How to Become an Independent Contractor In Canada

by Usama Chaudry on February 23, 2022

A career as an independent contractor can be suitable for you if you’re an innovative individual. Any person or corporation that provides goods and services under a contract is an independent contractor. Knowing the advantages and disadvantages of the job and how to become an independent contractor will help you decide whether or not to pursue this career path. 

In this post, we’ll describe what an independent contractor is, go over the benefits and drawbacks, walk you through the steps on how to become an independent contractor, and overview what you’ll need to do your job well.

How to Become an Independent Contractor

You can follow this step-by-step guide to learn how to become an independent contractor in Canada:

Determine Your Company’s Structure

To become an independent contractor, you have to choose the appropriate business structure for your contracting company. A sole proprietorship, a partnership, or a limited liability company are all options that a company can opt for. Keep in mind the following factors while deciding the best structure for your company:

Business Industry 

Some businesses only deal with enterprises that function under a specified structure. Find out if the organizations you want to work with demand you to follow a certain structure.

Setup costs

Find out how much each structure will cost and if you can afford it. You can start as a sole proprietor and then convert to a corporation if the sole proprietorship proves to be too expensive.

Future plans 

There are different rules and regulations for running a contracting business in each province. When deciding on a suitable structure, think about whether or not doing business in other provinces has a scope in the future.

Select and Register a Business Name

Choose a name that best fits your business after determining the appropriate structure. In some cases, utilizing a business name rather than your name may be more attractive and professional. You can operate a business under your name for a sole proprietorship or partnership. You have to fill out a declaration of trade form and register your trade name with the registry agent to register as a sole proprietorship.

Follow the steps as a sole proprietorship to register for a partnership business in Alberta. Then, fill out the declaration of partnership form. When forming a corporation, check your province’s business name database to ensure the name you choose isn’t already taken. After that, you can complete the articles of association notice of address form and submit it to the registry agent.

Obtain Licences and Permits for Your Business

To run a contracting business, you will require legal permits and licenses. If you fail to obtain them, it can result in authorities charging you with fines or giving orders to cease operations.

Your municipality or town office can provide you with licenses and permits. Becoming a contractor may also require permits from the federal or provincial governments, such as health and environmental permits. The type of industry you’re in, and your location determines the business licenses and permits you’ll need. Before you start your contracting business, find out what the criteria are.

Determine Your Business Tax Obligations

When working as an independent contractor in Canada, you must adhere to the reporting standards fixed by the Canadian Tax Authority (CTA). Based on the type of business you operate, find out if you require a business number. The type of tax you pay is determined by the type of business structure you pick. For example, you report your business revenue on your income tax returns for sole proprietorship and partnership, but you submit a separate income tax return for the corporation.

You must also file a personal tax return if you get a salary or bonus from your business. Independent contractors must maintain records of all earnings they get from their freelance jobs, as per the requirements of the Canadian Revenue Authority (CRA). This guarantees that the contractors pay the right amount of self-employment tax. 

Get Your Business Insured

Insurance is crucial for a contracting company because it alleviates any losses occurring from your business operations. You can contact your insurance agent to determine which policy is the best for your company. 

Define Your Workplace Safety Criteria

Develop workplace safety to guard yourself and workers against harm and the company from financial damage. It is a legislative requirement for all companies to have a safety policy. Obtain a copy of your employees’ Occupational Health and Safety (OH&S) legislation.

Focus on Business Management 

After you’ve formed your contracting company, the next step is to figure out how to operate and develop it. To keep track of your business’s financial flow:

  • Open a bank account.
  • Create systems that streamline invoicing, scheduling, and tax filing.

As employees play a huge part in the success of your contracting business, create a strategy to boost employee productivity while also caring for their well-being.

Expand Your Business Horizons

When you become a contractor, it is very crucial to develop effective procurement strategies to ensure that your clients receive the quality and quantity of goods or services they require at the best available price. Creating marketing ideas can help your company attract more customers and win more bids. You can use online marketing platforms to gain potential customers at a lower cost. Contact your past and current clients to see if they can come back for repeat business or refer you to potential clients. 

Establish business relationships with industry players through networking. For instance, build a relationship with procurement managers in companies you want to do business with so they can keep you informed about new opportunities. Register your company in a business database and join industry organizations to network and discover new opportunities.

What is an independent contractor?

