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The Hitchhiker's Guide to Contracting?

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[OP]
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Jan 27, 2006
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The Hitchhiker's Guide to Contracting?

After years of being an employee for large firms, the time has come in my professional life for me to start looking at becoming a contractor. Since I'm new to the contracting game, what are some good links or websites for me to review in terms of contracting (ie best practices, pitfalls, common mistakes...)?
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Feb 9, 2009
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It all depends what exactly do you want to do as a self-employed contractor, if that's what you mean? But if you mean to be placed in a position at a large company as a contractor through an employment agency, which will in turn report and tax you as their employee for the time you are still in that placement, its a different game and rules. Winking Face
[OP]
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Basically, project management in the healthcare IT field.
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I guess that would put you in the 2nd category in the above classification, since one can hardly come to a hospital and offer his independent IT services. They're likely to work with a known IT firm, since privacy matters may be involved, may result in costly law suites, and require not only NDA, but also some certainty in it, and a team. So a possible action plan would be to send your resume to employment agencies specialized in IT firms staffing stressing your experience. If I were looking for such job, I may also visit some dental and eye care private clinics in the area to get some sense if this is the right avenue and what can it bring, since they generate good revenue (check best review & new places 1st) and are less bureaucratic compare to hospitals.

As to pitfalls, if a placement site supervisor doesn't like you for whatever reason, the placement agency would just repeat their words whether true or false and let you go, may not even offer you a 2nd site. Winking Face On a plus side, placement agency may offer some limited health care benefits, but I wouldn't put much value to this. Another plus is you can keep verifiable experience record, which is important when looking for a next contract.
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Jan 19, 2007
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craftsman wrote: Basically, project management in the healthcare IT field.
That's an interesting topic as well for me as there's similar line of thinking and I am similar field and like to hear what the wisdom of the forum sais.
Relevant topic: sole prop vs. incorporated, going though agency or not (pros /cons), different options to handle benefits and EI, what are tax-deductible expenses to be aware and what's not.

Staying tuned.
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Nov 2, 2013
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Depends on the sector obviously, but some general considerations:

- Sole prop vs. incorporated:

Sole prop. is cheaper, more simple, less paperwork. But doesn't come with the limited liability, tax deferral, share issue potential, and income flexibility (pay yourself mileage instead of using direct vehicle expense writeoffs, income splitting, tax deferral, can pay salary or dividends, etc.) of a corporation. Some industries will also (usually) only let you get WCB if you're incorporated, like trucking in my case. See that a lot in trades where liability is potentially a larger issue.

Taxes, paperwork, and record keeping are a lot more complicated with a corporation. The salary vs. dividend option that opens up though allows you to choose whether you want to pay into EI and CPP, and use personal tax credits. Dividends are also taxed at a more favourable rate once you're in the upper tax brackets.

Generally though most people want to be incorporated for limited liability (separate personal assets from business), defer tax, and to income split.

In my case I had to be incorporated to do business, as clients required proof of WCB, and I couldn't have WCB for trucking without being incorporated. I also am in upper tax brackets so the beneficial income splitting potential is there, and have almost 0 personal tax credits outside education, so the corporate route made more sense.

- Agencies

You'll often make less money since the agency takes their cut from the pay the customer is budgeting for you. But it's a lot less legwork to look for work. For industries where there is a lot of work and you're a hustler (like my case), there is little incentive to find an agency. Obviously for more white collar roles where work is more "sticky" and you don't know the right people otherwise, an agency may help.

- Contractor vs. employee

As an employee you have your employer paying into your vacation pay (+4+% or 2 weeks+/yr), benefits, WCB, 1/2 of your CPP, and a portion of your EI contributions for you, and doing your employment paperwork. Though in reality employers embed this cost into their budgets, so you make less money. You also have few tax writeoffs in comparison to doing business. Contractors also have less rights than employees, though they are more flexible. If my client pisses me off, I can just take off- and the cost to the client is lower than if I were an employee, as there are less formalities involved. Finding another client is easier than finding another employer, as the process of it getting me work is less formal and expensive. In essence the additional net income you make from being a contractor is the compensation you take for the additional risk.

When you try to get credit, banks shun business owners so they will give you a harder time. In most cases you have to show 2 past Notice of Assessments as proof of income, and a record of doing work in the same industry. So you might find yourself waiting <=2 years just to get a piece of credit you need. Income splitting will also dramatically crush your chances, as you're reducing your income. Business writeoffs also work against your net income for credit purposes, so you may find yourself in situations where you're purposely paying the govt. more tax just to show a higher net income (Line 150) for qualification purposes- negating the advantage of being a contractor.

Lenders often prefer the salaried employee who usually doesn't ever make money, but consistently enough in a satisfactory amount, to enslave indefinitely in debt. Make enough to keep paying the bank, but not enough to stop paying the bank. In strict financial perspective, it is lower risk. From a psychological perspective, the typical bank employee often is usually a finance/economics/BA student who once had a dream of being a "glorious" investment banker or had other similar big dreams, and sees risk takers (business owners and investors) as sinners as they feel they "know the reality" of the financial world, and sometimes just out of strict jealousy. Many of them actually don't want to be there, but are there just for the perceived stability of a currently consistent employee paycheque. So, it's not uncommon to run into some douche underwriter that thinks its your Mom and will give you grief.

The difference in getting investment funds can sometimes mean getting into a potential investment or not, and hence there's the opportunity cost of losing out on such opportunity. Usually it's real estate, as lenders are becoming stickier about it year after year lately.
e.g. You may save $10,000 over a year in tax from being a contractor, but you may lose out on an investment opportunity that earns you $25,000 over that year.
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Feb 9, 2009
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@FirstGear

Useful post and interesting blog... "I went through some bad women who interfered with my studies and morale." :) "but a Ferrari, even if more distant, is more rewarding" - not necessarily. Want to try something more spiritual to enhance your inner being?

