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Hero_X
06-13-2018, 12:41 PM
Hey beyond,

So I may be in a situation where I might get to return to my engineering field. The company that I applied to, is only taking contractors at this time. I've never worked as a contractor. So I had a few questions:

1) How do you set yourself up as a 'contractor' ?

2) What's the major difference between staff and contractor?

3) With a field like engineering, how does practice insurance work for the company [for the work that I'd be doing] ?

4) What would I need to prepare for, in terms of costs / savings ?

5) I've heard that being a contractor you get taxed less, and are able to claim a lot of expenses as 'business expenses'. How would this work? Would I need an account to get all this dealt with?

I'm very new to this type of employment so I really could use your advice. Please share your experience / thoughts. Thank you!

firebane
06-13-2018, 12:48 PM
Contractor you are basically self employed and selling your services to them. All business doings are from you which means you need to look after your own insurance, taxes etc etc.

shakalaka
06-13-2018, 01:02 PM
I would assume you would need to get your own GST number or incorporate.

Then you do invoices and collect GST. You write off all business related expenses, or your accountant will. Can't tell you about insurance, probably through your governing society if I had to guess.

colinxx235
06-13-2018, 01:06 PM
Hey Hero,

I hit this cross road about 2 years ago after a long layoff returning to Engineering. I'll do my best to answer the questions.
So you have two main options usually. Sole Proprietorship (what I went) or Incorporated. I went SP because it was much cheaper to set up initially and with the volatility of the industry I dind't want to spend all the time and money setting up Inc if it wasn't going to last.

Sole - https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html
That read will tell you all you need to know. It is cheap, you just invoice directly, I did my taxes like normal with a few small writeoffs.

1) If you go Sole, hit link above and follow steps. Apply for a GST number, to keep Apega off your ass I would list myself as a "project manager/project support services" for example for either direction you go in. This is very common among Engineers. Incorporated you will typically need to talk to a lawyer, usually get an off the shelf numbered company and yes set up with an accountant to manage that (dividends etc etc). Most companies with contractors invoice monthly, so you just make a standard template to send in such as. Hero_X Project Consulting Services Invoice, XX hours @ xx rate, then include a gst column.

2) Staff the company pays all your EI, benefits, CPP, stat holidays, vacation etc. Consulting you have to set up everything yourself. Stats work or don't get paid, vacation take at your own leisure as again you don't get paid. The uplift for a standard engineer of 3-4weeks vacation going from staff to contractor is ~ 16-19% to break even IIRC. Some firms used to pay 30%+ for contractors and on top of all the old dodgy write offs/tax work arounds that is why so many were contractors. CRA has clamped down heavy on this. Market volatility is why everyone wants contractors, less cost/fees for them and super easy to let you go without paperwork.

3) Same as usual, pay your Apega dues. Maybe if the company is nice you can expense your dues, varies as a contractor/employer. You typically permit under the company that you are working for. If you are expected to be a permit the drawings yourself then you will definitely need to be incorporated and wayyyyyyy more work to get permitted under alberta versus being a contracting P.Eng.

4) The smartest thing to do is estimate your tax bracket and track all your gst charges, set that % aside + the gst into a separate account as most of the will go to taxes minus a few writeoffs if you choose so (home office, business expenses, etc)

5) As an SP I just used the Turbo Tax business one for $50 (or whatever it is) every March as I also had mixes of employment + contractor in there. Wrote off a tiny bit for home office, fees etc. It isn't a large amount being an SP. Incorporated is where you can get more creative with taxes/dividends but as I mentioned CRA is clamping down hard on it. Works better if you have more than 1 Engineer in the company and multiple clients.


But overall it isn't too bad. As an SP you just got used to invoicing monthly, tracking major expenses, setting aside earning for taxes + gst and just file it year end the same as you would personal tax. Very easy to set up and low cost.

ExtraSlow
06-13-2018, 01:54 PM
Errors and ommisions insurance is what you'd need, and it's shockingly expensive.

If your contracting income is somewhat sporadic, there are benefits to being incorporated, because you can choose to pay yourself in a different schedule than when the company makes money.

