SOLE PROPRIETOR & CONTRACTOR
The Benefits And Risks Of Being Self-employed Or An Independent Contractor
On the positive side, you can claim valid business expenses to reduce your taxable income, may be able to work at home and can have more freedom to control when and how you work.
However, there are also risks, as an independent contractor does not have the safety net that protects employees. Employment standards do not apply and if you find yourself without paying clients you will not be able to collect Employment Insurance (EI) benefits.
With at least 1.8 million Canadians in temporary and contract employment, we decided to create this in-depth primer, which explains what you need to know if you currently work as an independent contractor or are considering becoming one.
Understanding the basics of self-employment
You plan to be self-employed, but how is that different from a traditional employee relationship? Here are the essentials.
First, there are three main forms of business you can use:
- Sole proprietorships are businesses where the individual is the business – there is no legal distinction between the two. You can often operate under your own personal name without having to register a business (when you add something to the name, registration is required) and report your gross income, expenses and resulting net income as business or professional income at tax time.
- Partnerships are similar to sole proprietorships, except they have more than one owner, with taxable income and liability being shared amongst owners.
- Corporations are separate legal entities from the actual business owner. This form of business offers added legal protection, but in the early years a sole proprietorship or partnership will often offer more tax advantages.
Second, when you are self-employed you are responsible for taking care of bookkeeping, tax filings, any required licensing and record-keeping.
Finally, self-employment differs from full-time employment in a number of important ways. You are not “hired” for jobs, but have contracts.
You will want to build standard employment benefits like health & dental, life & disability insurance, vacation pay, along with other costs like marketing and sales, into your pricing.
Because the work is contracted, companies you work with do not have to provide the same assurances that full-time employees receive.
As an independent contractor, you do not receive benefits, sick pay, or statutory pay, unless these have been negotiated (this is why independent contractor hourly rates are usually higher than employee rates).
Health & Dental:
- For individuals not covered by a company benefit plan
- Self-employed individuals
Health Spending Account:
- Business Owners including sole-proprietors
- Provides flexibility
- Unique & customizable options
- MyHSA: Click here for more information
Individual Disability/Critical Illness/Life Insurance:
- Executive Top-Up
- Non-Income Earning Spouse
Private & Executive Healthcare:
- Customized private health care options
- International Health Care Coverage for traveling executives
- Health care coverage paid through company expenses
Corporate & Partnership Life Insurance:
- Succession Planning
- Incapacitated Business Partners
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Vision Financial Inc.
Suite 204, 1 Bow Ridge Road
Cochrane, Alberta T4C 2J1
Call (403) 981-2757
We will help you by providing a lifetime of solutions for both corporate and personal financial affairs.