# Keeping job but going to Subcontractor



## Harper77 (Nov 11, 2009)

So where I work I have the option of moving from an employee (which I am now) to a subcontractor.

I have been really uneasy to do this since I always felt there was somewhat of a "protection" as an employee, since being an actual employee the employer needs a reason to let the employee go re: shortage of work, etc.

HOWEVER, I sat down and really thought about things. Maybe I am wrong, on cheap drugs or whatever but here is what I came to the realization:

-if an employer wants someone gone, regardless of being an employee, they will find a way to do it even if it is true or not
-EI isn't gonna pay the bills if laid off so if bringing home the gross instead of the net, bank the money in an emergency fund in the event I am laid off.
-while I get benefits now, obviously I wouldn't once I became a sub-contractor - however, if I could get them to increase my pay once I am a sub that would cover getting benefits myself, I could also write-off a portion of these benefits


Am I going down the wrong track with this thinking? Should I just let sleeping dogs lie? 

....so scared/confused.


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## the-royal-mail (Dec 11, 2009)

Don't do it.

But the bigger is question is WHY would you want to do such a thing? EI is a tremendous benefit of employment, so is paying into CPP.

Just because you _can_ do something, doesn't mean that you should.


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## balexis (Apr 4, 2009)

Harper77 said:


> bringing home the gross instead of the net, bank the money in an emergency fund in the event I am laid off.


The difference between gross and net is your bill from the Tax man. I don't see how that can constitute a legitimate emergency fund. Also, soon enough you'll be required to produce installment payments.

Or did I misunderstand something?


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## Spudd (Oct 11, 2011)

Employers are required to pay some severance when they lay off employees. Not so if they stop using a contractor. You would be giving up your benefits, EI, and severance. If the increased pay they will give you for switching outweighs all of that, it might be worth considering. If they intend to pay you the same, I would NEVER. The value of your benefits especially would be the main point to consider. To replace them on your own would be quite costly.


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## Daniel A. (Mar 20, 2011)

Revenue Canada can challenge your status as a contractor so tread carefully.


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## MoneyGal (Apr 24, 2009)

There is a relatively recent thread on this topic; it can be found by using the search term "contractor."

Anyways. Couple of points:

- Every person who is engaged in the paid labour force, with only very specific exemptions, pays into CPP. 

- Every *employee* (as distinct from the *self-employed*) pays into EI. Self-employed people can also choose to pay into EI, and there are threads here about that as well. 

- Contract employees are employees. That means they pay into both CPP and EI. The (main) difference between contract employees and "regular" employees is that contract employees have a defined end date to their employment. 

- Contract employees are *not* self-employed. CRA is not going to "challenge" the employment status of a contract employee. 

- HOWEVER, if someone is a contract employee, but they prepare their tax return claiming that they are self-employed, CRA may challenge their status as a self-employed filer. 

- There is a fairly specific "four factor" test which determines whether someone is an employee or self-employed. The situation which the OP is outlining is *not* self-employment, unless some other fairly significant changes accompany the move to contract status. 

- Very generally speaking, the extent to which the individual is attached to and dependent on the employer is the main factor in determining whether they are an employee or self-employed. Provide your own equipment, set your own hours, have a defined contract for specific services, retain the right to work for other clients, and have the capacity to subcontract out those services to be performed by someone else? You're probably self-employed. If you don't meet those broad criteria, you are probably a contract employee, and you're going to get a regular T4 at the end of the year like any other employee.


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## Harper77 (Nov 11, 2009)

MoneyGal said:


> There is a relatively recent thread on this topic; it can be found by using the search term "contractor."
> 
> Anyways. Couple of points:
> 
> ...


They would request an invoice from me every two weeks for services rendered. Would be no different then them pulling some dude off the street and saying: here sit at this desk and do this for us.

I would also be able to have other clients, no conflict of interest or non-competition contract req'd.


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## MoneyGal (Apr 24, 2009)

OK, that sounds more like an independent, self-employed contractor versus a contract employee. I know the language can be confusing. 

You should charge between 20-40% more per hour for the same services. 

Also, if they supply the equipment (desk, computer) and require you to perform services on-site, the relationship is much more employment-like than self-employment-like 

Also, as someone else pointed out upthread, if THEY chose to end the employment relationship, they'd typically owe you severance. How long have you worked there? The common law standard in Ontario for severance is one month for every year of employment. 

I've had every kind of employment relationship and they all have strengths and weaknesses. But before you get into this, you should be aware of what you're giving up and how you stand to benefit.


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## Harper77 (Nov 11, 2009)

MoneyGal said:


> OK, that sounds more like an independent, self-employed contractor versus a contract employee. I know the language can be confusing.
> 
> You should charge between 20-40% more per hour for the same services.
> 
> ...


Sorry I was using the wrong term. Would be going from employee to sub-contractor.
They supply everything I just bring my smarts and good old fashioned know-how.
Every 2 weeks on pay day I give them an invoice for services rendered, they in turn pay me, based on my invoice.


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## MoneyGal (Apr 24, 2009)

This isn't helping. If they supply everything, and they set the hours of work, *you are an employee*. The term you are looking for is you are moving from a permanent (or indeterminate) employee to a contract employee. 

Unless they pay you A LOT more, there is no advantage to be gained. You have no capacity to "write off" anything beyond what a "regular" employee can.


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## OptsyEagle (Nov 29, 2009)

Harper77 said:


> They supply everything I just bring my smarts and good old fashioned know-how. Every 2 weeks on pay day I give them an invoice for services rendered, they in turn pay me, based on my invoice.


and what difference is that from any other employee. The invoice means nothing. If you get caught it will become very expensive.


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## the-royal-mail (Dec 11, 2009)

Harper77, it is not necessary to quote everything you reply to. Please use the reply button instead of the quote.


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## Plugging Along (Jan 3, 2011)

Harper77 said:


> So where I work I have the option of moving from an employee (which I am now) to a subcontractor.
> 
> I have been really uneasy to do this since I always felt there was somewhat of a "protection" as an employee, since being an actual employee the employer needs a reason to let the employee go re: shortage of work, etc.
> 
> ...


As others have said, you must make sure you make the definition of being self employeed. If not, then you can't just decide to pocket the difference in terms of the taxes, CRA will challenge. We have been challenged, have had to prove that we really were self employeed. 

Assuming that you really meet this definition. You have to ask yourself why you want to do this. The main reason are usually more money, being your boss, etc, That's pretty much it (at the a general level). If you are going self employeed, then the employee has the benefit of terminating you without any notice or severance, if you have been with the company a long time, this is a huge benefit to them. Also, you will not get benefits, sick days, vacation days, statutory holidays, etc. You need to factor all of this in. The general rule I use is about 1.5 to 2X my normal rate as an employee. This offsets all the benefits, lost sick days, etc. It also offsets the lack of security and loss of EI, etc. I know that when companies calculate overall compensation or true employe costs, it's at least 1.2X. I would be making sure I get at least that, and that doens't even factor in the severance.


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## kcowan (Jul 1, 2010)

The uplift should be 1.35x to break-even. that includes paid holidays, education days, sick days, benefits, pensions. Add further to replace the contract with another employer. So 1.5x is a good minimum rate.


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## brocko (Apr 20, 2009)

I am thinking this could lead from contract employee to contract not renewed at some point and no severance. Also and I am sure someone has the answer, you may have to buy your own workers comp insurance?


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## MoneyGal (Apr 24, 2009)

You might mean "disability insurance," in which case the answer is yes. But if you mean Workers Compensation, sole proprietors aren't required to register in most provinces (with NWT and BC being exceptions).


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