Employment Status - Going from Employee to Contractor

[Locke]

Originally Posted by CaptainCrunch

Are hookers and blow a legitimate business expense anymore?

Depends on your line of work.

If you're an Account Executive, then those are simply classified as 'Account Acquisition Incentives.'

[moncton golden flames]

Was it you that worked for that shady employer that had rats running around?

yes it was me, and they were mice. we found the hole they were getting into and it's been fine for a few years now.

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

well, in full disclosure, i own and operate my own company on the side, which is the exact same type of work i do for this employer. but, we are currently operating under an agreement that has non-compete clause.

he has given us 2 options with the ability to come up with one of our own if we can all agree to it.

option 1, he wants us to close our own business and we can remain employees at his business.
option 2, we become contractors to his business, thru our own.
option 3, yet to be determined at this point.

he needs us working for him just as much as we want to remain working here.

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.

about 80% of my own company's income would be from my current employer, which from what my accountant has advised, should be ok by the government. i think she mentioned 10% should at least be outside of the contract work.

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.

it's a house design company with 3 employees and 1 boss (the owner) and things are not done like a typical big business. i don't necessarily agree with the way things are done, but i enjoy being employed.

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.

like i said above, i already have my own numbered alberta company and doing business with it, albeit a very small amount of business on evenings and weekends.

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.

again, sorry for not disclosing everything in my original post, my bad. I understand all the risk is on me if i agree to this, which could be daunting, being a home designer, there could be thousands of dollars to change errors and discrepancies that are on the drawings.

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

still unsure what his real motivation is. i know he has health issues (heart and ulcers) and i know he always trying to save money. i do know he wants to protect his clients from my competing company, but we have an agreement already in place for that.

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.

if i know my boss as well as i think i do, asking for any raise will very tough for him to wrap his head around. asking for double is basically asking for a pink slip.

he is not forcing us to become contractors, as long as we shut down our company and we can remain employees. i don't like his tactics, but think becoming a contractor could be very beneficial to me provided i get what is fair, which is all i will be asking for.

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.

always a concern and something i have to think hard about. putting money aside for that rainy day will be imperative.

[moncton golden flames]

thanks for all the great advice here guys, i appreciate it!

[Street Pharmacist]

Originally Posted by 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.

This is the scariest part. They are replacing an employee with an outside service. If you forget about your specific circumstance and see how this benefits the employer, you probably have your answer.
They can:
A) terminate workout cause, compensation or repercussion
B) change terms of service without notice (or without much depending on contract). This includes services provided, hours, rate, etc.
C) bid for services. What if someone else comes along offering to do the service for less? They can pay you less very easily

[Ducay]

I suppose the biggest issue for the decision making process is, at the end of the day, for you is going to be salary. If you can get sufficient compensation to cover the added costs & lost benefits of employment (even potential lost work from your own business). If you can't get the 20%+ additional as a contractor, you might be better off staying an employee.

Originally Posted by Street Pharmacist

This is the scariest part. They are replacing an employee with an outside service. If you forget about your specific circumstance and see how this benefits the employer, you probably have your answer.
They can:
A) terminate workout cause, compensation or repercussion
B) change terms of service without notice (or without much depending on contract). This includes services provided, hours, rate, etc.
C) bid for services. What if someone else comes along offering to do the service for less? They can pay you less very easily

It'll be a contract with his company and the employing company, there is nothing stopping him from having clauses for termination pay, notice, term changes, guaranteed period, etc, just like any management agreement.

[photon]

Originally Posted by moncton golden flames

well, in full disclosure, i own and operate my own company on the side, which is the exact same type of work i do for this employer. but, we are currently operating under an agreement that has non-compete clause.

he has given us 2 options with the ability to come up with one of our own if we can all agree to it.

option 1, he wants us to close our own business and we can remain employees at his business.
option 2, we become contractors to his business, thru our own.
option 3, yet to be determined at this point.

he needs us working for him just as much as we want to remain working here.

What about Option 3, him buy your company and its customers? He gets more customers, your customers still get you, you get some sum of money (which is one time as opposed a permanent increase due to switching to contractor), everyone stays onside of CRA, etc.

Or instead of buying your company with money, you get some ownership in his company.

[Boblobla]

I used to be an independent contractor and my accountant told me that it is lucky I switched to being an employee as they are looking as the CRA as of late 2011 started looking at contractors who only get paid by one company as employees, not a company, and taxing them as such.

