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?


  1. Fab on September 5, 2007 at 8:26 am

    Well, for me contracting is also about feeling a little more free from the job system. It gives flexibility… why not working 4 days a week for others ans 1 day per week for a personal project… that becomes an option.

    Also it is a great experience, creating a small corp. and being the one employee of it… you have to learn the basics of finances a different way than when you are full time employee. Makes you realize how much different services are costing (insurances, health care, pension…).

    I don’t know yet, how it compares financially to the permanent job… but I hear it’s supposed to be better. Should know about that in year I think, when all expenses and taxes will have been paid… and I can see the full picture.

  2. The Financial Blogger on September 5, 2007 at 9:34 am

    I agree with Fab, the flexibility and also the tax advantages are the best things out of contract work. You can deduct your car expenses, a part of your mortgage and get back taxes on several goods if you incorporate yourself.

    However, contract work might now apply to all kind of position. I guess it could be a good idea for you FT, as an engineer?

  3. FrugalTrader on September 5, 2007 at 9:46 am


    Yea, I guess it could be good for an engineer with specialized knowledge. Actually, contract work could be good for any profession. Perhaps I should look into it further.

  4. The Financial Blogger on September 5, 2007 at 11:22 am

    I don’t know about any profession. I don’t think I can do much as a banker without a bank! lol!

  5. Canadian Dream on September 5, 2007 at 11:29 am

    Both options have ups and downs. My office has both consultants and full time employees and I think you covered the basics well.

    As to consulting work in general, it’s rather like a cliff where you know at which point you don’t have any further work booked. Each job pushes off the cliff for a bit longer, but in all your planning you know it is still there.

    If you can stand that hanging over your head and you have enough experience and skills I would suggest consulting work. For engineers in general, I wouldn’t bother looking at it until you have at least 5 to 10 years experience. Otherwise why would they pay a consulting fee when then can pick up an employee for cheaper.


  6. Matt on September 5, 2007 at 11:41 am

    When it comes down to it it’s really what you’re comfortable with. Some people need the security and added benefits; stability and comfort level are extremely important if you’ve got a family. On the other hand if you like the flexibility to set your own hours and even take time off between projects being a contract worker is perfect. I like both and personally I just choose the employment route because of my debts.

  7. qubikal on September 5, 2007 at 1:03 pm

    I know a lot of people are hired as a contractor (with a 6 month term, and then are extended continuously) – this allows the companies to not pay benefits and reduce the requirement for a severance payment if they need to reduce headcount.

    As the person working, and filing for the tax deductions; they need to ensure that they follow the 4 criteria in determining whether they are eligible as a contractor in the eyes of the CRA. It’s not always that clear.


    control – more control is generally exercised by an employer over an employee than by a client over a self-employed person

    chance of profit/risk of loss – self-employed persons usually have some degree of financial risk, and more opportunity for profit than employees

    integration – an employee’s job will be an integral part of an employer’s business, where the tasks performed by a self-employed person will likely be less integrated with the client’s business

    tools and equipment – self-employed persons are more likely to be supplying their own tools and equipment, as well as being responsible for their maintenance

  8. contractor on September 5, 2007 at 3:33 pm

    I think one of the biggest myths about a fulltime job is stability and job security. I’ve worked at two different companies that have downsized without warning and as a result have been laid off. I was left to fend for myself, without warning. After the second time it happened I took my career in my own hands.

    Now, I make around 225k/yr, I set my own hours, and I’m in full control of my career. I usually work 40 hours a week or more because I simply love what I do, but if I want to work a short week or or I need some time to run errands or do things around the house, I take the time when I need it. Even if I don’t find work for 3 months, it doesn’t matter. I have a large emergency fund for those situations, and even then the longest I’ve ever gone between projects was 2 weeks.

    When you’re good at what you do you can always find people eager to employ your services. The key for me was just getting past the job security myth and putting my future in my own hands. All it took was turning a bad situation like being laid off into the opportunity of a lifetime.

  9. FrugalTrader on September 5, 2007 at 4:37 pm

    contractor, yes it’s the same idea as to why most people go fixed, b/c they always see the worst case scenario as what’s going to happen. Also, perhaps some people are simply happy with what they have and don’t feel the need to push the envelope.

  10. Gates VP on September 5, 2007 at 6:43 pm

    I’m with contractor on this one. There simply is no job security (except maybe with unionized government?) Truth is, if you’re working for big biz, one of two scenarios are at play:

    1. You are generating lots of income
    2. You are generating “just enough” or “not quite enough” income.

    If you are in group #1, you could likely be billing more alone, b/c right now you’re supporting the company’s profitabilities, the shareholders, and everyone in group #2.