Hero_X
06-13-2018, 02:40 PM
Errors and ommisions insurance is what you'd need, and it's shockingly expensive.

If your contracting income is somewhat sporadic, there are benefits to being incorporated, because you can choose to pay yourself in a different schedule than when the company makes money.

So the hiring company, would not provide any insurance on ommissions/errors ?

How does this work if you're with an agency like Design group?

Nufy
06-13-2018, 03:47 PM
I've been working as a contractor for the last 10 years or so...

I've only been asked to carry insurance once. The job lasted 3 months

Other than WCB of course.

Every other time I confirm that I am covered under the employers Liability insurance.

Isn't it a requirement of their Permit to Practice ???

ercchry
06-13-2018, 03:54 PM
Errors and ommisions insurance is what you'd need, and it's shockingly expensive.

If your contracting income is somewhat sporadic, there are benefits to being incorporated, because you can choose to pay yourself in a different schedule than when the company makes money.

Weird... our coverage is around $200/yr, not engineering though... guess our liability usually doesn’t exceed more than $1m... but some people’s can be a lot more

killramos
06-13-2018, 03:57 PM
I would clarify with the person offering you the job as to whether they intend for you to be an independent contractor or a contract term employee. They might not care but maybe they do, this will affect whether you get paid out through payroll or whether you invoice them.

What they are really trying to avoid with bringing you on FT is liabilities such as STI, LTI, Severence that they have to pay out if things dry up and they need to let you go. All that gets factored into your total cash comp as a contractor.

Expensing things is only really relevant if you are spending a bunch of money in the course of the job. If you are showing up to sit at a cube and do work there isn’t really much to expense. Insurrance is an interesting one and something to discuss with the employer as others have said and it will vary place to place.

brandon
06-13-2018, 08:28 PM
Also, keep in mind that the CRA heavily looks for contractor corporations with only one customer. So best to have some other companies you can bill some invoices too as well.

lasimmon
06-13-2018, 08:33 PM
Incorporating makes very little sense for the majority of single contractors these days.

jwslam
06-14-2018, 08:58 AM
What they are really trying to avoid with bringing you on FT is liabilities such as STI
Well then I wouldn't want to work there anyways. :rofl:

I've had to deal with setting up a few independent contractors at my work. They all require $10mm liability.

Mitsu3000gt
06-14-2018, 10:11 AM
Some people love it but I personally wouldn't do it again based on my experiences anyway (my experience is with O&G). The hourly rate you have to charge to offset an equivalent salaried employee's compensation is often a lot higher than they want to pay. You need your hourly rate to compensate you equally for your expected salary PLUS:

- Bonus/STIP if applicable (likely 15%-20%+ or whatever you would expect as a salaried employee)
- Full benefits package if applicable (Health spending, personal spending, the usual $500+ for massage, chiro, physio and a couple dozen others, travel / drug / dental, etc. etc.) This can add up to many thousands of dollars of benefit. Usually the ones you buy for yourself as a contractor aren't nearly as good, and have a long mandatory waiting period before start.
- Any RRSP matching (often 5%-9%)
- Any stock/share based or other long term incentive programs they have
- 3-4+ weeks paid holiday, flex days, bonus days, half day Fridays, etc. (whatever they get)
- The general flexibility of a salaried job (i.e. days you get let out early, need to run to a quick personal appointment, etc.) while still getting paid
- Generally better job security and not being the first to go if they do layoffs

Also personally I did not like the effort required to incorporate, deal with all the write-offs, doing taxes is annoying (or expensive), CPP/EI deductions, looking for loopholes, keeping perfect records and every receipt for absolutely everything, etc. Some people are very good at this and contracting makes more sense for them.

I'd never do it again unless they pay was ludicrous.

gmc72
06-14-2018, 10:19 AM
This is a very interesting thread. My father was laid off 25 years ago and became a contractor (O&G Instrumentation) ans was never out of work until he retired. My mom didn't work, so the income splitting helped and it worked for them. My EI claim has run out now and I am looking at doing this as I am currently an hourly employee (no benefits, no holidays, no sick days) and am basically a contractor without the advantage of writing off certain things. There are some interesting opinions either way.

