Full-Time Employee vs. Incorporation

Working Here
1

Hello,

Was wondering if someone had experience working as either or both ways in Canada.

  1. What are the pros and Cons of each? Why the vast difference in the earnings?
  2. Is it better to be a full-time employee or get incorporated?
  3. Roughly the procedure for incorporation? (would appreciate any reliable links)
  4. Does getting incorporated equate to taking care of your health insurance & savings on your own without any government assistance?

Note: Apologise if this question seems a bit trivial for people who are already in Canada. But its difficult to get a succinct/definitive understanding without asking.

As always, any and all responses are appreciated.

With Regards,
MD

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Hi @ntn
Can you please help here with the answers… I am looking for similar answers…
If you already answered these somewhere other thread then please give the link to that page…

Thanks.

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  • What are the pros and Cons of each? Why the vast difference in the earnings?

I think pros and cons are hard to say without having hard numbers to compare.

Pros of FTE are basically employer administered benefits, a stable paycheck, simple tax return filing, additional benefits like RRSP contributions, EI, bonus, stock options, additional health and life insurance etc. But taxes you pay are generally higher.

Pros of incorporation are that you can (probably) reduce your tax liability significantly by working with a tax consultant, turn it into a significant advantage in terms of attracting new contracts once you have setup. But you’ll need to wrap your head around the everything related to having a corp (it’s not too complicated). You’ll need to figure out how you’ll pay yourself, if it is suffices your requirements for current and future plans (if you plan to buy a home, get a home loan, what kind of income do you need to show?)

If you can work remote, then Incorporating means you’ll have better chances at getting remote contracts from US, since a big chunk of jobs tend to be from those companies that don’t or can’t have employees in Canada.

  • Is it better to be a full-time employee or get incorporated?

The only way to compare which option is better, is if you have an offer to work with an employer and the employer gives you both options like:

  • if you work as an employee you’ll get $96K per year ($50 per hr)
  • if you work as a contractor you’ll get $60 per hr

If you get such an offer, then you can compare and try to figure out which one works out better for your situation.

  • Roughly the procedure for incorporation? (would appreciate any reliable links)

I dont know the details of how to incorporate. I got it done through a CPA.

Does getting incorporated equate to taking care of your health insurance & savings on your own without any government assistance

I don’t think there’s any govt assistance in either case. Yes, you’ll have to get additional health / life insurance and figure out how to save up (either invest the savings) if you go for corp. This is a lot simpler in Canada since you don’t have to jump a lot of hoops to get health insurance coverage as in the US.

This is my understanding. Make sure to chat with an accountant / tax advisor to evaluate what’s your best option.

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Hi, could you let me know the name of the CPA you got it done from? I am looking at incorporation as well and would like some guidance. Thanks.

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@ntn
Can you please help in answers to below questions?

  1. If somebody getting fulltime or incorporation contract option then usually how much minimum difference is preferred? Is it 30% or 45%? Like if full time offer is 90k or 95k which comes roughly around $45 per hour then contract should be minimum $60 or $65 or $70 or more?

  2. Is there anything more expense not covered in contract or extra expense which i didnt think from list below:
    2 or 3 week vacation
    10 national holidays
    Extended medical insurance
    Dental
    CPP (Pension) 10.2%
    CPA cost to file tax returns about 6-7k
    Cost to create incorporation $1500-2k

  3. If incorporation is created in december but contract starts in January then does incorporation need to file any tax return in 2020?

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  1. I think this is totally dependent on what offer you can negotiate. I don’t have experience with this since my only option was to compare multiple contract offers (didn’t have an option of FTE)

  2. I think the costs you have mentioned cover most of it. Other things to consider is that most FTE are 37.5 hrs a week, not 40, and sick days, parental/maternity benefits (Top up over EI for a few weeks) provided by some employers.

  3. I think you have an option to set when you want to filing date to be, and also change it later if needed. Your CPA should be able to guide you on this or do it for you.

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Thanks for reply… Are you sure contract is for 40hours?
Somebody told me contracts are also for 37.5hours only usually in Ontario similar to fte…
Were/are you getting paid for 40 hours (invoiced by your incorp) every week and are you in ON?

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I meant 37.5 in Canada, 40 in US (or with US clients). But if you are charging hourly and Bill every hr worked, then you can decide which one works better. Some contracts tend to be fixed hours per month, and in that case it’s better to have 37.5 hrs pr week instead of 40.

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Sorry i did not understand this reply. But thanks for reply. How is 37.5 hours per week better than 40hrs per week billing?
Are you saying if its guaranteed to get billing of 37.5 hours billing vs Not guaranteed to have 40hrs billing or what did you mean? Please elaborate.
Thanks again…

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As in, if you are getting paid $X per month, then working 37.5 hrs a week means more $ per hr (instead of 40 hrs per week). This happens in contracts that are flat rate per month.

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