Is Self-Employment a Good Choice? Statistics Show It’s a Growing SectorPosted: July 03, 2018 By : Knowledge Bureau Staff Writers
Posted in: Strategic Thinking, tax preparation, tax credits, self-employed, knowledge bureau, poll results, Evelyn Jacks, retirement planning, distinguished financial advisor, Canadian economy, tax deductions, entrepreneur, gig economy, flexible workforce, non-traditional workforce, independent contractors, hiring, financial risk, agile workforce
The way we work in Canada is changing: statistics show that 20 to 30 percent of the current workforce consists of “gig workers”: freelancers and other self-employed classifications. But that number will rise by 2020. Is it a good choice? Nearly 60 percent of last month’s poll respondents said “yes.”
This positive response by the majority of participants in the poll is not surprising in light of two recent surveys by Intuit Canada and Randstad. They indicate that already the Canadian economy consists of a blended approach to employment, which in time will evolve to include even more non-traditional workers than today. By 2020, it is anticipated that independent contractors and on-demand workers will make up 45 percent of the Canadian workforce. However, Intuit also notes that the financial management needs of the non-traditional worker segment will be more complex, and Knowledge Bureau Poll commentators agree. Here are some of their thoughts:
Does self-employment create trouble with the CRA? “Many people have problems with the financial reporting and taxes tied to being self-employed. They get in trouble and wind up owing lots of money to CRA,” said Michelle Lee.
Rosy mentioned additional challenges that come with the “gig worker” format: “I think too many people treat this as a sideline activity, not as the main activity; the problem arises if they decide to track expenses against income, and if there is any potential for profit, then how will the CRA handle it.”
Statistics show that employers choose to use the services of non-traditional workers because this model reduces costs, but 21 percent also say it improves employee performance and addresses the need for flexibility that many workers today seek.
Peter Coles expands on the financial implications to these workers with his comment: “Companies prefer dealing with independent contractors. They don’t have to provide benefits and they don’t have to pay payroll taxes. But from the perspective of the independent contractor, it is not always such a great deal. For example, they cannot collect EI once the contract is finished.”
And Sandra Gibbs notes that, ultimately, whether it’s a good choice or not depends on what makes the employee happy: “I think that, no, we cannot stop this economic change any more than we could stop any other economic paradigm shifts in the past. I have two workers right now: one is a part-time employee who works remotely, and one is a contract worker who gives me about 60 hours a month and has her own clients as well, which I consult on. Which scenario do I prefer? The one that keeps the worker happy.”
Of course, smart financial planning is essential for anyone considering a self-employed career path, and the need for more intensive and complex financial management and advice will impact a greater portion of the population in the upcoming years.
According to Ranstad, half of employers are currently committed to creating a variable workforce, with a combination of full-time employees and non-traditional workers, over the next five years – in order to provide the work-life flexibility that 47 percent of workers hope to have. And by 2025, most workplaces expect to have a balanced, agile workforce.
To mitigate their financial risks, gig workers and other self-employed individuals should consult with their tax and financial advisors to establish a budget based on their average income; calculate and put aside estimated taxes due, CPP and optional employment insurance, as well as GST/HST payable; and establish emergency savings and retirement income streams. A Distinguished Financial Advisor – Tax Services Specialist can help, while reducing audit potential and taking advantage of deductions and credits to reduce taxes due.
Thank you to all who participated in our June poll. Please weigh in this month when we ask: “Is more regulation required to protect consumers from unethical tax and financial services advisors?”
Additional educational resources:
Self-employed and want to enhance your own tax knowledge for better DIY-filing strategies? Enroll in Tax Accounting for Proprietorships (formerly T1 Professional Tax Preparation – Proprietorships). Or attend the Fall CE Summits focused on year-end planning for investors and small businesses, or participate in this year’s Executive Business Builder Retreat.
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