Hero_X
06-14-2018, 01:33 PM
The thing is, I've been out of engineering for almost 3 years now. I was laid off in 2015. I'm quite desperate to enter back into industry, and start gaining experience again. I was laid off when I only had about 4 years, so the past 3 yrs i've been treated as an unwanted leper by companies when I apply for jobs.

If I had a choice, I would want to be a staff hire, but, seems this opportunity won't let that happen, at this time at least. I am quite concerned about the whole lack of health benefits, as I really do need them.

That being said, the pay will be at least 70% better than what I'm getting now.

A lot of you have mentioned things about tax & write offs. I've also heard that working as a contractor you get taxed less. How does this even work? If you're a 'company' and then you pay yourself, that payment of self essentially is taxed as normal income tax isn't it?
gmc72: How did being a contractor get him consistent work? I"m curious because if the work isn't there, shouldn't both staff & contractor positions be scarce?

colinxx235
06-14-2018, 01:46 PM
You'll just have to get your own benefits. Search around for blue cross, great life etc etc for single plans. Obviously you won't be getting any major glamorous 100% coverage with full practitioner, HSA etc. But for a soso amount you can cover basic medication/health care etc.

I would highly recommend you do what I did and just be an SP, don't worry about dividends/taxes and get Inc. You're not specialized, will only have 1 client, will be working in an office setting (i'm assuming) with very little expenses. If at some point later going Inc is an option that benefits you greatly it is quick to do.

And ultimately if there is no work I don't care if you are staff or contractor it doesn't matter. Staff just means you qualify for EI and they owe you severance etc etc. Which is why so many companies in yyc for Engineers are doing Contractor only (at least to start). If it doesn't work out they have almost no onloading/offloading costs.


Edit: Oh as well you can no longer do the major income splitting under Inc that GMC is referring to. Trudeau cracked down on that BIG time. Long gone is the "oh my wife is my accoutant and 50/50 split". If you get audited which I've been told is happening more frequently better be ready to prove that she commits whatever % is allocated to her for example. And also if his dad was a senior Instrumentation Engineer and good at his job, there is a reason he would never have been short on work...

killramos
06-14-2018, 01:47 PM
That involves incorporating, paying business taxes, then paying yourself a dividend as business owner. Which can have some tax benefits. But CRA has been getting more stringent with that and it involves a lot of work in organizing the business. You don’t have to pay yourself a salary in that case and just declare a company dividend which you pocket.

If you are concerned about benefits then buy them, such is life lots of jobs don’t have benefits.

Honestly just ask your employer how they want you to structure it. You are free to just declare it as income to a SP and be done with it.

You would be silly not to take the work just because the position is contract.

lasimmon
06-14-2018, 01:50 PM
There isn't value in incorporating anymore - that is if you want to do everything above board. Go Sole Prop. its quick and easy and can be set up in an afternoon.

gmc72
06-14-2018, 02:07 PM
gmc72: How did being a contractor get him consistent work? I"m curious because if the work isn't there, shouldn't both staff & contractor positions be scarce?
I know that he switched companies a lot. If he heard of work, he would apply. It took a lot of networking, but it worked for him. I guess that the companies were looking for contractors and not staff.

HiTempguy1
06-14-2018, 02:59 PM
This is a very interesting thread. My father was laid off 25 years ago and became a contractor (O&G Instrumentation) ans was never out of work until he retired.

I don't mean this as insulting or being mean in any way, but there is a lot of crappy work out there. Trades contracting in O&G is the worst, only time I've ever seen it make sense is working onsite at a plant during construction/commissioning when they were paying top dollar.

Otherwise, typically overall pay once everything is factored in is better as an employee and you get stability. This was the path lots of people tried to take, get on a site contracting, during the handover of the plant to the producer get noticed for good work, get a job offer.

As Mitsu highlighted as well, contracting is way more intensive than being an employee. Sure, sometimes its very simple and straightforward, but it starts to become very time intensive if doing everything yourself.

