# Lounge > Careers >  Tips on switching from employee to contractor?

## BerserkerCatSplat

So the EPC company I work for has decreed that all employees are to convert themselves to independent contractors by the end of the month in an effort to reduce overhead costs as mandated by the new hedge fund ownership.

Obvious red flags for company longevity aside, has anyone here gone through this type of change and has any tips or pitfalls to avoid? Obviously I'll need to set up the usual numbered corporation but things like determining rates, tax structure, contract scope and whatnot are entirely foreign to me. APEGA has a few guidance docs that I'm digesting but they're nearly 20 years old.

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## ExtraSlow

Personal service business. Don't be one. Get a second customer asap.

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## suntan

lol nice. Did they pay you severance? They can't just make you contractors.

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## ExtraSlow

Tell then to lay you off and collect EI.

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## BerserkerCatSplat

> Personal service business. Don't be one. Get a second customer asap.



Good advice in case I stay on long term, for sure. That's up in the air but have to roll with it for now.





> lol nice. Did they pay you severance? They can't just make you contractors.



I'm sure they will attempt to do less than whatever the legal minimum is unless forced to somehow.





> Tell then to lay you off and collect EI.



Certainly has crossed my mind but I hate being on EI, or unemployed for that matter.

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## Nufy

Have they stated a starting rate ?

For me I took my hourly salary and doubled it for my starting rate / hr.

Whats the remittance schedule. Some places I worked was every 2 weeks. Some monthly.

One fucker didn't pay for 4 months...That was a bit tight...

Assuming you want to stay there...

As well...

Account for Corp set-up
GST number
Payroll Taxes etc...
Health Coverage (if the wife doesnt have any)

An accountant can walk you through most of this if you are not familiar with the process.

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## Buster

the tax man cometh.

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## BerserkerCatSplat

> Have they stated a starting rate ?
> 
> For me I took my hourly salary and doubled it for my starting rate / hr.
> 
> Whats the remittance schedule. Some places I worked was every 2 weeks. Some monthly.
> 
> One fucker didn't pay for 4 months...That was a bit tight...
> 
> Assuming you want to stay there...
> ...



No info given as of yet, apart from a lengthy diatribe about how rates will be based on whatever clients are willing to pay as they can't afford to lose money on contracts. Rumour is they will be offering 26% above employee wage.

I've booked a sit-down with an accountant, so that should help.






> the tax man cometh.



It's inevitable.

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## killramos

It just sounds like they are laying you off to me

Start your own EPC with your existing clients and cut out the middle man.

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## ExtraSlow

I'm serious about a second customer. You need one. 5 hours a month is fine, but you need it.

- - - Updated - - -

In an ideal world, contracting rate is between 40 and 100% higher than employee hourly wage. 

You are going to be offered less than that, I already know.

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## killramos

> I'm serious about a second customer. You need one. 5 hours a month is fine, but you need it.
> 
> - - - Updated - - -
> 
> In an ideal world, contracting rate is between 40 and 100% higher than employee hourly wage. 
> 
> You are going to be offered less than that, I already know.



I would guess he’s going to be offered less than 100% of his current wage

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## BerserkerCatSplat

> It just sounds like they are laying you off to me
> 
> Start your own EPC with your existing clients and cut out the middle man.



Does seem that way, but it's more specifically like the company's only major project and source of income is about to start wrapping up so they are making it easier to shed staff. Likely a matter of when not if unless they suddenly find more work.





> I'm serious about a second customer. You need one. 5 hours a month is fine, but you need it.
> 
> In an ideal world, contracting rate is between 40 and 100% higher than employee hourly wage. 
> 
> You are going to be offered less than that, I already know.



True on all fronts, as mentioned the scuttlebutt is 26%. Taking the EI starting to look better by the minute.

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## thinmyster

I am a O&G contractor. Find a good accountant now.

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## Hallowed_point

Yeah, don't do it. Not worth the hassle and stress imo dealing with the CRA.

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## ThePenIsMightier

Did up a thread I think I started maybe a year ago about how to calculate or quantify the delta between an employee with benefits and a contractor.

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## BerserkerCatSplat

> Did up a thread I think I started maybe a year ago about how to calculate or quantify the delta between an employee with benefits and a contractor.



Was just reading it, thanks to the Similar Threads feature!

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## Buster

> I'm serious about a second customer. You need one. 5 hours a month is fine, but you need it.
> 
> - - - Updated - - -
> 
> In an ideal world, contracting rate is between 40 and 100% higher than employee hourly wage. 
> 
> You are going to be offered less than that, I already know.



Even then.. Probably will get dinged for being a psb. Cra are gangsters like that

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## suntan

Absolutely do not agree to convert without getting severance. They are estimated laying you off.

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## killramos

I am dead serious about starting your own EPC and taking the clients. It’s the natural way of these things.

Just make them lay you off first.

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## ThePenIsMightier

> Was just reading it, thanks to the Similar Threads feature!



