CP Brain Trust: Being a Contractor

[Duruss]

So in the last crazy week I had a leap before you look moment about becoming a private contractor. Now that I have had a moment to think I have realized there are a number of things I don't know.

Now this situation is with someone who is trying to put together a tender, where I would invoice them for my hours and or supplies purchased. Now there are lots of details of the contract that I would subcontract under that I don't know. What I do know is that I would be paid around 35 to 40 an hour for 40 hours per week. No medical or vacation pay obviously and I could expense some of my vehicle costs.

Anyways I have some general questions that I am hoping can give me an idea of whether or not this is worth it.
1. Do I need to register for and collect GST
2. How do I pay/budget for CPP/EI and income tax
3. Do I need liability insurance
4. Do I need disability insurance
5. What book keeping do I need to do

Thanks for any input.

[Sylvanfan]

What type of work? The cra website will be able to help you out a lot.

I contracted for a year in the late 90's, I think if you collected less than 30 grand a year in revenue that you didn't need a GST number at that time. If you collected a certain amount than you have to remit taxes quarterly. Others who are more current can help you out.

In terms of insurance that's your call. Liability I think is a good idea depending on your risk. Medical, life disability...depends entirely on your personal situation.

Book keeping depends on if you have employees, or how much you write off. Mine was as easy as it got, one employee me, and customers who paid the invoices.

[AcGold]

I was a contractor for a while. My biggest piece of advice is this; in quoting and deciding which jobs you take on quote high, allot extra time for unexpected problems (they always happen) and do jobs to near perfection or the best of your ability.

Do not quote low just to get work and take on multiple jobs at a time if you aren't ready. This is how you lose money. Clean yourself up and look very trustworthy as this is a massive issue for most customers/clients. It's much better to have one huge job that takes a week or more for a lot of money that you can focus most of your energy on.

You sell your face and your honesty, your work should be assumed as high quality and any customer complaints are treated as help towards these expectations. Do it right and you will have a network that gives you work because of your trustworthiness and high quality expectations.

[Duruss]

The work is mechanical/electrical and some software/network maintenance for a large high traffic organization. The bid that I would be subcontracted under is the client organizations second biggest revenue generator. I am not submitting the bid myself, the prime contractor is trying to budget for 35-40 an hour. And considering the size of the client there is no way I can not get the insurance, as they likely wouldn't allow me onsite without it.

Found out that the CPP contributions are 9.9% of my income after expenses. Plus I do have to collect GST after the first 30000.00 in revenue.

[GGG]

If you are comparing it to a salary or straight hourly role you need a pretty big mark up on your wage to make it worth it.

A salaried position will include 6% to 8% vacation, 3k for cpp/ei, 2% sick leave, 2-5% health/dental, x% rsps. So just to break even on a benefit package you need to be earning 20% more then tbe salaried rate.

[Smartcar]

It depends on your situation, you trade off a steady income against independence and ability to spend time on work as you choose. Although it sounds like you'll be expected to work office hours like an employee.

As a contractor you can write off expenses that you can't as an employee (eg. mileage to get to the jobsite, whereas an employee doesn't get to expense going to and from work). Whether or not you have to charge GST is irrelevant unless you're working for private individuals (the company hiring you books it as an ITC).

Yes you do have to pay 100% of your CPP contributions (as an employee the company pays half), but you don't have to pay EI unless you want to, and you don't get salaried sick days or vacation pay.

[Slava]

In terms of disability insurance and benefits, depending on your situation, you might want both. Disability is a huge exposure for you because your livelihood is worth an enormous amount through retirement. Coverage for benefits like dental, prescriptions, etc. is something that a lot of people want, particularly when they have children and families.

Feel free to contact me if you want quotes or information.

[SeeGeeWhy]

My advice as a contractor: Don't cheap out on advice setting your structure up.

Go speak with a chartered accountant who will get you set up properly, give you expectations for how to handle your returns and tax planning, bookkeeping, answer any of these questions, etc. PM me if you want some names.

