Full Time Employment Vs. Contract Work

Fab, who is full of article ideas and a links for charity contributor, has suggested another topic, the financial advantages of contract work vs full time employment.

I've thought about this issue before and these are the advantages/disadvantages that I could come up with. 

Full Time Employment

  • Advantages:
  • Full benefits like health care, life/disability insurance, rrsp contribution matching.
  • Steady dependable work where there's no need to find another project when one is about to be finished.  The company will typically re assign you to wherever is needed.
  • Disadvantages:
  • Higher taxation as employees have limited tax deductions besides RRSP's.
  • Might get hired for one project, but the company puts you on another that you may not be as interested in.
  • Lower per hour rate compared to contract work.

Contract Work

  • Advantages:
  • Higher per hour wages.
  • Flexibility of going from one job to another.
  • Get to claim tax deductions.  For example, if you work from home, you can claim your office/car expenses thus reducing your income taxes payable.
  • Disadvantages:
  • Variable benefits – depends on your contract
  • Contracts can be terminated early thus resulting in unpredictable income.
  • The need to constantly stay on top of your game as companies are hiring you for a specific skill set.

When it comes down to it, contract work and full time employment are two totally different beasts.  Contract work is more entrepreneurial, thus introducing more risk but with potential of higher returns.  Full time work on the other hand, is more steady, but with lower pay.  It's kinda like choosing between going variable or fixed on your mortgage. 

Any thoughts on this issue?

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Sam
4 years ago

I make around CAD $115 per hour , I am getting offer to work at $150 K base salary + benefits. Please advise which of the two is better option.
Thanks

sambha
6 years ago

Contract Work: If you’re an immigrant, and work as a contractor, you’re treated as a 3rd-class citizen.
2nd-class for being a visible minority
3rd-class for being a contractor.

I’ve been on contract since 1997. I lost my full time job and accidently someone hired me as a contractor. I’ve worked for few companies…..in……out. I’ve been out of jobs many times for as long as 6 months. I’ve also had couple full time jobs and laid off during mergers. And it’s very hard to find full time jobs in MAINFRAME world.

I’m not allowed to collect EI or UE (unemployment insurance). I pay EI (Employment Insurance), Canada Pension Plan every year when I file my personal income tax. But again I’m not eligible to collect unployment benefits when I don’t have any contracts.

I make $89.00/hour. Work 4 days per week. 7 hours per day
I’m not allowed to claim for any O/T (take time off).
I dont get paid for :
Vacation pay, company pension, sick days, statutory holidays, severance pay, stock options, education, ohip, bonus, nothing…..list can go on. Oh, not even get invited to company x-mas parties.
All the full time employees look at me side-ways when I leave to go home at 2:30 p.m.
They think I’m taking away their jobs and make tons of money. No one over here want to hear the word “MAINFRAME” but everyone likes to make comments that the contractors are over paid.
But, they’re not willing to hire me full time. MAINFRAME will be faced out soon and so will I.

GSb
6 years ago
Reply to  sambha

Hi Sambha,
I dont think Mainframe is going to phase out. Some shops are migrating to different platforms but it exists and will exist for sa long time especially in financial institutions.

IndiaEmployee
7 years ago

Hi all, I am planning to go on open work permit to Canada.

1. Does contract employees get vacation?

2. Does contract employees get offer letter, pay stubs, and relieving letter etc documents for future company change?

Elpatolino
8 years ago

Hi all,

I am new to Canada Pr for 9 months now. I have been working as casual with CS-02 ie about 65K or 33.25. As Casual you have no benefits at all (holidays except for extra 4%, so make that 34.7$ /hr, no extra health over standard OHIP coverage, no extra pension), as if you are a contractor.
I can become contractor and have an offer at maybe 375/day, ie assuming it is an 8hr day (employees are on 37.5 hrs/week) that makes it 46.975/hr as I have to go through an agency and I suspect they are raking in about 30%
Here people are talking of 1:2 which is what I had worked out as being a good ratio, here we are talking of 1:1.35
I am unfortunately in a bit of a weak position as although I work in Business Intelligence, my work has mostly been on the front end (OBIEE Answers and Dashboards) and I have little access to the back end repository.
So is it worth me being in a difficult position for the moment and trying to get relevant certification so I can get more interesting stuff?
Thanks for your help.

El Pato.

FT
8 years ago

@RR, IMO, the contractual job would have to pay at least $100/hr, depending on the full time benefits.

RR
8 years ago

Hi,

I have tow offers.

1.contractual job paying about 55$ pr hr and
2. Full time $95k pa

The only reason I have second thoughts is because I would need authorization to work in the US in future.

In this case what are your suggestions?

Gates VP
8 years ago

@inHesitation: I feel you are missing half of the numbers here.

You have all of the numbers for the “employee” side, but what about the “contractor” side.

Some things to consider:
– Cost of health insurance for yourself & your family (may be more expensive, may not be possible)
– Cost of liability insurance
– Cost of accounting
– Cost of legal fees (incorporation, contract reviews, contract disputes)
– Cost of finding new accounts
– Taxation benefits

My personal line for a contract would be about 2:1. So if I was making $100k / year, I would want to bill $100 / hour (or $200k / year). Firms made up of consults generally need at least a 2:1 ratio for their employees. I’ve heard some operating at 3:1 or 4:1.

At your level, you are operating at 1.6:1 or so. You could really go either way on this one, but you should really look at your overhead costs as this is not a home run.

inHesitation
8 years ago

I have a struggle here. I currently full time with +100K and bonus and all other full time benifit(4 week vacation+insurance+stocks+pension). in total 133K. (But I have to work +2100 actual hours without overtime pay). I got an contractor offer for 80~85 per hour. Do you think it would be right decision to move on?

Inquirying
9 years ago

hello all,

I have been contracting for the last 5 years. I quit full time long time ago and never looked back since. However, my husband and I are now contemplating starting a family. Neither of us works full-time.

Is there any ‘added’ advantage to going full-time if starting a family? A part of me thinks to go full–time for a few years (have a family etc…) and then go contracting after things stabilize.

Your thoughts?
Thanks

AllieOops
9 years ago

Well, this is an old thread, but I’ll reply anyways.

I have used this formula for roughly calculating what a contract rate should be if you haven’t done it before.
1. Take your annual salary (base) + cash top-ups (bonus, incentive, profit share … just the cash portion).
2. Estimate your number of working hours per year. Some people say 2000 (50 weeks times 40 hours). That’s not realistic. Few people work 50/52 weeks If you properly add up vacation days + flex days + stat holidays, you’ll get a far more accurate picture. Plus a lot of companies don’t have standard 40 hour weeks any more. Use what is accurate for you.
3. Divide #1 by #2 – this is your current hourly comparable rate (current perm income if you were paid the same, but hourly)
4. Multiply by 130%. That is your rock bottom contract rate. Multiply by 140% – that is your ideal contract rate.

Example: $100,000 (say this is my cash earnings, all in) divided by 1880 (my annual hours, approx) = $53.19. My current earnings if I were paid hourly would be $53.19/hour.

$53.19 X 130% = $69.14/hour This is my “Rock Bottom” contract rate. I will not work contract for less than this if I wish to maintain my current earnings and offset the things I’ve given up: paid vaca, paid sick days, benefits coverage, random perks, etc.
$53.19 X 140% = 74.46/hour. This is my “Ideal” contract rate. Hopefully I”ll get this rate … or better! :) More is always better!

Having said all of this, any contract rate is better than no income at all.
As an aside, I am in Alberta. Certainly other areas of the country may well have a more accurate multiplier for a specific region.