    If you’re in group #2, you don’t actually have job security b/c you’re not actually generating income. Smart companies don’t downsize their #1s, they don’t let go of their top generators. No car dealership is going to willingly part with their #1 salesman, b/c he’s typically selling more cars than the bottom 3 combined. If anything, they’ll pay the #1 salesman twice as much as the chumps and let the chumps go.

    So, end of the day, you’re either fit for the chopping block or likely underpaid, b/c you’re hoisting up everyone else :)

    But even then, I wouldn’t imagine the smart ones feeling their job is “secure”. You may be slighted by a poor manager or suffer when “the Board” arbitrarily decides to cut staff from top-down (b/c the company is bleeding).

    The simple truth is, we’re all contractors.

    Some of us just make less b/c we’re not freelance. We’re all on your blog, b/c we want to get rich (or we’re already there), but we all know that the best way to do that is to become a “contractor” and to leverage the time of others in a constructive way.

    Working “for the man”, is a generally inefficient, but relatively “secure” way of building wealth. But in the modern economy let’s not imagine any real form of security. If you are a “wage-slave”, the #1 mindset change is to instead believe that you are a contractor, even if you’re on salary.

    “Contractors” become wealth b/c they strive to generate wealth. “Employees” remain poor, b/c they strive to survive. They somehow believe that without “the company” they will not have useful work to perform tomorrow.

    These are vague and highly general, but you get my point: contracting is more than just a decision, it’s a mentality :)

  11. FrugalTrader on September 5, 2007 at 7:04 pm

    Gates, another quality comment. It really hit home when you said “contractors become wealthy b/c they strive to generate wealth, employees remain poor because they strive to survive”. It rhymes too! :)

  12. WhereDoesAllMyMoneyGo.com on September 6, 2007 at 1:03 am

    I actually did an analysis for a client as his employer was looking to offer him a contract position with a raise over his F/T position – he had asked me to look at the dollars and cents of it – and we agreed we’d leave the subjective stuff up to him. In any case we looked at paid vacation, benefits, tax deductions – the whole nine yards. They had initially offered him a $10,000 pay increase to offset the additional expenses he would be taking on, but after doing the analysis and providing a written copy they agreed to a $17,000 raise since they hadn’t actually figured out the math. They had forgotten that contract workers do not have paid holidays etc. and their insurance rates were based on averages and the client was a bit more on the unhealthy range so his private insurance costs were higher.

  13. Personal finance at KMull.com on September 10, 2007 at 9:48 am

    […] Million Dollar Journey compares Full time vs. contract work. […]

  14. MaNo on September 10, 2007 at 7:32 pm

    FB, I’m an AMP (Accredited Mortgage Professiona), deal with about 40 dofferent lenders and make twice what the typical bank employee makes with the same responsibilities, not to mention, I set my own hours/appointments, etc. I wouldn’t go back to being an “employee” for love nor money, my life got much better when I went out on my own, and like “contractor” posted, when you’re good at what you do, people will find you, and if you’re on top of your own professional development, you’ll always be in the drivers seat!

  15. Vasile on September 12, 2007 at 3:33 pm

    As a disadvantage, I am told that it’s more difficult to get a mortgage if you are self-employed/contractor than if you are employed. Can you comment on this?

  16. MaNo on September 12, 2007 at 3:47 pm

    It can be a little more dificult, but not always. There are plenty of new programs in place that can usually place you in one category or another, there are BFS (Business for self) products and Contract products (no permanent employer, but a history of earnings and being employed). I use this type of mortgage product frequently when the client is working out of province, and have been employed by several employers over the past few years. We can use the average of 3 years tax returns to establish a predictable pattern of income.

    For business for self products, the Loan to Value is more likely to be lower (more money down) as most people that are self employed write their incomes down to much lower than actual levels in order to save on income taxes. The mortgage insurance premuims are higher in this case as well.

  17. […] KMull.com has hosted this weeks Carnival of Personal Finance! I submitted my article Full Time vs. Contract Work. […]

  18. Liz Wetzel on June 10, 2008 at 4:27 pm

    Im new to this, please help me.

    I am a sql developer for a healthcare, i got two job offers, one fulltime with 75k a year , benefits, 27 miles from home. The other contract 6 mos 45 per hour. 2 miles from home.

