Personal Finance

Be on payroll vs be self employed

  • Last Updated:
  • Aug 15th, 2017 10:36 am
[OP]
Newbie
Mar 8, 2017
74 posts
9 upvotes

Be on payroll vs be self employed

What is better to be on payroll or be registered as self employed. Please, explain to newbie) Annual income 45,000
13 replies
Sr. Member
Oct 11, 2010
993 posts
337 upvotes
Charlottetown
In most cases this is not really a choice that you get to make. The cra has stipulations to determine whether or not you're employed by a company or self employed.

I have been self employed and work online from home for the past 10 years. It has pros and cons, most of the cons come from working from home (being in the same environment all the time, not having face to face interactions etc). In terms of taxes it is a bit more involved, firstly it takes longer to do taxes and then you have things like CPP where I have to pay the max amount (both ends) because employer would normally cover half. Got to pay tax installment payments every quarter. Up until a few years ago it was also not possible for self employed to get EI benefits, they recently started allowing you to pay in to quality for EI benefits but the payments obviously eat at your bottom line and it could be more difficult to prove your employment status too. Getting a mortgage is more difficult and requires a lot of running around, I had to get many years of tax returns, letter from employer and a bunch of other stuff to quality while my wife with a Gov job simply had to take in a T4. Then of course there are other things like benefits, health, dental, insurance, employer matching investments etc. that you may not qualify for if self employed. In *most* cases it does not make sense to be self employed unless you are making a good amount of money to offset the negatives
Last edited by jfall on Aug 14th, 2017 1:13 pm, edited 3 times in total.
Deal Guru
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Mar 23, 2008
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Edmonton
You need to be more specific about "better"...

C
Deal Guru
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That article is 4 years old, and with the push by the CRA to flag companies as a PSB, the relevancy is questionable. But since we don't know what the OP had in mind (what does "self employed" mean? Contractor? Running a retail shop? Selling eBay stuff?), it's hard to tell...

C
Deal Addict
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Apr 23, 2009
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Agree, need more info from OP. Strange that OP would post a one line question like that w/o any info. That too a tax advise question.
CNeufeld wrote: That article is 4 years old, and with the push by the CRA to flag companies as a PSB, the relevancy is questionable. But since we don't know what the OP had in mind (what does "self employed" mean? Contractor? Running a retail shop? Selling eBay stuff?), it's hard to tell...

C
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[OP]
Newbie
Mar 8, 2017
74 posts
9 upvotes
I am working on a payroll of construction company. And want to get some info is it better to keep working on their payroll or become a contractor.
Member
Feb 13, 2015
219 posts
81 upvotes
Toronto
Hanna123 wrote: I am working on a payroll of construction company. And want to get some info is it better to keep working on their payroll or become a contractor.
depends on the work you do. i would suggest if you mostly do desk work, stay a contractor and take dividends. if you are doing labor (chances of needing insurance etc. etc.), go on payroll. it also depends on any other income you may be happening to earn, age, family situation etc.
Deal Guru
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Mar 23, 2008
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Hanna123 wrote: I am working on a payroll of construction company. And want to get some info is it better to keep working on their payroll or become a contractor.
So you would do the same job, but be a contractor to them rather than an employee?

The CRA is cracking down on PSB's. There's been a number of threads in here. They're also cracking down on really small businesses trying to do things like income splitting, etc. In the end, the take-home amount you get as a sole proprietor or a single employee corporation working for a single client is about the same as if you were an employee making the same amount of money.

You might make more money as a contractor, which is great. But you likely won't get paid holidays or benefits. Training/career growth is your problem, not your companies (i.e. don't expect to go off-site to get updated training). Sick days, etc. also go away, so you'll need to invest in short term/long term disability. You may not qualify for EI.

All that needs to be taken into account when you decide if a contractor is worth considering. For me, I get about 50% more doing contract work compared to full-time employment, so it works out. If it was only a 25% increase, I'd look much more closely at the full-time employment.

C
Deal Fanatic
Dec 16, 2005
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at 45k, it doesn't really matter much.

the main benefits of being "self employed" is to reduce/control your salary to move it into a lower tax bracket.
Since you make only $45k you are already in the lowest tax bracket. It is not worth the headache.
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Feb 19, 2010
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sahiljain22 wrote: depends on the work you do. i would suggest if you mostly do desk work, stay a contractor and take dividends. if you are doing labor (chances of needing insurance etc. etc.), go on payroll. it also depends on any other income you may be happening to earn, age, family situation etc.
A payroll clerk making $45K isn't going to incorporate to take your advice.

And while OP hasn't provided many details, it's unlikely that contracting would be a viable option from CRA's perspective anyway.
[OP]
Newbie
Mar 8, 2017
74 posts
9 upvotes
Many people talking how they write off expenses and pay small amounts of taxed because of it, saying that it much better be self employed cuz I almost not paying anything. I am new to Canada that is why I got confused (
Deal Addict
Jan 20, 2016
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Houston, TX
Hanna123 wrote: Many people talking how they write off expenses and pay small amounts of taxed because of it, saying that it much better be self employed cuz I almost not paying anything. I am new to Canada that is why I got confused (
As being said, with 45k gross income (you do not have any other source of income, do you?) you hardly can lower taxes as they already quite low. Do not forget going to self-employed and to " write off expenses" usually requires accountant and their price to file taxes in such cases cost MUCH more than for payroll ppl (smth like $500 vs $50) and that's alone could eat any savings. Besides other drawback being self-employed.
I'd say 80k+ with 20%+ difference in compensation you can START to think about switching to self-employed. On 45k , getting SAME payment as payroll - I'd doubt it
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Hanna123 wrote: Many people talking how they write off expenses and pay small amounts of taxed because of it, saying that it much better be self employed cuz I almost not paying anything. I am new to Canada that is why I got confused (
Some people write off expenses, but some people also get audited and caught (and have to pay penalties and interest).

First off, as I said earlier, the government is cutting back on single contractor corporations, and the tax benefits of them. They're being classified as Personal Service Businesses, which basically means they have the same tax deductions as employees (http://agtax.ca/cra/personal-services-b ... orporation).

Second, as mentioned above, you lose many benefits by becoming a contractor rather than employee. No more paid holidays (no work = no pay). No more paid sick days or any other time off. You're responsible for your own CPP payments. You have to keep track of your own finances, taxes, and bookkeeping.

C

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