ExtraSlow
06-14-2018, 05:10 PM
Otherwise, typically overall pay once everything is factored in is better as an employee and you get stability.
Agree the advantage of being a contractor is virtually eliminated now. Employee is more advantageous in many cases. However, OP doesn't appear to have an option, and in that case, contracting as an SP or INC is fine.

msommers
06-14-2018, 05:13 PM
Is all that PSB fear mongering over yet? It's been awhile since I was contracting but the CRA was really talking baout going after anyone consulting with just one client.

sabad66
06-14-2018, 05:46 PM
For rates i've heard you should go for at least 1.5x your base hourly rate equivalent...closer to 2x if possible.

So for example 100k salaried employee is approx. $50/hr equivalent (100,000/2000 hours per year).

So 1.5-2x that would be $75-100 hourly rate as a contractor to be equivalent to 100k salaried.

HiTempguy1
06-14-2018, 06:10 PM
Agree the advantage of being a contractor is virtually eliminated now. Employee is more advantageous in many cases. However, OP doesn't appear to have an option, and in that case, contracting as an SP or INC is fine.

I'm not telling him not to do it. But I wouldn't view it as an advantage.

One of the HUGE benefits I see from contracting is it can quickly expose you to many different roles and aspects of the industry your in, its like job hopping on steroids because its expected of you to do that. Meet lots of people, gain some good skills, certainly can be beneficial.

I've just never seen the long term benefit.

Hero_X
06-14-2018, 06:16 PM
hey guys,

so a bit of an update (not secured offer but some mentions):

1) the hiring manager mentioned it would be a contractor position, but i would be through an agency called 'design group'. Does this change anything?

2) the hiring manager mentioned a rate, when talking about salary, but there's been no official offer with it. In the event they do make an offer with that particular rate, would there be any room for negotiation?

I definitely am desperate af to get a job BUT i still don't want to be fcked if being a contractor is gonna end up costing me too, versus staff position.

I definitely want to try to negotiate a bit more, because i will have to move for this position. But, i don't want to piss them off and have them just pull back altogether.

Any advice on this?

ExtraSlow
06-14-2018, 06:36 PM
Design group is a staffing agency. So you'd be an employee of thiers. Easy peasy, and they ll take thier cut.
http://www.dg.ca

killramos
06-14-2018, 06:50 PM
Yup just a pimping agency.

Sounds like a decent gig to get back working to me.

ExtraSlow
06-14-2018, 06:55 PM
+1, do it. Experience and hours worked are valuable.

Hero_X
06-14-2018, 07:07 PM
hey guys,

thanks for replying, but the guy had mentioned 'contractor work' through design group. So am I still a contractor and DG just pimps me out? Or am I just an employee under DG and the contract is with DG?

Sorry guys, i'm super new to this so pardon the many questions.

Also, any advice on the $$$ negotiations, if any?

ExtraSlow
06-14-2018, 07:43 PM
My guess is DG has a set rate, and you have no input or leverage. But it's worth asking DG these questions. THEY are your employer.

killramos
06-14-2018, 07:59 PM
Also, any advice on the $$$ negotiations, if any?

I don’t mean to be crass but if you are out of work for an extended period you aren’t exactly in a fantastic position to negotiate. I am sure whatever they are offering you is better than EI. Once you make yourself invaluable to them and prove yourself you can talk about upping compensation.

At least that’s my opinion, it’s a buyers market and you are the product.

Hero_X
06-14-2018, 08:42 PM
I don’t mean to be crass but if you are out of work for an extended period you aren’t exactly in a fantastic position to negotiate. I am sure whatever they are offering you is better than EI. Once you make yourself invaluable to them and prove yourself you can talk about upping compensation.

At least that’s my opinion, it’s a buyers market and you are the product.



You're absolutely right. I am working right now but it's nothing compared to engineering.

I guess my main concern is getting shafted in pay, due to the costs of being contractor and paying for my own insurance, moving to edmonton, etc.

I'm not trying to be ungrateful or greedy lol, i just want to make sure my situation improves.

I'd be happy with the job, i just wanted to get an idea.

firebane
06-14-2018, 10:05 PM
You have to be careful with agencies as some of them you are paid through them and work through them.