  19. Gates VP on June 11, 2008 at 7:25 pm


    $45 / hour ~ 90k / year

    All other things equal, this is about the same as having a 75k salary with vacation and decent benefits. (note this is for Canadians, In the US, the value of the healthcare plan is pretty heavy).

    Of course, not all other things are equal.

    27 miles = 1 hour / day = 250 hours / year of extra commute. That’s 10.5 days or about 5 extra weekends that you’re going to spend in the car for the salary job.

    2 miles = bikeable & lowered costs
    27 miles = dependent on your car & significantly increased vehicle costs

    So that 90k / year job is definitely starting to be look more valuable. You save 250 hours and 12,500 miles of travel. According to AAA the cost to operate a car in 2006 was 50-70 cents / miles. Gas makes up 8-10 cents of that and that cost has nearly doubled. So now it’s about 60-80 cents / mile. So again, that’s 250 hours and $8750 on the average car.

    So here’s what it comes down to: level of risk and what do you want to do?

    I’m 27 and married with no dependents. I have confidence in my skills and I enjoy a flexible schedule. If I didn’t become indispensable in 6 months, I’m confident that I would be able to find a new job quickly and inexpensively. I also place a high value on my personal time.

    To me, this is a no-brainer, take the close job with higher gross pay and the lowered time requirement. Your goal is to maximize your hourly earnings and one of these options clearly pays more. Imagine what you could do with an extra 250 hours every year!

    Of course, you’re allowed to make your own decision here, but things are definitely weighted against the lower paid full-time job. (see my comment above)

  20. Cooplet on October 25, 2008 at 12:39 am

    Should I get a fulltime job for $75K/year with benefits (3-mile drive) OR a contract job for 6 months at $50/hour, no benefits (38-mile drive)?

  21. Gates VP on October 27, 2008 at 2:24 am

    Hey Cooplet;

    Your math is similar to Liz, but you flipped one variable around.

    38 miles = 45 one way = 1.5 hours day = 375 hours / year

    You will get to write off much of the travel cost as a business expense, but you typically don’t get to bill for travel time. Of course, the salary position typically involves some unpaid overtime (unless you’re in government), so how many of those extra 375 hours are you going to lose each year?

    Plus there’s the value of benefits. You’ll have to put a dollar value on those benefits to really make any kind of fair comparison. Do some research and compare those benefits (especially those you would use) with the cost of paying for them from you $50/hour.

    Also worth noting is company status. Are they both profitable? Are they both growing? What’s the relative value of the work you’ll be doing? If your work is going to generate (or save) a lot of money, then your value to the company will be higher. This is an important form of job security.

    Of course, you’ll also get some financial leeway in terms of taxes when you bill on contract. The final value of these two setups is likely to be very close. So from a pure numbers perspective this could tip your final salary one way or the other.

    Your goal is to maximize your hourly earnings. Spending 300+ hours in the car isn’t a lot of fun, but nor is unpaid overtime. Being able to write off the expense of the car on a pre-tax basis makes a significant difference in your ending salary, but you also have to account for other overhead costs (accounting for example).

    End of the day, you’ll likely take home more money on the contract gig, but the number will be close. However, you are accepting a higher risk for this decision.

  22. Another Contractor on April 20, 2009 at 1:17 am

    I am 100% in agreement with contractor. I am one too.

    I’ve worked in IT for 10+ years and would not consider full-time employment any more secure than contract work.

    My company made $211,000.00 last year, so even if I only worked one year and could not find a contract – I made more than double what I last earned as an employee ($79,000.00).

    I could lay on the beach for a year, then just go get a job.

    I think those wary of contracting never think about that option – if you can’t find a contract – get a job! the thing is – contractors rarely “go back”..

    I’m certainly doing everything I can to prevent being an employee again. Although I did pay myself like one last year – just enough to write off daycare.

    Oh and the tax advantages of being a small cdn corp are wonderful.

    I should mention – where I live/work – there is quite a spread between employee wages and contractor rates.

    At $79,000 I was nearing the top of the scale for someone with my experience – on contract I can make a minimum of $85/hr.

    We also have a benefit loophole – too long to explain, but our medical benefits are very reasonable for our family of 4.

  23. Gamma on July 20, 2009 at 12:20 pm

    them benefits are worth about 5K..if you’re healthy not even. as for steady work, i’ve seen full-timers getting let go before contractors doing the same work.

    there is 1 more huge disadvantage of being a full-timer. they tend to make you sign intellectual property agreement..so i you write a nice piece of code in your spare time (being in IT) it belongs to the company.

