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IT Contractor vs. full time, contract considerations?

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  • Aug 10th, 2021 11:11 am
[OP]
Sr. Member
User avatar
Nov 15, 2016
501 posts
418 upvotes

IT Contractor vs. full time, contract considerations?

I have a very interesting situation and moving onto an IT contractor route working for US companies. I have meetings setup with my accountants and lawyers next week and posting to get some advice from other contractors. Here is where I currently stand:

Current Role - 200k + benefits, rrsp match 2%, typical corporate benefits
Offer - 250-260k, 1099 employee for Client, manage my own benefits/Rrrsp etc. Contract is open ended, no end timeline

These are fairly accurate number ranges for offers. I had initially thought of going Incorporated, but realized quickly that working for 1 client and using their laptop would result in Corp being labeled "PSB (personal service business). So I've decided to go Sole Prop as that will open up the ability to work with many companies within the US, although taxes will take a hit, but that's a cost of business if I want to work for one company for extended periods of time. My question to RFD is when considering a contractor route, how did you approach it and what were some considerations around the employment agreements?

What have you learned going contractor route? In my agreement, it would be an open contract, no defined end of contract. Essentially what's occurring is I'm removing my middle-man consulting company and going direct-contract. I've calculated extended care, benefits, CPP/EI payments, taxes and do come out farther ahead. Any other considerations I might need to factor is appreciated. I understand my lawyers/accounting teams will cover the bulk of these questions. However, as with any important decision, I like being prepared and have conducted a lot of research, looking for some personal experiences from others who've gone this route.
2 replies
Jr. Member
Feb 29, 2012
131 posts
20 upvotes
Trenton
As someone whose gone this route, you have a few different options in your favor. If you go contractor, I'd definitely ask if the company can do Payroll/HR through a Canada PEO (professionals employment org, Ceredian is a common one US companies use). These companies act as intermediaries for US companies and handle all the backend hr/payroll, CPP/EI, RRSP deductions. There is a slight fee on both ends but given your making well over $250k, you'd come out farther ahead than current role/offer. Most US tech based companies I've dealt with are in favor of this route as this also provides yourself with a full employment record and in the event you need EI/unemployment or mortgage for a house/investment, it becomes much easier. The only downside is the slight fees (believe its 10-15%) and the inability for tax write-offs if you were operating a business being a contractor (sole prop, Incorporated). If you decide to go the later route (sole prop/inc), be sure to have a very good accountant/lawyers. You will need to structure your MSA/ICA agreement to reduce the liability of being classified as an "employee" by the CRA. There's a employee-test that comes into play, hence, why I suggest the PEO route as most US companies are open to this option.

Good problems to have though and sounds like you've done some research to be prepared for the conversations with accountants/lawyers. Definitely have a look into PEO for your client offer, feel free to DM or ask anything else, I work remote for a US company and went similar route
[OP]
Sr. Member
User avatar
Nov 15, 2016
501 posts
418 upvotes
jark99 wrote: As someone whose gone this route, you have a few different options in your favor. If you go contractor, I'd definitely ask if the company can do Payroll/HR through a Canada PEO (professionals employment org, Ceredian is a common one US companies use). These companies act as intermediaries for US companies and handle all the backend hr/payroll, CPP/EI, RRSP deductions. There is a slight fee on both ends but given your making well over $250k, you'd come out farther ahead than current role/offer. Most US tech based companies I've dealt with are in favor of this route as this also provides yourself with a full employment record and in the event you need EI/unemployment or mortgage for a house/investment, it becomes much easier. The only downside is the slight fees (believe its 10-15%) and the inability for tax write-offs if you were operating a business being a contractor (sole prop, Incorporated). If you decide to go the later route (sole prop/inc), be sure to have a very good accountant/lawyers. You will need to structure your MSA/ICA agreement to reduce the liability of being classified as an "employee" by the CRA. There's a employee-test that comes into play, hence, why I suggest the PEO route as most US companies are open to this option.

Good problems to have though and sounds like you've done some research to be prepared for the conversations with accountants/lawyers. Definitely have a look into PEO for your client offer, feel free to DM or ask anything else, I work remote for a US company and went similar route
Thanks for some tips, I do recall "PEO" coming up a lot during my research. That is something I will ask the client, I believe they have PEOs setup for other countries, so Canada should be relatively easy. Your points around the employee test is something that I'm concerned about if I go the contractor route and setup a business, then be labelled as a "PSB". I'll talk to my accountant and see how we'd structure out this deal, leaning to the PEO setup as it's advantageous from all sides (both employers + myself).

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