Still not clear, who prevents you in 25 from finishing university studies you started, and what's wrong with being well educated and having a degree? Luck of will? How it can possibly obstruct you from succeeding in your investment endeavors?
[OP]
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Jan 27, 2006
16854 posts
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arnycus wrote: I guess that would put you in the 2nd category in the above classification, since one can hardly come to a hospital and offer his independent IT services. They're likely to work with a known IT firm, since privacy matters may be involved, may result in costly law suites, and require not only NDA, but also some certainty in it, and a team. So a possible action plan would be to send your resume to employment agencies specialized in IT firms staffing stressing your experience. If I were looking for such job, I may also visit some dental and eye care private clinics in the area to get some sense if this is the right avenue and what can it bring, since they generate good revenue (check best review & new places 1st) and are less bureaucratic compare to hospitals.

As to pitfalls, if a placement site supervisor doesn't like you for whatever reason, the placement agency would just repeat their words whether true or false and let you go, may not even offer you a 2nd site. Winking Face On a plus side, placement agency may offer some limited health care benefits, but I wouldn't put much value to this. Another plus is you can keep verifiable experience record, which is important when looking for a next contract.
Actually, both avenues are open as I have a large amount of experience in healthcare IT and a specialized field of healthcare IT to boot. Small clinics are outside the range of my expertise... think major trauma centres and hospital chains with multi-million dollar budget projects and programs.

As I look around, most placement centres work on a sub-contract basis meaning that the employer contracts out to the agency and then the agency contracts out to you as an independent contractor. I've only found one agency that treats you as an employee but they take a bigger cut off the top (3 to 5%) but provide you with Holiday and vacation pay with no other benefits,
[OP]
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Jan 27, 2006
16854 posts
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Vancouver, BC
FirstGear wrote: Depends on the sector obviously, but some general considerations:

- Sole prop vs. incorporated:

Sole prop. is cheaper, more simple, less paperwork. But doesn't come with the limited liability, tax deferral, share issue potential, and income flexibility (pay yourself mileage instead of using direct vehicle expense writeoffs, income splitting, tax deferral, can pay salary or dividends, etc.) of a corporation. Some industries will also (usually) only let you get WCB if you're incorporated, like trucking in my case. See that a lot in trades where liability is potentially a larger issue.

Taxes, paperwork, and record keeping are a lot more complicated with a corporation. The salary vs. dividend option that opens up though allows you to choose whether you want to pay into EI and CPP, and use personal tax credits. Dividends are also taxed at a more favourable rate once you're in the upper tax brackets.

Generally though most people want to be incorporated for limited liability (separate personal assets from business), defer tax, and to income split.

In my case I had to be incorporated to do business, as clients required proof of WCB, and I couldn't have WCB for trucking without being incorporated. I also am in upper tax brackets so the beneficial income splitting potential is there, and have almost 0 personal tax credits outside education, so the corporate route made more sense.
All of the agencies I've contacted recommended against Sole Prop. They all said that Incorporated was the way to do. I think some of them won't even deal with Sole prop...
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craftsman wrote: I think some of them won't even deal with Sole prop...
Its interesting how temp workers supply industry evolves. Before they were giving out "self-employed" checks mostly to blue collar workers, since after all deductions there was near nothing to take home otherwise. Now they seems to offer the same deals to white collars, at least in certain professions as you say. But the pay is different, and it would be risky for them to hand over high enough gross checks to Sole Props, because in many provinces it doesn't require registration. But Inc always requires registration, and hence NDA, tax pay, and other components of such deals can be safer maintained, easier to trace or prove for an agency to labor and tax inspectors. Did they give you any detail reasons why exactly they prefer Incs?
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Nov 2, 2013
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arnycus wrote: Its interesting how temp workers supply industry evolves. Before they were giving out "self-employed" checks mostly to blue collar workers, since after all deductions there was near nothing to take home otherwise. Now they seems to offer the same deals to white collars, at least in certain professions as you say. But the pay is different, and it would be risky for them to hand over high enough gross checks to Sole Props, because in many provinces it doesn't require registration. But Inc always requires registration, and hence NDA, tax pay, and other components of such deals can be safer maintained, easier to trace or prove for an agency to labor and tax inspectors. Did they give you any detail reasons why exactly they prefer Incs?
Some industries just won't even take you without being incorporated, and WCB won't cover you if you are not (and your clients want to see you have wcb). Liability issue usually, especially if you work in a "risky" industry where lawsuits are common. The paper trail is usually the other reason. I had places that wouldn't write personal cheques to sole props.

For me incorporation was the only way I could do business.
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[OP]
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Jan 27, 2006
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Vancouver, BC
arnycus wrote: Its interesting how temp workers supply industry evolves. Before they were giving out "self-employed" checks mostly to blue collar workers, since after all deductions there was near nothing to take home otherwise. Now they seems to offer the same deals to white collars, at least in certain professions as you say. But the pay is different, and it would be risky for them to hand over high enough gross checks to Sole Props, because in many provinces it doesn't require registration. But Inc always requires registration, and hence NDA, tax pay, and other components of such deals can be safer maintained, easier to trace or prove for an agency to labor and tax inspectors. Did they give you any detail reasons why exactly they prefer Incs?
They basically boiled it down to it's better for the contractor due to the better tax treatment of the pay and the ability to write off things that you wouldn't normally be able to write off. Also as FirstGear said, it's easier for most firms to write cheques to other firms rather than sole props.

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