Oh, LoL! I see that now. *I meant to say "dig".

At any rate, that was a friend of mine and I believe she did the reverse. I think she went from $85/hr Contractor with zero benefits and no holidays etc, down to only $67/hr Employee plus a shit pile of benefits. I think she said it was a fairly clean transition, like she didn't really notice being "poor" with the lower salary.
LoL maybe that's already in that thread and I should review!

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## dirtsniffer

on top of everything else, how does this impact liability and permit to practice?

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## BerserkerCatSplat

> I am dead serious about starting your own EPC and taking the clients. Its the natural way of these things.
> 
> Just make them lay you off first.



Haha, "clients". Your advice is absolutely sound, unfortunately this outfit has effectively only had one single client for the past ~5 years, so I have precisely zero leverage to poach any clients because they don't exist. I would have left a couple of years ago if it wasn't for getting some outstanding mentorship from one of the senior engineers in a particular niche I'm interested in - but I'm just not experienced enough in that field to strike out on my own yet.

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## ThePenIsMightier

Is this Energy sector EPC? Or niche tech in Energy sector EPC?
In a way it sounds like something someone massive like Fluor would do, but it also sounds like someone small <40 people with poor diversification would do.

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## ExtraSlow

If anyone knows a junior mechanical drafter with low self esteem and medium or higher ability to ignore a disrespectful workplace, please pm me. 
Actually same for an electronics tech or assembler.

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## ThePenIsMightier

> If anyone knows a junior mechanical drafter with low self esteem and medium or higher ability to ignore a disrespectful workplace, please pm me. 
> Actually same for an electronics tech or assembler.



Mechanical drafter, or _PIPING_ Drafter?

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## ExtraSlow

Mechanical. Piping sounds like facilities, and I'm allergic to facilities, just ask vengies boss.

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## killramos

I can only assume drafting has something to do with beer.

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## BerserkerCatSplat

> Is this Energy sector EPC? Or niche tech in Energy sector EPC?
> In a way it sounds like something someone massive like Fluor would do, but it also sounds like someone small <40 people with poor diversification would do.



Energy sector EPC of relatively narrow scope but not exactly "niche", small outfit <100 heads.

Sorry for being vague. I really do appreciate the input everyone's given.

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## darthVWader

100% talk to an employment lawyer. You could/should be in line for a good severance and not the BS 2 weeks a year they try to make you think they owe you.

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## msommers

> I am a O&G contractor. Find a good accountant now.



1000% this. I imagine rates have gone up since I needed one but for incorporated accounts, I think it was ~$2,500/yr.

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## Nufy

YMMV but I operated with one client only for 7-8 years straight.

Only 1 of my 13 year history did I have 3 clients.

My accountant wasn't worried nor was I flagged by CRA.

Imo...it depends on how you set up your company and pay yourself.

I was an employee of my company and paid myself monthly and did payroll remittances monthly.

Quarterly GST and Corp taxes as requested by CRA.

As has been noted...If you do this get an accountant. I can send you the contact info for mine if you like. PM me.

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## Buster

> YMMV but I operated with one client only for 7-8 years straight.
> 
> Only 1 of my 13 year history did I have 3 clients.
> 
> My accountant wasn't worried nor was I flagged by CRA.
> 
> Imo...it depends on how you set up your company and pay yourself.
> 
> I was an employee of my company and paid myself monthly and did payroll remittances monthly.
> ...



you got lucky

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## bjstare

> you've been lucky so far



ftfy

Just because an audit hasn't happened yet doesn't mean it never will.

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## Nufy

Fair enough.

I hear the stories of people getting audited but it's usually guys who only pay themselves with dividends to avoid taxes or something similar.

I do not personally know anyone who has been audited for that purpose.

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## Buster

> Fair enough.
> 
> I hear the stories of people getting audited but it's usually guys who only pay themselves with dividends to avoid taxes or something similar.
> 
> I do not personally know anyone who has been audited for that purpose.



thats not the risk. The risk is being turned into a PSB. Now, if you flowed through all of your cash then your risk is much lower.

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## ThePenIsMightier

Sorry, what's a PSB and the issue with it?

My understanding was that calling yourself a Contractor and then only working for one client put you and your client at risk of CRA saying "bullshit - you're just an employee trying to dodge taxes and your employer owes you a severance when they stop using you. Here's your enormous tax bills and penalty/interest fees."
As long as you're actually a contractor with >1 clients, this risk should be mitigated.

Are we talking about the same thing?

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## msommers

Personal service business, which is basically what you described. According to my accountant back in the day, it was A LOT of IT contractors who clearly were employees: they worked for one client, they had an office and used company equipment, company parking, the works.

They'd pay themself basically minimum wage, write-off as much as you can imagine, and it sounded like the biggest issue was actually the CRA not getting their EI payments and proper CPP amounts.

