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Thread: contractor vs. employee

  1. #1
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    Default contractor vs. employee

    i have recently been offered a job at a engineering company. they asked me if i want to be an employee or contractor. i have been employee at my current job for more than 6 years. i dont know much about the pros and cons of being a contractor other than you can save a lot of tax.
    i asked the new company if i want to be a contractor how much would they pay me more and they told me that they have a formula to calculate the difference and they will offer me 13% more than that what they offer me as an employee.

    Question: is 13% more to work as a contractor rather than employee is reasonable or low?

    to me 13% seems low. i dont know how much more should I ask for. I dont know what is their formula. the health etc. benefit they are offering me are shit. a contractor at my current job once told me that the base salary difference between an employee and a contractor should at least be 25%-30%. i dont know if it is true or not.
    what is your experience/opnion? how much more should i ask if i want to be a contractor rather than an employee? pros and cons of employee vs. contractor?
    Thanks

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    One big question is, are you responsible with money?
    Also are you able to save money easily?
    Do you mind doing paper work ie. Gst payments, writing yourself cheques, deposit slips etc..
    Are you organized?

    If you said yes to all those then i'd go contract, but if you have a family and need benefits, go employee. Unless your wife or something has them.

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    i would say contract if you make more money then you need to live your life style of choice and are in the top tax bracket as an employee. since as a contractor you can pay yourself whatever you want, leave the rest in the company to grow in investments and when you want to make a large purchase you can just pay yourself a dividend at a lower tax rate.

    you can also write off a lot more stuff too.... but if you are not working, you are not getting paid (vacation, sick, etc)

    so yeah i would say 13% is a little on the low end. speaking from what i know about my old man's contract work i would say he is at about 30% more then he would be as an employee

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    I know at Suncor they pay about 30% more to contractors because they have a really generous benefits package. They are willing to pay 30% extra to avoid the hassles to doing paperwork, legal reasons and also commitment(training) reasons and many other reasons I can't think of right now.

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    Do you plan on getting a mortgage soon? Way easier to get money from a bank if you are employed verses working for yourself. For only 13%, I'd say be an employee.

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    13% is BS

    The minimum I've ever seen was 15%.

    As said above, if you need health benefits for your family or stuff like that, then no.

    Usually people go on contract because the rate of pay is much, much higher.

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    Originally posted by Jlude
    Usually people go on contract because the rate of pay is much, much higher.
    for some roles in calgary, the contract rate is 100% higher than employee salary...
    heloc that shit

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    employee rate (taxed)
    vs
    rate + 13% un-taxed.

    The amount of tax you'll have to take off at the end of the year for being a contractor will exceed 13%. So you'll be in the hole?

    Sure you can write-off a lot more, so it might work itself out, but 13% does seem awfully low.

    In the IT industry, I've seen a huge gap in salaried pay vs, hourly rate. They make up the difference, as usually there is no health/financial benefits. They have to make up for the difference in the rate for contractors.

    I think your age/financial commitments/dependants has a lot to play in it as well. Do you need to have benefits for family, etc? Or are you on your own. Young, on your own? Probably far less of a risk that you'll need to pay $1000 a tooth for crowns, yada yada..

    B

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    When I went from being and employee to consulting for the company I was laid off from I took a 40% pay increase. I lost out on benefits and it takes a little more "offline" time to keep your books in order but it's a pretty good gig besides that.

    For 13% I would probaby stick with Salary. when times get tough, consultants are the first out the door.

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    Originally posted by dr_jared88
    Do you plan on getting a mortgage soon? Way easier to get money from a bank if you are employed verses working for yourself. For only 13%, I'd say be an employee.
    Not true, just go through a broker who knows how to get contractors approved! But ya, kinda true cause the bank wont even give me a $5000 loan even though i have good credit and make a lot of money. They say i'm liable because im a contractor. pretty frustrating. I even got approved for a mortgage on my own

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    Unless your contract states otherwise, contractors don't get paid for Stat holidays (Easter, Christmas ...) or earn holiday pay. Contractors also don't qualify for severence pay.

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    Originally posted by Afrodeziak
    employee rate (taxed)
    vs
    rate + 13% un-taxed.

    The amount of tax you'll have to take off at the end of the year for being a contractor will exceed 13%. So you'll be in the hole?

