Employment Status - Going from Employee to Contractor

[moncton golden flames]

My current employer is asking me and one other co-worker to change from Employee to Contractor status. We are starting to negotiate the terms of the contract, but have not yet reached compensation terms. It is my belief that as a contractor, my wage could rise by at least the amount of benefits I am losing by becoming a contractor. I think my boss is under the impression that he will not have to raise our wages. If he does not raise our wage, I am essentially taking a big pay cut on this deal, which is not something I am willing to accept, but could that lead to termination?

Is there any documentation stating that contractors should make more to cover lost benefits? I want something to prove and back up our request for a higher wage.

I lose EI benefits, have to pay my own CPP, find my own own healthcare coverage, pay my own vacation (3 weeks) and stat holidays. How much of a raise should I be asking for?

He is wanting this to all be finalized in 2 weeks, so I want to have as much ammunition as I can to justify our position.

As always, your opinions and advice is very welcomed!

[Ozy_Flame]

Find your equivalent industry contractor billable hour rate, and ask for a bit more. You should be fairly compensated for having to take care of EI / CPP (which will be twice as much), Healthcare and unpaid vacations. As an employee you are likely subject to your company taking 15-75% of your billable rate, so you want to make sure they are paying you as if their cut is in no more than the 15-20% range.

[CaptainCrunch]

It does become more expensive to be a contractor, however you do get access to more write offs.

I would base my pay request on your total compensation and not just salary

Current salary + estimated value of benefits (Healthcare, life insurance, eye glass coverage etc)

There are other concerns, you are giving up the right to notification and severance packages, they can pretty much axe you on the fly.

I would see how in demand your skill set is as a contractor, and use that in terms of negotiating your deal too, because you can find your hours cut fairly easily as well.

Because they no longer have to do deductions, pay shares of benefits etc, I would ask for a share of those savings as well.

Basically in this scenario the company reaps pretty much all the benefits and savings if you agree to the same salary, you lose your protection, but gain some freedom.

I guess the question is, what happens if you refuse? Are they willing to lose you if you want to stay as an employee.

Because going contractor means that you're going to have to put a lot more effort into the maintenance of your job.

[TheGrimm]

Yea, things are getting blurry in the department of hiring contractors for positions that really should be filled by employees. With the government planning a "crackdown" on service corps it gets harder and harder to justify becoming a contractor. I'd be wary if I were you. I would start at a 50% pay bump for the same position. Not even kidding.

[Cowboy89]

Sounds to me like your employer is trying to cut costs on the back of your benefits and hopes your stupid enough to sign your own death wish. If I were you I would research and get insurance quotes on how much it would cost to replace the benefits you're giving up and pay for CPP and then slap that on to your contract request. Even if they agree to match that don't be surprised that future wage increases won't cover the inflation of what your benefits cost. Look into alternative employement as well, because this doesn't sound like a place that wants you working there too much longer.

[burn_this_city]

The number I hear at work is roughly 20% higher, if you're a direct contractor to the company you're consulting to. If you're going through an agency, it should still be 20%, but the company will pay 15-20% on top of that for the meat marketer's cut.

[Ducay]

Google the last thread when someone wanted to become a contractor for tips/discussion of how bad this will end. You're employees already, and you think the CRA isn't going to notice?

Basically I'd say 25% pay increase is probably a little more realistic. You're losing vacation, OT (if applicable), benefits, issues with CPP/EI, tax & filing implications. Figure out what those are worth and add them to your salary plus a bit for good measure.

[CaramonLS]

I don't think that is legal - at least to force you anyways.

You're giving up a lot in this move, benefits, vacation, pension and job security, depending on the terms of the contract.

You should receive at least a 20% salary boost if you give up those things.

If your employer is unwilling to consider that, you can always say no.

If they sever you, you would have a pretty solid case of wrongful dismissal as it doesn't seem like they are following any proper process of changing the terms of your employment.

[TurdFerguson]

I just went through this with my business partner about 6 weeks ago when we were hiring. We had a great person apply who was a contractor, generally we prefer salaried employes so our question was...we know what salary we would pay this person but how does that compare to a contractor rate? In our research we found that, at least in our industry (software development), that number is 30-35%

So, round numbers, if the salary is 100k (gross) then expect to pay someone $65-$70/hour.

Hope that helps.

[CaptainCrunch]

Originally Posted by Ducay

Google the last thread when someone wanted to become a contractor for tips/discussion of how bad this will end. You're employees already, and you think the CRA isn't going to notice?

Basically I'd say 25% pay increase is probably a little more realistic. You're losing vacation, OT (if applicable), benefits, issues with CPP/EI, tax & filing implications. Figure out what those are worth and add them to your salary plus a bit for good measure.

On the OT, I would assume that as a contract you are billing actual hours ie time sheet. You can negotiate a over time rate.

