A combination of factors is creating a situation whereby contract positions are growing in popularity. Where once contract positions were generally found in the arts and labor; today, they can be found across all sectors with a push from both workers and businesses to cement their status as a viable part of the overall job market. The Canadian government has even gotten in on it, allowing for contractors and freelancers to put part of their money into similar EI funds as regular employees so that they have something to draw upon during lean times. Many job seekers though don’t apply for contract positions, opting instead for full time positions and getting frustrated when they don’t pan out. By ignoring these contract positions, many job seekers are shooting themselves in the foot and missing out on valuable opportunities. On the other hand, people go for contract positions and don’t understand everything that goes into them, leading to frustration or being short on cash when tax time comes around. What should you know about contract positions to make them work for you?
The Benefits of Contract Positions
An important thing to look at is of course, why people do contract work and what sort of benefits they get from doing them. You probably already think of things like flexible hours and days and the ability to be choosier about the type of work that you do, but other benefits include:
• Broad networking opportunities which gives you greater access to the hidden job market
• You may be able to deduct some of your work-related expenses for tax purposes
• You can learn a broad swath of skills by working for different industries and employers
• Contract positions are good for people who are older and/or a little overqualified for many jobs because employers look for contractors who won’t need much or any training, so being overqualified for a position becomes an asset
• You don’t have to worry about office politics because you are only there to deliver a result. Contractors who ‘don’t necessarily play well with others’ don’t have to worry as much about it
• Contract positions tend to be more numerous than full time positions and there’s less competition since many people want to get a full-time position
• Contractors often have more control over their career path since they can choose not to renew contracts with businesses they don’t want to work with
• Contract positions don’t have to stay a contract position. You may discover that you do like a business enough to stick around and the business may want to keep you around, giving you a full-time position that didn’t exist before you!
• Broad networking opportunities which gives you greater access to the hidden job market
• You may be able to deduct some of your work-related expenses for tax purposes
• You can learn a broad swath of skills by working for different industries and employers
• Contract positions are good for people who are older and/or a little overqualified for many jobs because employers look for contractors who won’t need much or any training, so being overqualified for a position becomes an asset
• You don’t have to worry about office politics because you are only there to deliver a result. Contractors who ‘don’t necessarily play well with others’ don’t have to worry as much about it
• Contract positions tend to be more numerous than full time positions and there’s less competition since many people want to get a full-time position
• Contractors often have more control over their career path since they can choose not to renew contracts with businesses they don’t want to work with
• Contract positions don’t have to stay a contract position. You may discover that you do like a business enough to stick around and the business may want to keep you around, giving you a full-time position that didn’t exist before you!
Contractors have been growing in numbers in the last few years because of the problems with getting full time employment and a greater push for the kind of work-life balance that is hard to achieve with a 9-5 job.
Important Things to Know About Working as a Contractor
All right, so there are many benefits to working as a freelancer or a contractor, but there are many potential pitfalls too, even ignoring the societal stigma that remains around any position that is not full-time. These pitfalls can cause anything from irritation for someone looking to break into contract work to outright financial problems. What should you know?
• Contract work is unstable. Its very nature means that one month you may have more work than you know what to do with and the next month things are drying up. It’s important to create a firm budget, complete with money for a savings account, and then stick with it so that you can make sure you average out enough money to survive
• Watch out for manipulative jargon. Every freelancer (particularly artists and writers) have horror stories about clients who promised an easy job (ha!), simple work (pfft) and undermined their efforts by saying it was ‘just a quick project’. Worse, the ‘payment by exposure’ still floats around. Someday, grocery stores and banks may take payment in reputation. For now, they do not. Be clear about your hours, pay rate, and time for deliverables and never be afraid to say no to a potential client, especially if they aren’t being clear with you.
• Make sure to put money away for your taxes. If you make more than $30,000/year (or per calendar quarter) in BC for example, you have to start charging GST for your services so that you can remit that to the government. And then save an additional amount so that come tax time, you’re not left with a hefty bill. A good rule of thumb? 20-23% of your biweekly income should go into an account earmarked specifically for the CRA. That should be enough to cover the tax bill and maybe even get something of a ‘return’ (leftover savings anyway) that you can leave in the savings account or use for something else. Keep track of your invoices and other paperwork too. The CRA is as likely to audit a freelancer as anyone else.
• Remember that you’ll also want to set additional money aside for health insurance, EI, and any other benefits that an employer would normally provide for you, but you must now provide for yourself. Fifty dollars a month in a registered retired savings program is better than none (And it helps come tax time).
• On a personal level, it’s important to make sure that you are self motivated, able to keep deadlines, and be able to market yourself and your skills regularly.
• Contract work is unstable. Its very nature means that one month you may have more work than you know what to do with and the next month things are drying up. It’s important to create a firm budget, complete with money for a savings account, and then stick with it so that you can make sure you average out enough money to survive
• Watch out for manipulative jargon. Every freelancer (particularly artists and writers) have horror stories about clients who promised an easy job (ha!), simple work (pfft) and undermined their efforts by saying it was ‘just a quick project’. Worse, the ‘payment by exposure’ still floats around. Someday, grocery stores and banks may take payment in reputation. For now, they do not. Be clear about your hours, pay rate, and time for deliverables and never be afraid to say no to a potential client, especially if they aren’t being clear with you.
• Make sure to put money away for your taxes. If you make more than $30,000/year (or per calendar quarter) in BC for example, you have to start charging GST for your services so that you can remit that to the government. And then save an additional amount so that come tax time, you’re not left with a hefty bill. A good rule of thumb? 20-23% of your biweekly income should go into an account earmarked specifically for the CRA. That should be enough to cover the tax bill and maybe even get something of a ‘return’ (leftover savings anyway) that you can leave in the savings account or use for something else. Keep track of your invoices and other paperwork too. The CRA is as likely to audit a freelancer as anyone else.
• Remember that you’ll also want to set additional money aside for health insurance, EI, and any other benefits that an employer would normally provide for you, but you must now provide for yourself. Fifty dollars a month in a registered retired savings program is better than none (And it helps come tax time).
• On a personal level, it’s important to make sure that you are self motivated, able to keep deadlines, and be able to market yourself and your skills regularly.
A final general sort of thing to note is that many contractors and freelancers simply have a harder time explaining what they do to others. There is still a societal push to work in a full-time position and that can exert itself not only in social circles, but also in banks for loans and other things. It’s getting easier to be treated as an employed person as a freelancer, but there can still be some hiccups.
All in all, with employment trends being what they are and the difficulties that many people have getting employed, becoming a freelancer may be a great way to fill a gap in a resume or to broaden your horizons. It may even lead to a position that you otherwise would never have received, or you may simply find that you prefer freelancing. In any event, don’t limit your search to a full-time position that may not work for you when other opportunities may be available. Good luck!