[EldrickOnIce]

Originally Posted by GGG

If you are comparing it to a salary or straight hourly role you need a pretty big mark up on your wage to make it worth it.

A salaried position will include 6% to 8% vacation, 3k for cpp/ei, 2% sick leave, 2-5% health/dental, x% rsps. So just to break even on a benefit package you need to be earning 20% more then tbe salaried rate.

That also depends on how you set things up.
If you incorporate, there can be significant tax advantages that may more than make up that difference. Even if you don't, what you can write off as a contractor may make up that kind of difference anyway.
As suggested above - seek professional advice specific to your unique situation/circumstance, and go from there with the best possible information available.

[WilsonFourTwo]

You'll get lots of good advice here (so far, so good) but I'll give you my biggest tip;

Get a journal and document EVERYTHING. It takes a bit of upkeep (time), but keep a time log of what you were working on and when.

Ex.
1015AM - 1100AM; Backchecked electrical schematic ABCD-1234 for Jim Smith
1100AM - 1245PM; Attended Lisa Jones' presentation on journal keeping
1245PM - 100PM; Drove from Client Office to Job Site (31km).

Even though I'm not an independent contractor, I do this for the jobs I run. For the 15 minutes a day you spend writing stuff down, the benefits are immense, including:

1. A clear log of the hours you actually worked; You'd be amazed how many 'Partial Hours' you'd forget about and end up not billing! A few '10 minute' activities each week is 25-30 hours a year. That's thousands of dollars!

2. Your client will almost inevitably ask "What did you actually do?" and this gives you a great log to show them. Trust me, a good (simple) logbook/journal will up the trust exponentially. And it shows that you're not 'Nickel and Diming' them.

3. Separate (but related) to #2 above, you'll be able to quick derive a 'deliverables list' for the billing period. Provide a list of the main deliverables with your invoice - your clients will LOVE that, especially if they're reporting up to their bosses.

4. You can start to piece together how long work ACTUALLY takes. You'll fast discover that the task you think takes 100 hours actually takes 70, or 160. Especially early on, this will help you put together more quotes.

5. By including 'non-billable' work (coffee meetings, preparing quotes, etc), you can start to understand how much overhead you've got. This is will extremely helpful in setting your rate. Rates need to reflect how much you actually work.....but is that 80% or 40%?

6. Track your expenses, mileage. I used to keep the last few pages of the book for tracking, but now just lump them in with the regular comments (like the examples above). Just easier than flipping back and forth, but your mileage may vary (pun intended).

And one final thought - keeping a journal is a huge benefit, but only if you use it. Consistency is key but don't abandon it if you miss a day here and there.

[trew]

Originally Posted by Duruss

The work is mechanical/electrical and some software/network maintenance for a large high traffic organization. The bid that I would be subcontracted under is the client organizations second biggest revenue generator. I am not submitting the bid myself, the prime contractor is trying to budget for 35-40 an hour. And considering the size of the client there is no way I can not get the insurance, as they likely wouldn't allow me onsite without it.

Found out that the CPP contributions are 9.9% of my income after expenses. Plus I do have to collect GST after the first 30000.00 in revenue.

- Check to see if your prime is providing insurance for the subbed work.

- When you set up your business number and GST account make sure to ask to go on "the quick method". It allows you to keep a portion of your collected GST instead of explicitly tracking your input costs. (If you are flowing through all your supply costs then you probably won't have much in the way of expenses and will make a bit of money on GST collection).

[lazypucker]

Make sure you get WCB, it's $200 a year.

[indes]

You need:

Gst Number (yes you have to charge gst)

Liability Insurance

WCB

To get going.
CPP/EI only matter if you're paying yourself salary. If you pull dividends you don't have to contribute, but won't get anything toward your pension.

Medical and RRSPs are all up to your discretion. As someone earlier pointed out you need to be making basically 20% more hourly than an employee to reap the benefits of contracting. The big plus is corporate income tax is much lower than income tax.