Has anyone run into this? I have a potential job opening coming up but it would be a contract position. I don't want to make the move if I am going to get hammered in taxes.

[Nufy]

Originally Posted by Boblobla

I used to be an independent contractor and my accountant told me that it is lucky I switched to being an employee as they are looking as the CRA as of late 2011 started looking at contractors who only get paid by one company as employees, not a company, and taxing them as such.

Has anyone run into this? I have a potential job opening coming up but it would be a contract position. I don't want to make the move if I am going to get hammered in taxes.

My accountant told me a different story.

He said that CRA is starting to recognize that companies are hiring contractors for long term projects and the requirement for multiple clients is being relaxed.

Personally I maintain 2-3 clients yearly so I am not worried.

If Locke is reading this maybe he can chime in...

[Free Ben Hur!]

Originally Posted by Boblobla

I used to be an independent contractor and my accountant told me that it is lucky I switched to being an employee as they are looking as the CRA as of late 2011 started looking at contractors who only get paid by one company as employees, not a company, and taxing them as such.

Has anyone run into this? I have a potential job opening coming up but it would be a contract position. I don't want to make the move if I am going to get hammered in taxes.

CRA cracked down on a bunch of 'consultants' working in Fort McMurray as long ago as the mid-90's that I am aware of. Many of these guys brought CRA scrutiny on themselves by being undisciplined related to keeping up with regular submitting of source deductions (usually monthly), GST (usually quarterly) and federal tax installments (usually monthly). One person I worked with started behaving like he'd won a lottery with all this cash he was rolling in and ended up getting audited and paying all kinds of interest and penalties for monies he should have submitted. CRA have long arms.

[Locke]

Originally Posted by Nufy

My accountant told me a different story.

He said that CRA is starting to recognize that companies are hiring contractors for long term projects and the requirement for multiple clients is being relaxed.

Personally I maintain 2-3 clients yearly so I am not worried.

If Locke is reading this maybe he can chime in...

CRA are keeping some of the requirements vague so that they can maintain their hold on the hammer.

The test that Nufy is talking about is part of 'Integration.' Basically, depending on what the consequences would be if a contractor were to leave part way through a project determine if they would be considered an employee rather than an independent business. Or what, if any, long-term benefit or value the contractor brings to the company.

Having several clients may not save you either, as the test is likely going to be based on percentage of revenue per client. So if you contract to 3 oil companies a year, but get 90% of revenue from one of them and 10% from the other two you could still potentially fail the test.

Again, its tough to say because none of this is set in stone yet.

[OldDutch]

Originally Posted by Locke

Having several clients may not save you either, as the test is likely going to be based on percentage of revenue per client. So if you contract to 3 oil companies a year, but get 90% of revenue from one of them and 10% from the other two you could still potentially fail the test.

Again, its tough to say because none of this is set in stone yet.

This is the story I got too. I was an IT Contractor until recent and my accountant told me there are many factors including where you work, how many clients, and percentage. They can come at you several ways.

There is much confusion right now. One story I heard was they are targeting the 10+ year guys first (low hanging fruit), then working out from there. Haven't heard through my network anything bad yet though. Another story has legions of auditors being trained as we speak to descend on Calgary to crack heads. All rumors passed on by my accountant. Who knows really at this point, as my guy has been on top of this and even he can't say.

All I know is that they can come back and re-asses you as PSB and you go from 13% to 50% range instant in back tax. So the only way to mitigate is not to contract unless you are truly a business.

[Locke]

Originally Posted by OldDutch

This is the story I got too. I was an IT Contractor until recent and my accountant told me there are many factors including where you work, how many clients, and percentage. They can come at you several ways.

There is much confusion right now. One story I heard was they are targeting the 10+ year guys first (low hanging fruit), then working out from there. Haven't heard through my network anything bad yet though. Another story has legions of auditors being trained as we speak to descend on Calgary to crack heads. All rumors passed on by my accountant. Who knows really at this point, as my guy has been on top of this and even he can't say.

All I know is that they can come back and re-asses you as PSB and you go from 13% to 50% range instant in back tax. So the only way to mitigate is not to contract unless you are truly a business.

Your accountant is right. I've been keeping my eye on this sort of thing as well, and I've also heard the rumour of the army of auditors, but CRA are playing this one really close to the chest.

