Incorporated or Sole Proprietorship and Which is Best for Me?

Good question.

The default answer that every Recruitment Agent in the city, if they’re any good, should give is:

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Why? One reason.

Financially, it’s best for them if you are incorporated.

Alas, you are not in the business of doing what is best for someone else. You are in the business of doing What is Best for You, which is why you need to be informed on what your options are before going on contract with an agency.

In any contract scenario you have three choices.

1) Go on company payroll.
2) Work as a Sole Proprietor

OR

3) Work through your own Incorporation.

Agencies cringe at the thought of contractors going on their payroll because when they do, they lose money. If you’re working on contract as an employee of an agency, that means the agency needs to set you up on their payroll and perform all applicable deductions for you.

That costs them money. They don’t like that.

A Sole Proprietorship is like having your own business, but as far as the law is concerned, you are that business. That means your name and the name of your Sole Proprietorship are one in the same. You are the sole proprietor after all.

This means you can contract out as a company, and that all the money, all the assets and all the liability are yours. You’re still a burden because payroll needs to deduct CPP and EI, but not as much of one.

For you, this option is cheaper than becoming Incorporated (last time I checked it was in the $60 dollar range), you can do it online, and it comes with several tax incentives that regular working folks don’t get.  

I recommend this option for people who want to take on contracts, but don’t intend on being a long term contractor. That way you don’t incur the risks associated with owning a Corporation but still get to reap some of the same benefits as owning a business.

If all you do is dream of contracts however, Incorporation is the best option.

It’s more expensive, but the tax benefits are plenty, you’ll command a higher hourly wage, you get to own their own business like this guy:

Or this guy:

And, most importantly from the agency’s viewpoint, you’re not a payroll burden. You do all of your own deductions. All we have to do is make sure that your invoices get paid and that the money is going into your company’s bank account.

I know what you’re thinking:

But Mike, if I’m less of a burden as a Sole Proprietor than an employee and I’m less of a burden as a Corporation than a Sole Proprietor, shouldn’t my hourly rate be different?

You Betcha! 

One of the key mistakes new contractors make when working through an agency is that they don’t ask what the difference in pay is between an employee, a Sole Proprietor and an Incorporation. 

Before you take on your next contract with an agent, ask them what the difference in rate is between the three. If they tell you that it’s the same for all, call bullshit and run for the hills. That agency is trying to play funny business, and funny business is not What is Best for You.