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Question about incorporating vs staying as Sole for Contract IT Roles

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  • Feb 10th, 2019 2:53 pm
[OP]
Deal Guru
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Dec 23, 2003
12758 posts
1559 upvotes
Toronto

Question about incorporating vs staying as Sole for Contract IT Roles

I got laid off from my current full-time job and am considering taking contract roles. I did notice that Inc. people can command a higher rate and wanted to know your feedback if it is worthwhile getting incorporated for a 1 person company in an IT role. The annual salary would be around $100K to $120K

Thanks
6 replies
Deal Fanatic
Jan 27, 2006
9850 posts
3702 upvotes
Vancouver, BC
Sorry to hear about your layoff - hopefully, you got a good package.

When I was thinking about the same, various agencies told me that the higher rate is because there's less work for the agency being the middle man - ie company pays them, they pay you like an employee so they will have to hold back the various things like holiday/vacation pay. If you speak to those recruiters, none of those agencies want to do that work would rather run as a pass through. The extra work cost those agency resources so they charge you for it. I don't believe the agency makes any extra off of you as if they did, they wouldn't want you to be incorporated.

As far as what's it worth to incorporate, a few agencies told me that for any position getting more than $50,000 per year, it's in the contractors best interest to incorporate. Of course, that would mean understanding the additional requirements and such but most agencies are more than willing to provide you with a cheat sheet to do that. One thing I did find was some agencies were bare bones - ie pointed you in the right direction for things like insurance and the like, while others may provide you with some resources if you get the contract (ie. insurance provided).
Member
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Apr 28, 2011
236 posts
152 upvotes
I was in the exact same situation as you. Had I not incorporated, the agency would have taken a cut of the hourly rate. If you're willing to do the extra work for incorporating then it's definitely worth it (assuming a higher pay rate).
Member
Jul 1, 2017
233 posts
129 upvotes
hightech wrote:
Feb 9th, 2019 5:45 pm
Yes, there are tax advantages, but the big concern I have is getting classified as a Personal Service Business by the CRA. If that happens, you get royally screwed.
No, that's not correct at all. The advisement I've given all my friends whom have the ability to incorporate and contract their services is to do it so long as the income is stable.

It costs nothing to incorporate yourself and, in the IT world, you have a lot of opportunities as more small organizations (<$10mm revenue) are outsourcing their IT these days than ever before. I run Finance and IT for my company; shoot me a PM and I can give you some good advisement.
Deal Fanatic
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Mar 23, 2008
7981 posts
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Edmonton
I’ve gone from being an employed software developer to an employee consultant to independent contractor. PM me if you want more info.

The money is considerably better, like > 50%. In September, i interviewed at a number of companies when my contract was coming up for renewal, so I have a pretty good idea what my value is as both a contractor and employee.

The drawback is you’re the only one who’s really concerned about your wallet or career. No paid time off, no benefits, etc. No mentors helping you pick a path through your current company.

Anyway, I’ve been doing the contract work for about the last 8 years, and only incorporated last year. Give me a shout if you have questions.

C
Deal Fanatic
Jan 27, 2006
9850 posts
3702 upvotes
Vancouver, BC
hightech wrote:
Feb 9th, 2019 5:45 pm
Yes, there are tax advantages, but the big concern I have is getting classified as a Personal Service Business by the CRA. If that happens, you get royally screwed.
From what I've read on the subject about PSBs, you just need to be able to demonstrate that you are not just working for party 'X' but are open to work for party 'Y' and 'Z'. The CRA is just concerned about those companies that have full time employees on a long term basis but are using them as contractors. If you can demonstrate that you aren't a full time employee (ie apply for other contracts and hopefully win one or two), then you should be fine.

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