At one point some PSBs tried to use family as employees, get your wife to be the 'bookkeeper' at $50/hr for 10 hours a week.

But hey, if the system lets you do it why not. That said audits are fucking terrible, so hedge accordingly.

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## suntan

As a small business you can use the small business income tax rate. Yippee. And it's on profit.

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## Buster

> Sorry, what's a PSB and the issue with it?
> 
> My understanding was that calling yourself a Contractor and then only working for one client put you and your client at risk of CRA saying "bullshit - you're just an employee trying to dodge taxes and your employer owes you a severance when they stop using you. Here's your enormous tax bills and penalty/interest fees."
> As long as you're actually a contractor with >1 clients, this risk should be mitigated.
> 
> Are we talking about the same thing?



the PSB thing is crazy. There are a bunch of "tests" to determine if you are, and its a bit discretionary

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## JPB

> on top of everything else, how does this impact liability and permit to practice?



Don't sleep on this, liability insurance is a few thousand a year and I'm currently paying one year of extended reporting liability after wrapping up my company and going back to staff. With no ongoing revenue this needs to be accounted for in your rate. 

Also factor in phone, laptop, other IT costs. Internet costs. WCB. Both sides of CPP unless you are paying yourself as dividends. Utilization - if you aren't being guaranteed enough hours you need to account for enough income to get you through the slack times. I built up a spreadsheet to add all these things in and it gives me a range for my contract rate. Mine is about 50% over staff rate, but it can go higher for stuff that needs extra software or if the client looks like a pain in the ass.

Your employer is being super greasy moving everyone to contract and gut feel is they are walking a really fine line with CRA with this approach. Their overheads are going down big time, don't let them offload it all on you by low-balling you. Lots of guys get away with a single client and avoid the PSB thing, I am too paranoid so I was always hustling for bits and pieces from a bunch of EPCs. During the lean times my motto was three part time jobs makes a full time job.

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## Hallowed_point

> Don't sleep on this, liability insurance is a few thousand a year and I'm currently paying one year of extended reporting liability after wrapping up my company and going back to staff. With no ongoing revenue this needs to be accounted for in your rate. 
> 
> Also factor in phone, laptop, other IT costs. Internet costs. WCB. Both sides of CPP unless you are paying yourself as dividends. Utilization - if you aren't being guaranteed enough hours you need to account for enough income to get you through the slack times. I built up a spreadsheet to add all these things in and it gives me a range for my contract rate. Mine is about 50% over staff rate, but it can go higher for stuff that needs extra software or if the client looks like a pain in the ass.
> 
> Your employer is being super greasy moving everyone to contract and gut feel is they are walking a really fine line with CRA with this approach. Their overheads are going down big time, don't let them offload it all on you by low-balling you. Lots of guys get away with a single client and avoid the PSB thing, I am too paranoid so I was always hustling for bits and pieces from a bunch of EPCs. During the lean times my motto was three part time jobs makes a full time job.



 :thumbs up:  Bindar Dundat in my past life. Double CPP, WCB, liability insurance etc etc etc , accounting $, worrying about CRA declaring you as an employee vs a contractor. Just don't do it. Let them fire you and pay severance or whatever you need to do. Otherwise you are gonna get screwed in the short or long term, mark my words.

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## ThePenIsMightier

> ...
> 
> Your employer is being super greasy moving everyone to contract and gut feel is they are walking a really fine line with CRA with this approach....



They're not playing the long game. They're simply positioning for massive layoffs with no severance or time-in-lieu in the very near term.
HR people are often attractive, but rarely smart. This isn't going to end well. It's not a good strategy.

But then again, neither was carrying all the eggs in one basket by having one giant client and no other sustaining work.

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## msommers

> Bindar Dundat in my past life. Double CPP, WCB, liability insurance etc etc etc , accounting $, worrying about CRA declaring you as an employee vs a contractor. Just don't do it. Let them fire you and pay severance or whatever you need to do. Otherwise you are gonna get screwed in the short or long term, mark my words.



While there are a lot of factors to consider, there are a lot of contracting engineers who are successful and not pulling their hair out all day.

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## Hallowed_point

> While there are a lot of factors to consider, there are a lot of contracting engineers who are successful and not pulling their hair out all day.



 Engineers with how many clients? I stand by my statement. Plus CRA can backtrack and make your life interesting years later. Just say no is a safer bet.

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## statick

As someone that deals with the CRA on behalf of others on a regular basis, I will echo all of the advice on being cautious about PSB status. There’s lots of good material online, but here is one of the better resources…
https://www.taxtips.ca/glossary/pers...s-business.htm

And yes, I’m aware that everyone (and their dog) in this province has operated in such a fashion for decades, but the CRA has recently launched a project to crack down on these. They have already started sending out “education letters” to suspected PSBs. In respect of full transparency, not all projects that get started by the CRA are seen through to the end (at least in their originally intended form), but this is a relatively low-hanging fruit, if you ask me.

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