Working in any industry isn’t as clear-cut as it used to be. Gone are the days where the majority of the workforce are employees of one company. In 2018, 2.9 million Canadians considered themselves to be self-employed and this self-employment trend is only rising.
Depending on your status as a freelance worker, contractor, or employee, your taxes and other business factors might change, so it’s important to know your employment status.
A contractor is someone who works for one client for a set period of time, also called independent contract work. They usually don’t receive employee benefits packages or pensions and must pay their own Canada Pension Plan contributions. As a contractor, your paycheque will have no remittances on it, meaning no federal or provincial tax will be withheld from your pay. Therefore, an independent contractor must pay taxes from their personal account when tax season rolls around.
Independent contractors also track their own expenses and write off any business-related expenses for that tax year.
There are a few differences between independent contractors and full-time employees, mainly the varying timeline independent contractors are on. Independent contractors tend to have an end date in their contract, whereas employees are considered permanently employed at the company until either the business or the employee decides to part ways.
Independent contractors are considered self-employed and do not have any entitlement to employment insurance (EI) benefits or vacation pay. Employers will automatically deduct EI, vacation pay, and CPP from employee’s cheques. In fact, employers who fail to deduct the correct amounts have to pay both the employer’s share and the employee’s share of contributions owing.
Employees will work the standard 40 hours work week, with an hour break for lunch each day. Depending on the contract, independent contractors may not have to work the standard 40 hours a week. They usually do not receive any paid vacation and are not offered sick leave.
There is also the difference in charging GST/HST. If a self-employed worker earns more than $30,000 a year, they will have to charge GST/HST when they send in their invoices. This is not something that employees have to worry about, because only business owners (employers) or self-employed individuals have to collect GST/HST.
A freelancer is similar to an independent contractor, but they tend to work on a project-to-project basis and have multiple employers at the same time. Independent contractors will be on long-term contracts, where freelancers are usually hired on short-term contracts.
Freelance workers usually charge a flat rate for their services rather than an hourly rate or salary. The length that they work at a company tends to be on a short-term basis, they are usually hired for a specific project, and they usually do not have the same level of commitment to a particular company as an employee would. They also do not receive benefits from their clients.
Both freelancers and contractors can charge HST/GST once they earn more than $30,000 a year. Freelancers also have a lot of flexibility, often deciding their own hours and working independently from supervisors or managers. Like independent contractors, freelancers track their business-related expenses and are able to write them off when they file their taxes for that year.
| Employee | Independent Contractor | Freelancer | |
|---|---|---|---|
| Pay | Wage or salary | Wage | Flat fee per project |
| Client contract period | Indefinite, until either party decides to part ways | Can range from 6 months to 18 months | Project-by-project basis |
| Project scopes and timelines | Working on short-term and long-term goals for the company | Working on short-term and long-term goals of the company | Working on short-term goals of the company |
| Benefits | Offered benefits and pension by employer | Benefits and pension are not offered to contractors | Benefits and pension are not offered to freelancers |
| Paying taxes | Taxes are automatically taken out of their paycheques | Contractors must set aside any remittances themselves, as well as charge and pay HST/GST/QST if they make more than $30,000 per year | Freelancers must set aside any remittances themselves, as well as charge and pay HST/GST if they make more than $30,000 per year |
| Business expenses | Company will usually cover business related expenses | Expenses are tracked by contractors and written off come tax time | Expenses are tracked by freelancers and written off come tax time |
| Business registration type | Employees do not have to register with the government | Contractors register their business as a sole proprietor or corporation | Freelancers can choose whether or not they want to register |
Over the past decade, the rise in self-employment and freelance work has become more prevalent in the workforce. It is important to understand what type of employee you are when you are job hunting or accepting offers. This will help you be aware of the tax regulations and laws associated with your status as freelancers and contractors.
If you are an employee, there is no need to register, as your employer should be taking care of any remittances. As a small business owner with employees, it is important that you are collecting the proper remittances of each cheque. If you fail to file or you file inaccurately, it could result in the government taking legal action against your business.
As an independent contractor or freelancer, it is a good idea to register your business with your provincial government. This will help enhance your brand image and reputation, making you more attractive to potential clients. Registering your business can cost from $60 up to $120. Find out more about registering your business here.
When it comes to taxes, as a freelance or independent contractor there are a few taxes that are mandatory to pay the provincial and federal governments. They can include:
Income tax and CPP are paid annually, while GST/HST can be paid monthly, quarterly, or annually, depending on your total income for the year. Learn more about self-employed tax forms here.
There are many different places to find work as a contractor or freelancer these days. From apps to reaching out to your LinkedIn network, finding work is as accessible as ever, but it doesn’t come without its challenges.
There are a few online freelance and contract job boards that could be helpful when looking for a gig. These job boards are usually organized by industry, experience, and length of the project.
Here are a few options when you’re looking for freelance or contract work:
Upwork connects freelancers with a bank of jobs across all industries including video editing, data entry, JavaScript development, SEO strategy, content writing, game development, graphic design, and more. Depending on the job, you can be paid hourly or at a fixed price. Each job posting on Upwork includes how many hours are needed to complete the project, experience level, and description of the project.
Fiverr has been around since 2010 and is like an online marketplace for freelance services. They offer jobs in a variety of industries including fashion, restaurant service, writing, graphic design, video production, accounting, and more. Fiverr allows you to create a profile offering your services, setting your price, experience, and time you need for the service rendered.
Local staffing firms or agencies can help you get your foot in the door to offer your services as a freelancer or independent contractor. Most corporate companies will turn to staffing agencies to get short-term staff. Common industries these agencies employ include marketing, accounting, engineering, IT, customer service, HR, and more.
Networking is always a good idea when you’re first starting out your freelance career. Try reaching out to friends and family to see if they can use your services, or even reaching out to your connections on LinkedIn. Social media marketing is a cornerstone of any freelance or independent contractor gaining clients. If you want to keep your personal social media private, you can, but consider creating professional accounts so that people can find your services.
Depending on your industry, the amount you charge for your services will vary. Check out sites like PayScale to get a good idea of what you should charge your clients.
There are many things that you need to consider when setting your price points as an independent contractor or freelancer. Remember to include:
It is also important to research your target market and do a competitive analysis to give you an idea of what your competitors are charging and what your potential customers are willing to pay. When charging your customers, you’re going to need a professional-looking invoice. Use this free contractor invoice template to easily tailor to your multiple clients.
Use accounting software to help track your expenses and get paid on time. Use QuickBooks Payments to accept online payments, track invoices by clients, stay on top of unpaid invoices, and deposit directly from the app into your bank account. As an independent contractor, you can even track project costs to ensure your long-term contract stays within budget.
With QuickBooks Self Employed, it’s easy to send invoices to clients, get paid, and track revenue and sales tax, come tax season. Try it free today.
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