Best bet is to set up a company to flow the income through and then pay yourself via your own company and give yourself benefits through that company as well.

[Locke]

I would strongly recommend against this.

As I understand, at the moment it isnt technically 'iilegal' if they arent forcing you, but it isnt keeping with the spirit of CRA regulations. Now, CRA hasnt done anything about it yet, but the key is 'yet.' There are very serious rumblings that that hammer is coming down soon, and coming down hard.

Are they asking you to be a sole-proprietor contractor or an incorporated contractor?

In my experience, you're right. Your employer is not expecting to pay a significant increase to you. Their whole point in doing this is to reduce their required duties and remittances to you and to save money. They are fully expecting you to bear the brunt of the difference with an insignificant change in your pay.

Dont forget, its you who is assuming all the risk.

[First Lady]

As some have pointed out - CRA may still see you as an employee - and that won't be pretty.

If you are a true contractor you will be able to have clients beyond this current one.

You may also need to charge GST. You will need to be organized or hire someone who is when it comes to your record keeping and filing requirements.

[Ozy_Flame]

"Personal Services Business"

Look this up. This is what First Lady is referring to.

[marsplasticeraser]

Finally something I know something about.

The increase in moving from Employee to contractor ranges from 18% to 34% (this is based on Oil and Gas contractors in the Engineering industry). To figure out your new rate, take your annual salary, divide by 2080 hours and add 18% to 34%.

This is a big range of uplift to work with, so you need to understand where you fit on that range, and where you company fits (do they provide much to you in benefits). A major component is paid time off, so factor that in. I'd suggest starting high and settling somewhere in this range.

In terms of being asked to be a contractor: I'd be wary, as it sounds very shady. Add to this that there are significant changes in definition and taxation of 'contractors' vs 'personal service businesses'. This may mean excess taxation for you (http://www.kpmg.com/Ca/en/IssuesAndI...s/tnfc1307.htm).

Finally - why does your boss want to do this? Doesn't seem legit.

[Nufy]

When i switched from employee to contract I calculated my hourly wage and doubled it to get my starting contract rate.

My employer / client didn't flinch which made me think I was setting it too low...

That being said I would listen to Locke. You shouldn't be forced into making such a decision.

It should be a choice.

[Free Ben Hur!]

Similar to what Locke and others have said is that your employer is on fairly thin ice here with their rationale for wanting to change your employment status. Never mind that they appear to be looking to reduce their overall costs and have you eat the difference, the CRA tend to view 'contractors' that have a single 'client' as de facto employees. It's possible that both you and they will get some heat should CRA become aware. Also, your employer cannot legally change your employment status in this manner without your consent. Should you do this I'd highly recommend that you incorporate rather than go forward as a sole proprietor for a variety of reasons (taxation benefits, availability of errors & omissions and Workers' Compensation insurance, etc.). As a Sole Proprietor you assume any liabilities as an individual without the considerable protections afforded a corporation. An hour consult with an accountant in highly recommended and if you still wish to proceed your next step is a lawyer.

[Locke]

Originally Posted by marsplasticeraser

Finally something I know something about.

The increase in moving from Employee to contractor ranges from 18% to 34% (this is based on Oil and Gas contractors in the Engineering industry). To figure out your new rate, take your annual salary, divide by 2080 hours and add 18% to 34%.

This is a big range of uplift to work with, so you need to understand where you fit on that range, and where you company fits (do they provide much to you in benefits). A major component is paid time off, so factor that in. I'd suggest starting high and settling somewhere in this range.

In terms of being asked to be a contractor: I'd be wary, as it sounds very shady. Add to this that there are significant changes in definition and taxation of 'contractors' vs 'personal service businesses'. This may mean excess taxation for you (http://www.kpmg.com/Ca/en/IssuesAndI...s/tnfc1307.htm).

Finally - why does your boss want to do this? Doesn't seem legit.

Employers want to do this for many reasons.

Primarily, it alleviates them of the responsibility for remitting CPP, EI and Tax. If you're no longer responsible for these things then an employers saves money and can drastically trim staffing in the payroll department as well.

Not to mention not being responsible for WCB, medical benefits, vacation pay, etc.

The key is, when employees are asked to become contractors, typically the increase in their wage is insufficient to cover what they're giving up. Often because they dont know any better.

Either way, its an attempt to circumvent employment standards by dancing with the tax act.

The employer effectively eliminates all their own risk and responsibility by shifting the onus to the contractor.

[CaptainCrunch]

Your employer could also reduce your hours without notification or hire someone cheaper to replace you very easily.

If your ok with little or no protection you can make it work.

But as everyone above states the cost and admin requirements are high.

[To Be Quite Honest]

Find a new place to work.

[CaptainCrunch]

Are hookers and blow a legitimate business expense anymore?