The “gig economy” is here to stay. Every year, the reported number of full-time freelancers increases. And with apps like Fiverr and Upwork, it’s easier now than ever to hustle on the side.
The first question you might have is, “What’s the difference between a freelancer and an independent contractor?” And the answer is, not a whole lot. Freelancers take on shorter, more discrete projects (ex. building a website or writing an article), while independent contractors generally complete larger, longer-term projects or several projects over a fixed period of time. While both freelancers and independent contractors have the ability to set their own schedule and take on as many or as few projects as their schedule allows, independent contractors may face more time restrictions because of the long-term nature of their engagements.
If you come from a traditional job, you are likely familiar with the typical employer-employee relationship: you sign an employment contract, you go to work for X number of hours, and you get paid by your boss. You may also have benefits, and come tax season, you’ll get a T4 from your employer that you’ll then use when you file your personal income taxes. Freelancing, on the other hand, gives you control over when you work, how much you work, and how you report your income. In this post, we’ll look at some points you should consider as a freelancer or independent contractor.
Setting Yourself Up for Success
Freelancers and independent contractors are self-employed. This gives them the power to establish their own hours, choose how many projects they take on, and importantly, decide what kinds of projects they want to take on. But in the words of Uncle Ben, with great power comes great responsibility. There are a couple of things to consider at the outset:
If you want to operate under a name that is not just your “First Name Last Name”, you will have to register a business name. The rules for choosing a legal business name vary by province, but the general idea is you should choose a name that is not the same as or confusingly similar to an existing business. Typically, this needs to be verified using an official name search (called a NUANs search).
You might want to consider setting up a corporation for yourself. Operating through a corporation allows you to shelter your personal assets from liability and may have additional tax benefits. Speaking of tax…
As a self-employed individual, you are responsible for your own taxes. This includes keeping on top of your own income tax and employment insurance and pension plan contributions. You may also need to get a GST/HST registration number from the Canada Revenue Agency if you make over a certain amount through your freelance work (at the time of writing, the threshold is $30,000/year). It is highly recommended that you work with an accountant, especially if the terms “EI”, “CPP”, “GST/HST”, and “remittance” are new for you.
Running Your Business (and Keeping Sane While Doing It)
Being self-employed provides a lot of flexibility to do the kind of work you want while maintaining a healthy work-life balance. But running your own business comes with its own set of stresses. Here are some tips to keep in mind:
Keep good records
This isn’t strictly for legal purposes, but having good record-keeping habits can prevent issues in the future. When interacting with clients, get at least the scope of the project, additional work or change orders, the term, and payment details in writing (by email, or even better, in a formalized contract). Also keep good records of your income and tax remittances so that the CRA doesn’t come knocking.
Don’t forget to discuss reimbursements
If you anticipate your project requiring disbursements, make sure that is reflected in your contract with the company or person hiring you. Otherwise, you could end up eating those costs (which in turn eats into your earnings). There should be a clear provision saying what types of costs are reimbursable, when your receipts should be submitted, and when you will be reimbursed.
Also, don’t forget intellectual property rights
The work product of many freelancers and independent contractors is often some form of IP, such as a logo, an article, or a report. Your freelancer/independent contractor agreement should have clear language specifying who owns the rights to your work product. In other words, it should say whether you are assigning your IP rights (full transfer of ownership) or providing a license (permission to use).
Government assistance for all
Just because you’re not an employee with benefits doesn’t mean you don’t have access to similar kinds of assistance. The Canadian government does provide some benefits, like maternity and sickness benefits, for self-employed workers.
Being a freelancer or independent contractor is exciting but hard work. If you need help setting up a corporation, registering a business name, or just need a set of eyes on your independent contractor agreement, give us a shout. Let us worry about the legal stuff so you don’t have to.
Alex is a Lawyer at Spark LLP. Having joined the firm as its first articling student, Alex spearheads the firm’s video game and esports practice.