myth #4 You will make more money with small business earnings

Typically small business earnings are based on higher hourly rates than the effective hourly rate earned by employees and therefore people often assume that contractors make more money for the same amount of work. The truth is that the rates charged by self employed individuals include a premium to compensate consultants for the added risk to the contractor; the convenience factor for the hirer; the costs normally covered by an employer (benefits, pension, some government remittances, vacation, statutory holidays, bonus, double-time, training, supplies, overhead, professional dues and medical or maternity leave); and the cost savings to the employer (administrative and human resource costs such as hiring, termination and severance costs). The larger monetary benefits of working as a contractor seldom come from higher hourly rates but come from lower taxes, more cash flow for pension spending and the ability to control your income by working more or less hours.



MY TAKE: My earnings as a contract worker have been similar to the “all-in” salary and benefits+ amount that I was paid as an employee (with the same growth as my employed contemporaries). The main non-monetary benefit to me has been the ability to work less or more depending on my desire and having more choice over whom I work with and what I work on. The main monetary benefit have been the tax savings I have experienced due to both the additional deductions as a contractor and the additional RRSP (401k) contributions I have been able to make due to the up-front cash I have received.

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