  24. Eddy on August 11, 2009 at 2:13 am

    I know it’s out of topic but after I’ve read this article I was questioning my self…”What am I doing?”

    I’m 27, single, Contractor(incorporporate), and working as a service guy for telephone company. making 80~100K/year.

    I don’t have any RRSP/TFSA/RESP contribution, I never thought about it.
    after I switched from FT employee to contractor I realize that I need to save
    a lot of money instead of buying a clothes and meals.

    I’ve read lots of articles here and lots of young people like me saved a lot of money and investing on funds and RRSP/TFSA/RESP and embarrassed my self with my spending habit.

    I only have bank account with TD (Chequing $2,000, Saving $1,000, Business Chequing account $5,000 and VISA $1,000).
    I know its not very good looking….
    I’m getting paid weekly from company minimum of $1,500/week(can go upto $2,500 depends on how many work I’ve done).

    I want to invest money rather than stacking in saving account for nothing.
    My goal is to buy a condo as a first home and rent it out until rent fee pays off the first mortgage and then buy a house as a final goal…

    Could you give me an advice what to do to increase my money for my goal?

    I’ve already heard about transfer 20K RRSP to HBP for mortgage…

  25. WannabeContractor on August 14, 2009 at 7:17 pm

    I would like to do contract work, but don’t have the necessary experience as of yet. I have worked in engineering consulting for close to a year but wondering if this a good field or getting into IT would be good for contracting…..I’m 27 now but still looking for better opportunities.

  26. Dave on November 30, 2009 at 11:01 pm

    For me, employment is not long term where as contracting is on the horizon and hence I am trying to figure out my hourly rate that I should charge. Two questions:
    (1) Can someone help me calculating the cost of benefits that one enjoys being a full time employee
    2 weeks vacation+6 holidays+Health/Dental/Vision Insurance for a family of 4 (2+2)?
    (2) What is the cost of running S-Corporation (forming and paying self employment taxes, social security, etc – assuming you will need to corporate to be a contractor working for yourself)

  27. Steve on May 7, 2010 at 12:21 pm

    I have worked for the same engineering company now for 24 years. Last year, I was furloughed for 6 weeks and then came back at 30 hrs per week. That was ok. This year, I’ve been furloughed for 3 months. Now some project work has come in and they are considering taking me back as a contract employee for these projects rather than as a full time employee in order to save on having to pay benefits and all else. I’m not sure how I should deal with this. I never considered the contract employee route before. Thanks for your thoughts.

  28. Permtocontract on July 24, 2010 at 12:27 pm

    Here is a rough calculation for Canadian Employees Vs Contractor calculation. BTW I am also considering doing contract work and need to come up with a figure for my self. Let me know if anyone of you disagree with the following calculations.

    Let try to calculate the contract equivalent for permanent salary of $100,000 CAD.

    Base Salary = 100,000
    Bonus(10%) = 10,000
    Vacation(4 weeks) = 7,700
    Holidays( 7-14) = 3,000
    Health & Dental* = 4,500
    Pension Plan(4%) = 4,000
    Training = 7,000
    CPP = 2,000
    Severance = 8,400
    Sev Notice = 4,200
    Total = 150800

    This comes to $75 Per /Hr . I have not considered the after tax salary here.
    For Permanent the tax would be much higher than a contract employee
    so tax needs to be factored in. Also, I have listed only the benefits for
    permanent employee. We also need to factor in the cost of being a
    contractor to arrive at a more complete picture.

  29. AllieOops on June 11, 2012 at 1:09 am

    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.

  30. Inquirying on June 11, 2012 at 2:01 pm

    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?

  31. inHesitation on January 11, 2013 at 1:27 pm

    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?

  32. Gates VP on January 28, 2013 at 3:45 am

    @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.

  33. RR on March 27, 2013 at 7:40 pm


    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?

  34. FT on March 28, 2013 at 3:24 pm

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

  35. Elpatolino on May 12, 2013 at 9:24 pm

    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.

  36. IndiaEmployee on March 21, 2014 at 11:58 am

    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?

  37. sambha on January 20, 2015 at 12:49 pm

    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 on June 17, 2015 at 3:29 am

      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.

  38. Sam on February 13, 2017 at 6:18 am

    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.

    • FT on February 13, 2017 at 9:41 am

      Hi Sam,

      Can you describe your benefits? Vacation time, health and dental, RRSP?

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