Nothing is set in stone, but I have a sneaking suspicion that this is going to hit like a sack of hammers.

[Ozy_Flame]

It is the calm before the storm. I too have heard they may start with senior consultants and heavily audit them for back tax purposes. A couple of juniors that worked under me and have since switched to independent contracting have no idea this is coming - I had to advise them on this during a recent mentorship meeting. Their accountants just gave them vague answers.

I suggest to the OP you get yourself a damn fine tax accountant / business advisor if you're going down the PSB route. Income potential is severely impacted by this rule, with up to 50% taxes (in Alberta, both corporate and personal). Your small business benefits are also severely limited too.

[Azure]

From my experience of working with contractors and seeing some get fired, if you are in an industry that is desperate for help, and you are good at what you do, being a contractor can be a lucrative job. The demand in the market provides pretty good job security.

But if you are in an industry that is saturated with good workers and not as much demand, companies will stick it to you if they can find someone to do what you do for cheaper. And firing you as a contractor is easy.

We pay our contractors almost 50% more than what someone directly employed by our competition gets for doing the same job.

Outside of the benefits of not having to deal with CPP, WCB, EI, etc, etc....we are not obligated to keep him busy, and as a result, during the slow time(start of the year), our contractors tend to have other work lined up. This just makes our scheduling that much more important.

At the end of the day, they are worth every penny of the 50% more.

[Boblobla]

Originally Posted by Locke

Your accountant is right. I've been keeping my eye on this sort of thing as well, and I've also heard the rumour of the army of auditors, but CRA are playing this one really close to the chest.

Nothing is set in stone, but I have a sneaking suspicion that this is going to hit like a sack of hammers.

I also heard they are changing what can an cannot be written off. I know some contractors are already abusing the privilege but it sounds like they are going to really restrict what can be written off as a business expense.

[TurdFerguson]

Originally Posted by Locke

Your accountant is right. I've been keeping my eye on this sort of thing as well, and I've also heard the rumour of the army of auditors, but CRA are playing this one really close to the chest.

Nothing is set in stone, but I have a sneaking suspicion that this is going to hit like a sack of hammers.

So the CRA is basically Mordor...preparing an army of auditors to unleash on the contracting world. Sweet...

[mrkajz44]

Check out this link: it tells all about the various tests the CRA can apply when determining if you are an employee vs a contractor:

http://www.cra-arc.gc.ca/E/pub/tg/rc4110/

The whole "I have two other clients so I'm fine" argument will almost surely get busted if the CRA were to really look into you. The whole PSB thing looks more like a scare tactic to me than anything, trying to get people to comply, rather than actually going out and finding those in violation.

But if you do get caught as a PSB, the rules are awful. Basically 50% tax, and the only allowable business deduction is salary; everything else is denied.

[TheGrimm]

The thing I find most frustrating is that it's not like most contractors can go up to a company and demand that they hire you on as an employee. Are there any legal requirements for them to even do so if you fit the category as "employee"? None so far as I am aware, so basically, the CRA can start reaching deeper into your pocket and you will get none of the benefits associated with being an employee OR the benefits that being a contractor once had.

Basically screwed and nothing can be done about it except folding up your company and looking for employment elsewhere. THANKS CANADA!

[Locke]

Originally Posted by TheGrimm

The thing I find most frustrating is that it's not like most contractors can go up to a company and demand that they hire you on as an employee. Are there any legal requirements for them to even do so if you fit the category as "employee"? None so far as I am aware, so basically, the CRA can start reaching deeper into your pocket and you will get none of the benefits associated with being an employee OR the benefits that being a contractor once had.

Basically screwed and nothing can be done about it except folding up your company and looking for employment elsewhere. THANKS CANADA!

Considering the massive, massive tax advantages that they have reaped for over 20+ years, I find there is little grounds for complaint.

[Boblobla]

Originally Posted by Locke

Considering the massive, massive tax advantages that they have reaped for over 20+ years, I find there is little grounds for complaint.

For older Oil and Gas contractors. I was offered a position out of College that was contract for a year with the possibility of being rolled over to staff after a year. I was there for 4 years as a contractor before I quit. I wasn't making the hundreds of dollars and hour that some 'consultants' do.

There are a lot of companies that refuse to hire you as an employee initially.