Other agencies are just a mediator and are there to find you as a contractor to pimp yourself out.

Look into this when dealing with these places as I ended up with a few offers and it was going to be a pimp myself out style.

Sugarphreak
06-14-2018, 10:22 PM
...

stillworking
06-14-2018, 10:45 PM
There is less advantages to incorporate these days, but there are 3 that are still fairly compelling;
1) You can take your wage in dividends which get taxed a bit less overall if you claim the small business tax deduction
2) Your company is a separate entity, allowing for incredible liability protection
3) It makes it much easier to work with multiple companies



+1 for the liability protection.

Also, If you set corporate year end for Jan 31 you can split any T4 income you want to claim over two calendar years to manage tax brackets.

Doing all the admin and bookkeeping is a hassle, but if the rates (EDIT: and client) are good, it is worth it.

ExtraSlow
06-15-2018, 06:36 AM
I'll add 4) you can manage the timing of your income, which is very helpful if your work is periodic or seasonal, or you like to take longer vacations.

Say you earn 100k one year, but plan a 12 month tour of Asia the next year. With SP, you pay full personal tax on the 100k. With INC, you could pay yourself 50k each year, and pay very low tax rates.

For a person with childcare expenses, and a small RRSP contribution, you pay basically zero tax under 40k or so.

HiTempguy1
06-15-2018, 02:53 PM
I'll add 4) you can manage the timing of your income, which is very helpful if your work is periodic or seasonal, or you like to take longer vacations.

Say you earn 100k one year, but plan a 12 month tour of Asia the next year. With SP, you pay full personal tax on the 100k. With INC, you could pay yourself 50k each year, and pay very low tax rates.

For a person with childcare expenses, and a small RRSP contribution, you pay basically zero tax under 40k or so.

Wow, this is super helpful to know, plus the Jan 31st year end.

My business is looking to be very seasonal. I could see going to a corp next year, so this is all very good to know.

ExtraSlow
06-15-2018, 03:52 PM
Yeah you can have any year end you want. I use Sept 30.

Hero_X
06-20-2018, 01:53 AM
Thanks everyone for all your input.

I wanted to ask few questions in regards to Design Group / contracting:

1) DG told me they will deduct CPP/EI.. is this supposed to happen? If i'm not an employee...then can they remit CPP/EI payments on my behalf? When speaking to an accountant today, she got confused as to how I would be a contractor but still having DG remit my CPP/EI.

2) For those of you who have done contractor work as sole proprietor, is it advisable to get an accountant to help ensure most savings? I spoke to an accountant today and she mentioned that regardless of going sole proprietor or INC, I would be able to claim expenses. (She gave me a list of things, as well as certain things that can only be claimed 50%). Is this really true or am just dealing with someone misinformed? (Note this was just an initial consultation).

3) For the GST remittance to government, do you guys do it at the end of the year or quarterly or..?


Thanks again for all your advice guys, means a lot to me.

ExtraSlow
06-20-2018, 06:33 AM
You need to keep talking to DG. They do this for hundreds of people, and they know exactly how this works. My suspicion is that you are an employee of DG.

As for what you can "write off" it's basically the same between sole prop and incorporated. Legit business expenses only.

killramos
06-20-2018, 06:45 AM
1 Sounds like you are a contract employee

2 Every class of capital expense has different ways it can be depreciated and claimed as expense against business income. The accountant is definitely not missinformed. You can read up on all of this on CRA website. Contrary to popular beliefs business write offs are neither a free for all nor a perk, it is intended to be for expenses you incur as part of conducting your business. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html

3 When are you charging GST? I bet this is something DG takes care of.

I agree with slow, you need to start talking to your employer (DG, or the company you are contracting to) not random people on the internet.

themack89
06-22-2018, 07:55 AM
1) DG told me they will deduct CPP/EI.. is this supposed to happen? If i'm not an employee...then can they remit CPP/EI payments on my behalf? When speaking to an accountant today, she got confused as to how I would be a contractor but still having DG remit my CPP/EI.