Independent contractors, often known as consultants, free agents, or freelancers, are individuals or businesses who work for or provide services to others on a non-employee basis. A person is a freelancer, if:

The entity benefitting from their work merely directs the work’s outcome, not how the person executes it. 

Unlike workers whose taxes are deducted from their payment, freelancers pay self-employment tax on their earnings. 

In the present era, becoming a contractor is a captivating opportunity for many people. Contractors play a critical role in the lives of people and the economy. Many individuals favor freelancer services because they are not only convenient, cost-effective, and reachable, but they also deliver high-quality services. Independent contractors include doctors, lawyers, dentists, and others who provide independent services. Electricians, carpenters, plumbers, auctioneers, automotive technicians, and musicians are other specialists who function as freelancers.

Qualifications Required to Start Your Own Independent Contractor Business

To become an independent contractor, you will require the following to perform your responsibilities efficiently: 

  • bachelor’s degree and/or certificates in a relevant field
  • experience in a related sector to exhibit that you are capable of managing the contractual task
  • a portfolio of your previous work to show that you have managed similar responsibilities successfully in the past
  • ability to obtain the necessary human resources and equipment to complete a contract
  • outstanding analytical and problem-solving abilities, allowing you to recognize and handle issues during the contracting process
  • self-motivation to complete your responsibilities
  • the ability to work in a non-supervisory environment

Advantages & Disadvantages of Being an Independent Contractor

Let’s take a look at the pros and cons of becoming an independent contractor in Canada:

Advantages:

Many people prefer becoming an independent contractor since it allows them to be their own boss. They pick when, where, and how to work while ensuring high-quality work within the specified period. Every once in a while, the contractors may collaborate with their clients’ personnel on the same project. While the employees are supervised, independent contractors, on the other hand, are allowed to work on their own.

Independent contractors can earn more money than traditional workers. 

It is because:

Firms pay contractors more because they do not enter into costly long-term contracts. Contractors can reduce their self-employment taxes by lowering their taxable revenue by taking advantage of allowable business deductions. 

Disadvantages:

The benefits of working as an independent contractor include not being employed, but there are drawbacks as well. You are not entitled to company benefits such as medical coverage, paid vacation days, retirement benefits, or incentives, as employees are. Contractors may also pay more for medical insurance and liability coverage than workers because insurance companies always provide lower group rates to employers. Unlike workers, who are paid consistently regardless of how well the company performs, contractors are only paid when there is work.

Unlike employees, independent contractors don’t get compensation in case of accidents or injuries while working. In addition, there are limited labor laws for protecting freelancers from discrimination or unjust treatment by their clients. While employees receive their paychecks at the end of each month, contractors count on payments from the customers. Some clients may take longer to pay, while others may not pay completely. When working as an independent contractor in Canada, you are completely responsible for the company’s liabilities. If the company fails, you may lose your earnings and your assets.

Frequently Asked Questions:

1. Is it worthwhile to work as an independent contractor?

Working as an independent contractor in Canada is unquestionably worthwhile, as you will typically earn more money than a traditional employee. Furthermore, becoming a contractor gives you more independence — it can provide you more predictable control over your work, as well as higher job stability than regular full-time employment. You, however, are responsible for your taxes, contracts, benefits, and vacations.

2. What does it look like to work as an independent contractor?

The following factors show how it is like to work as an independent contractor in Canada:

  • Dealing with multiple clients rather than just one
  • Creating your own schedule
  • Marketing your services to the public
  • Writing independent contractor agreements.
  • Bearing your business expenses
  • Working outside the hiring firm’s premises
  • Not getting employee benefits such as health insurance

3. How are independent contractors get paid?

Hourly pay is one of the most prevalent methods of compensating independent contractors in Canada. In certain cases, they get paid a lump sum at the beginning of each month for a set number of hours through a retainer. Companies can also pay freelancers on a project-by-project basis.

Wrapping up:

Working as an independent contractor comes up with a lot of perks as well as setbacks. It can be freeing and has the potential to enable you to earn more money than you could as an employee. But at the other end, you do not receive numerous benefits that other regular workers get, such as paid leaves, health insurance, etc.  

We hope that this article benefitted you to learn how to become an independent contractor. If you still have any queries or difficulty deciding whether to opt for this career, kindly let us know in the comment section.

Usama ChaudryUsama has a Bachelor's Degree in Chemical Engineering from the University of Alberta. Computations of electrical and thermal characteristics are among his research interests. Usama's hobbies outside of professional work include reading, playing tennis, and trekking.

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