    Sure you can write-off a lot more, so it might work itself out, but 13% does seem awfully low.

    In the IT industry, I've seen a huge gap in salaried pay vs, hourly rate. They make up the difference, as usually there is no health/financial benefits. They have to make up for the difference in the rate for contractors.

    I think your age/financial commitments/dependants has a lot to play in it as well. Do you need to have benefits for family, etc? Or are you on your own. Young, on your own? Probably far less of a risk that you'll need to pay $1000 a tooth for crowns, yada yada..

    B
    yes i do have wife and kids but with no serious health concerns. the benifits new company is offering me are not that great. I dont know if I can get any medical insurance when working as a contractor. I believe there are options available to contractors but may be at much higher rate than what I can get as an employee.
    financially responsible - i am kind of financially responsible. dont usually waste my money on useless things. i have a reasonable living standard not too high not too low but somewhere in the middle. i can manage paper work related to being a contractor. i dont know how much an accountant will cost me if i need to do my taxes.
    i do agree that 13% seems too low to me as well. i dont see any benifit going contract in this situation.
    I know most of the people doing the similar kind of jobs as I do working as contractors do have dependents as well.
    in my case though my wife stays home and not planning to go back to work for at least 2 more years. so no other option of having health benifits for sometime.

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    top tier health insurance through Blue Cross will run you in the area of $160/month for family coverage. It's really not that expensive so just calculate it as a % of what your pay rate would be. 4% for vacation pay, are you losing out on any RRSP/ESPP contributions?

    Tax benefits as a contractor get negated if you have to pull all of the money out of the company anyways. 13% is low
    heloc that shit

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    Another reason why contractors are paid much higher is because you're basically a gun for hire. They can cut you loose without having to do any paperwork or without any legal obligation.

    I've seen some huge gaps in employee rates/contract rates as well. I've never seen 100%, but 40-50% is pretty common in large EPC companies.

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    k can you guys explain this to me, im having this same issue now...

    If i make $xx as a contractor, how much more should i make as an employee? i really don't understand, i've never been an employee. Say i make $41 an hour, i calculated $55 to be about the same as an employee?? so baout 35% diff? fuck im confused lol...

    Like how are contractor paid more when they get taxed less? wtf am i missing here...

    am i right backwards here?! fuck!
    Last edited by JfuckinC; 05-07-2010 at 01:54 PM.

  16. #16
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    Originally posted by JfuckinC
    k can you guys explain this to me, im having this same issue now...

    If i make $xx as a contractor, how much more should i make as an employee? i really don't understand, i've never been an employee. Say i make $41 an hour, i calculated $55 to be about the same as an employee?? so baout 35% diff? fuck im confused lol...

    Like how are contractor paid more when they get taxed less? wtf am i missing here...

    am i right backwards here?! fuck!
    There is no set "if I make XXXX as an employee I will get XXXX as a contractor". It is based on the value of what you give up when you're a contractor; typically benefits, training, security, administrative costs, etc. Each of these items vary from company to company and there is a large amount of flexibility between each company as well based on whether they prefer to deal with contractors or employees. Basically they are willing to pay more to a contractor because it costs the company less per contractor than per employee.

    As for the OPs question; in my opinion since you are the sole provider, have children and they are only offering a 13% difference in rates I would recommend you sign as an employee.

  17. #17
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    When I went contractor a few years back I found out my average hourly salary and doubled it.

    That has been my contract rate for the last 2 years.

    Probably will increase it when my current contract expires.


    Back to OP's question...for 13% I would sign as employee.
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    Why do contractors get paid more? if i went employee at my current rate id take a $8000 pay cut for my after tax income...? benefits are no way worth 8g's.

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    Originally posted by JfuckinC
    Why do contractors get paid more? if i went employee at my current rate id take a $8000 pay cut for my after tax income...? benefits are no way worth 8g's.
    Again it really depends on the company; benefits and other perks can easily top $8000 at some company's and then you also have to take into consideration the extra costs a contractor incurs for tax preparation, etc. You also have to consider pensions at a lot of company's. Whether or not these items are as valuable (or more valuable) than a higher hourly wage is based mostly on personal preference and personal situation.

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    Alright, thanks man. I'm trying my best to wrap my head around this haha.. it's crazyyyy

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