No. They should be ensuring you have a good standing with WCB, and making sure you have appropriate insurances. But beyond that, you have to take care of your own CPP/EI and they have nothing to do with it.
You invoice them, charge your GST, report and remit accordingly. If you pay yourself wages or a salary, then you'll do the whole CPP/EI thing on your own. No problemo.


2) For those of you who have done contractor work as sole proprietor, is it advisable to get an accountant to help ensure most savings? I spoke to an accountant today and she mentioned that regardless of going sole proprietor or INC, I would be able to claim expenses. (She gave me a list of things, as well as certain things that can only be claimed 50%). Is this really true or am just dealing with someone misinformed? (Note this was just an initial consultation).

In my experience doing the books for a small corp, accountants are mostly helpful for keeping you out of hot water with the CRA, doing things tax efficiently, and prepping your financials for an audit or review.
Generally speaking, you can do two things: write off as expense, or put on the balance sheet as an asset.

Example: Purchase new computer $5,000

Option A: Expense at $5,000.
Result: Lowers your income for the year. Pay less tax.
Other Consideration: You spent $5,000 on computer which lowers your equity on balance sheet, makes your company look worse. When you go to sell, you will have to book as misc revenue, and you'll get taxed.

Option B: Book as Capital Asset at $5,000 w/ associated depreciation or amortization expense.
Result: Improves balance sheet by bumping up assets. Do not get immediate reduced income taxation benefit.
Other Consideration: You can write off the value of some of your assets in the form of depreciation. Provides flexibility between reducing income tax and keeping balance sheet healthy / realistic.
See link: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html


3) For the GST remittance to government, do you guys do it at the end of the year or quarterly or..?

You can change your GST Remittance info. To find your default remitting information, you should login to your CRA Account, or give them a call.
GST-20 Form - Change your reporting period. https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/gst20/gst20-18e.pdf
GST-70 Form - Change your fiscal year. https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/gst70/gst70-15e.pdf


Am I credible? I do the books, payroll, financing, and work with my accountant for my earthworks company.

lasimmon
06-22-2018, 09:22 AM
Sounds like you are an employee of DG and they have the contract with the company.

This is very common.

Hero_X
06-22-2018, 09:53 AM
Thanks everyone!

ExtraSlow
06-22-2018, 10:02 AM
Sounds like you are an employee of DG and they have the contract with the company.

This is very common.

and very easy for you. No hassle.

Jlude
06-22-2018, 11:03 AM
1. If they're deducting everything, then you're not a contractor. Figure it out.

2. I didn't read the thread, but where do you plan to go with this? Are you going to stay with this one company, or contract to others, but never one at a time? Or are you going to be expanding and possibly growing this company? I don't know how much you're making, but if it's low-mid 6 figures, you should setup a holding company, transfer shares of your DB contracting company to the holding company. Setup another company owned by the holding company also for other stuff. Holding company should have an investment portfolio that you transfer your profits/savings into at a low tax % and the other companies can contain various things. Setup another company, sell that company your house and rent it back to your consulting company. You're now writing almost 100% off, even your food. Start saving every receipt!

I probably just took that too far, but hopefully you get the picture.

3) Do it on time, because the gov will charge a vig. If you have self control and are talking large enough amounts, you can put it in the portfolio, safely clip 5% and then pay your taxes when you need to. Just starting out, pay your taxes quarterly.



Thanks everyone for all your input.

I wanted to ask few questions in regards to Design Group / contracting:

1) DG told me they will deduct CPP/EI.. is this supposed to happen? If i'm not an employee...then can they remit CPP/EI payments on my behalf? When speaking to an accountant today, she got confused as to how I would be a contractor but still having DG remit my CPP/EI.

2) For those of you who have done contractor work as sole proprietor, is it advisable to get an accountant to help ensure most savings? I spoke to an accountant today and she mentioned that regardless of going sole proprietor or INC, I would be able to claim expenses. (She gave me a list of things, as well as certain things that can only be claimed 50%). Is this really true or am just dealing with someone misinformed? (Note this was just an initial consultation).

3) For the GST remittance to government, do you guys do it at the end of the year or quarterly or..?


Thanks again for all your advice guys, means a lot to me.