Becoming an independent contractor is a process that can take time, but it’s worth it. Here’s what you need to do.
Step #1: Find A Company That Needs Your Skills
The first step in becoming an independent contractor is finding a company that has work you can do. You may have to do some research to find companies that need your skills, and you may have to reach out to them directly if they don’t advertise their needs on job boards or other websites.
Step #2: Set Up A Contract With The Company
Once you’ve found a company that needs your skills, set up a contract with them. This will tell them what you are willing to do for them, how much money they’ll pay you for each task, and how long the contract will last (usually 2-3 months). Make sure everything is clearly spelled out in the contract so there are no misunderstandings later on down the road.
Step #3: Get Paid For Your Work!
Once your contract with the company is finalized and signed by both parties, it’s time for you to start doing what they hired you for! Your new employer should pay you directly out of their own funds.
How To Become An Independent Contractor
If you’re an enterprising person, a career as an independent contractor might be ideal for you. An independent contractor is a person or a business providing goods and services to another under a contract. Understanding the pros and cons of the profession and learning how to become an independent contractor can help you decide whether to follow this career path. In this article, we explain what an independent contractor is, outline the pros and cons, show you eight steps on how to become an independent contractor, and outline what you need to perform your duties efficiently.
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How to become an independent contractor
Follow these steps on how to become an independent contractor:
1. Identify your business structure
Determine the suitable business structure for your contracting firm. You can opt for a sole proprietorship, partnership, or a limited liability company. When choosing the best structure for your business, consider the following factors:
- Type of industry: Some companies only contract businesses operating under a specific structure. Find out if the companies you intend to contract from require you to operate under a specific structure.
- Costs of set-up: Find out the costs of each structure and see if you can afford it. You can begin as a sole proprietor and later change to a corporation if sole proprietorship turns out to be costly.
- Future operations: Rules and regulations of operating a contracting business vary with provinces. When choosing the best structure, consider if there is a possibility of doing business in other provinces in the future.
2. Choose and register your business name
After identifying the suitable structure, choose a suitable business name. Using a business name may be more appealing and professional than using your own name in some circumstances. For sole proprietorship and partnership, you can run the business under your name. To register a sole proprietorship business, you need to fill a declaration of trade form and then register your trade name with the registry agent.
To register for partnership business in Alberta, follow the same process as a sole proprietorship, then fill the declaration of partnership form. When registering a corporation, use the business name report in your province to confirm that the name you have chosen is not in use. You can then complete the articles of association notice of address form and take all the information to a registry agent for incorporation.
3. Get business licenses and permit
Licenses and permits are legal requirements you need to operate your contracting business, failure to which can lead to fines or orders from authorities for you to stop operations. You can get your licenses and permits from your municipality or town office. You might also need federal or provincial permits like health and environmental permits. Business licences and permits vary with the type of industry and your location. Find out what the requirements are before starting your contracting business.
4. Get a business number and find your taxation requirements
When operating a contracting business, you need to follow tax reporting regulations set by the Canadian Tax Authority (CTA). Depending on the business you are operating, find out if you need a business number. The type of business structure you choose determines the type of taxes you pay. For instance, for sole proprietorship and partnership, you report your business income on your personal income tax returns, whereas for the corporation, you file a separate income tax return.
If you earn a salary or dividend from your business, you also need to file a personal tax return. The Canadian revenue authority requires independent contractors to keep track of all the income they receive from their freelance jobs. This ensures that the contractors pay the right amount of self-employment tax.
Related: The Best Work From Home Jobs
5. Get insurance for your business
Insurance is important for a contracting business. It mitigates the losses you might incur when running your business. You can call your insurance agent to determine the best policy for your business.
6. Establish the requirements for your workplace safety
Develop workplace safety to protect yourself and employees from injuries and the business from losses. A safety policy is a legislative requirement for all businesses. Find a copy of Occupational Health and Safety (OH&S) legislation and avail it to your employees.
7. Manage your business well
Once you have established your contracting business, the next step is to plan how to run and grow your business. Open a bank account to help you monitor your business cash flow. Develop systems that make invoicing, scheduling, and filing taxes efficient. Employees play a big role in the success of your contracting business. Develop a system to increase employee productivity and attend well to their welfare.
8. Grow your business
Develop efficient procurement measures which ensure that your clients get goods or services of the quality and quantity they need at the best possible price. Come up with marketing strategies to find more customers and enable your company to win more bids. You can try online marketing platforms to reach potential customers at fewer costs. Contact your past and existing customers who can come for repeat business or refer you to potential clients.
Network with industry players and build business relationships with them. For example, establish a relationship with procurement managers in companies you intend to contract from so that they can inform you of new opportunities. Also, register your firm in a business database and join industry associations where you can network and find opportunities. Consider looking for opportunities to pre-qualify your company for future contracts.
Related: 15 of the Best Remote Working Jobs: A Definitive Guide
What is an independent contractor?
Also known as consultants, free agents, or freelancers, independent contractors are people or businesses that do work or provide services to another as a non-employee. An individual is a freelancer if the entity benefiting from their work only directs the outcome of the work, but the entity does not engage in how the individual does the work. Unlike employees whose taxes employers deduct from their paycheck, freelancers pay self-employment tax from their income.
Becoming a contractor is an appealing opportunity for many people today. Contractors play an important role in people’s lives and the economy. Many people prefer freelancer services because they are not only accessible, convenient, and affordable, but they also provide quality services. Professionals like doctors, lawyers, dentists, and others who provide independent services fall under the category of independent contractors. Other professionals who work as freelancers include electricians, carpenters, plumbers, auctioneers, automotive mechanics, and musicians.
Related: A Beginner’s Guide to Freelance Jobs
Advantages of independent contracting
The main reason many people prefer a career in independent contracting is that they are their own boss. They choose the time, place, and how to work while ensuring they deliver quality work within the stipulated time frame. Sometimes, the contractors might work with the employees of their clients on the same project. While the employees work under supervision, independent contractors are free to work on their own.
Freelancers can potentially make more money than regular employees. This is because businesses pay more to contractors since they do not get into expensive long-term obligations with them. Contractors can reduce the self-employment taxes they pay by reducing their taxable income through permissible business deductions.
Related: Freelance vs. Self Employed Work: What’s the Difference?
Disadvantages of independent contracting
Choosing a career as a free agent comes with the advantages of not being employed, but there are setbacks. Unlike employees, you do not enjoy employer benefits like medical coverage, paid leave days, retirement benefits, and bonuses. Contractors may also pay more in medical insurance and liability cover than employees because group rates offered by insurance companies to employers are always lower. Unlike employees who receive regular pay irrespective of how the business performs, contractors earn only when there is work.
Independent contractors, unlike employees, do not receive compensation in case of work-related injuries. Also, few labour laws are in place to protect freelancers from discrimination or unfair treatment from their clients. While it is a guarantee for employees to receive their salary at the end of the month, contractors rely on payments from clients. Some clients may take longer to pay, while some might not pay completely. Working as a freelancer, you are solely responsible for the liabilities of the business, and, in case the business fails, you not only lose the income, but you may also lose the assets.
Related: How To Become a Freelance Web Designer (With 7 Steps)
Independent contractor job requirements
To perform your duties efficiently as an independent contractor, you need the following requirements:
- relevant bachelor’s degree and /or certifications
- experience in a similar field to show that you can handle the contracted job
- a portfolio of your previous work to show that you have successfully handled similar duties in the past
- ability to get human resources and materials required to complete the contract
- excellent analytical and problem-solving skills, which enable you to identify and resolve problems during a contractual process
- self-motivation to accomplish your tasks
- the ability to work without supervision
