The economy is shrinking, companies are reducing their staff yet more and more people are getting employed as self employed contractors. If you were making a salary before, your company may terminated your position then hired you back as an independent contractor to do exactly what you were doing before except you are no longer on their payroll. As a result, your annualized income should always be higher as an independent contractor. Why – because being an independent contractor costs the employer less money. The employer no longer pays statutory holiday pay, vacation pay, pensions, workers compensation, pensions and termination. You are on your own. Since you now have to cover the costs of these extra costs, your hourly rate should factor this into your calculation.
Even if the paper work says that you are an independent contractor, a government authority may have a different definition and you may still be an employee as far as the government Canada Revenue Agency (“CRA”) and WSIB is concerned if you live in Canada. If you look like a duck, act like a duck then you are still a duck no matter what the paper work calls you. These government agencies look at a number of factors including tools of the trade, where you work, are your hours controlled by your employer, are you at risk, if the receivable is not collected from a customer, are your liable for it. If not, then you may be an employee. Please note that different agencies CRA and WSIB have different definitions.
I have learned of one case where the independent contractor invoiced the client for 6 years, charged the appropriate sales taxes then left the firm. After claiming they were independent of the client for 6 years, they sued for wrongful dismissal. In this case, the person seems to want to have the benefits of being employed and the benefits of being self employed at the same time.
When you set up your home based business, you need to address these issues.