key benefits to contingent hiring arrangements which impact both employers and staff, such as lifestyle flexibility, collaborating on niche projects, and vetting cultural fit. But what we’d like to focus on today is how contract roles offer supply chain professionals the opportunity to embark on a consulting business for themselves, and what type of contractor category is best depending on his or her career goals, financial situation, and level of commitment to the self-employed track. With close to 2 million Canadians engaging in interim and contract employment, it’s worth weighing your options.

Sole Proprietor

As a sole proprietor, the individual is the business – there is no legal distinction between the two. That means you can operate under your own personal name and you are not obligated to register as a business (though you are required to declare your status as sole). It’s wise to plan ahead by setting aside money to cover quarterly tax remissions and think about using accrual method accounting. The sole proprietor route is probably the easiest type of contractor category to transition into, and does not necessarily demand a long-term commitment to self-employment. It’s also an effective way to “test the waters” before taking a full leap into consulting as a T4 or incorporated contractor.

T4 Contractor

When self-employed and operating as a T4 contractor, you function in a similar fashion to a sole proprietor but may also regularly work on-site, have longer term or recurring contract arrangements, and receive a T4 slip from clients declaring contracted income but without government deductions. In this category, you’re occupying intermediary ground; you’re not an “inc.” but you do need to register a GST number for your invoices, perform key actions to establish your self-employed status, and ensure that clients classify the business relationship on forms as a designated independent contractor.

Incorporated Contractor

Becoming incorporated requires more money up front (a cost of approximately $500 in Canada, vs. a small $50 declaration fee for sole and T4), but can also lead to bigger pay-offs if you’re investing in a consulting future and confident about making the commitment to the entrepreneurial self-employment track. Going the “inc.” route may also benefit your business branding identity and the kind of reputation and financial capital you command among others in your field.

Choosing the Path That’s Right for You

For each of the above three categories, you are directly responsible for taking care of bookkeeping, filing taxes, any required licensing, and record-keeping. The dynamic for hiring and firing also changes from standard full-time employment, as you’ll need to build costs for vacation, marketing, and sales into your pricing structure, and abide by contract terms and agreements.

And what about clients? It can be a plus for companies when you’re not on payroll because they don’t have to worry about deducting taxes, EI and CPP contributions, statutory holiday pay, or having a designated office space for you. And as a professional? It’s all about the freedom that comes from being able to direct your own work, choosing when and how you work, and pursuing projects and organizations that really speak to your skill set, values, or career trajectory.

As a contractor, your mileage can, of course, vary with these perks. And the cons are worth considering as well: from the potential for financial insecurity and the stress of securing new deals to business liabilities and covering your own health insurance. If you’d like to delve more into this, the Canada Revenue Agency provides a solid side-by-side comparison evaluating how being an employee vs contractor stack up against each other. There’s always a trade-off when one makes the decision to be self-employed, and whether it’s worth the balancing act is a personal decision.

What do you think – how do the advantages of contract work and the entrepreneurial life stack up against the risks? Let us know in the comments.


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