How much should I charge as a contractor to match my salary?

General rule of thumb: Most contractors need to charge 1.5-2x their equivalent hourly salary rate to maintain the same take-home pay. This accounts for:

• Lost employee benefits (health, dental, retirement matching)
• Additional taxes (self-employed CPP, no EI benefits)
• Business expenses (equipment, software, home office)
• Unpaid time off (vacation, sick days, statutory holidays)
• Administrative overhead (bookkeeping, tax preparation)

Use this calculator to get a precise rate based on your specific situation, province, and business structure.

What's the difference between sole proprietorship and incorporation?

Sole Proprietorship: Simple structure where you report business income on your personal tax return. You pay self-employed CPP (11.9%) and can deduct business expenses.

Incorporation: Creates a separate legal entity. You can pay yourself a salary (creating RRSP room) and/or dividends. Offers potential tax advantages but comes with additional compliance costs and complexity.

Key consideration: Incorporation typically requires higher rates to cover additional costs, but may offer better tax planning opportunities.

What is a Personal Services Business (PSB) and how does it affect my rate?

A PSB is an incorporated business that provides services to a single client (or related clients) in a manner similar to employment. PSB rules apply when:

• The corporation has fewer than 6 full-time employees
• The owner performs services personally
• The services are provided to a single client or related clients

PSB disadvantages: Limited expense deductions (only 20%), no small business rate, and income must be distributed as salary. This often eliminates the tax advantages of incorporation and may require higher rates.

How do I account for unpaid time off in my contractor rate?

Calculate your billable hours realistically:

• Standard work year: 2,080 hours (40 hours × 52 weeks)
• Subtract vacation time (typically 2-4 weeks)
• Subtract statutory holidays (9-10 days)
• Subtract sick days and personal time
• Subtract non-billable time (marketing, admin, training)

Example: 2,080 - 160 (4 weeks vacation) - 80 (10 holidays) - 80 (sick/personal) - 200 (non-billable) = 1,560 billable hours/year

Your hourly rate needs to be higher to compensate for fewer billable hours.

Should I charge more than the calculated rate?

Consider charging a premium for:

• Market demand: High-demand skills command higher rates
• Experience level: Senior professionals can charge more
• Risk premium: Compensation for lack of job security
• Opportunity cost: What you could earn elsewhere
• Business growth: Funds for marketing, training, equipment

The calculated rate is the minimum to maintain your current lifestyle. Consider charging 10-30% more to build savings and business reserves.

What are the key differences between employee and contractor income?

Employee advantages:

• Automatic tax withholding and CPP/EI deductions
• Employer-provided benefits (health, dental, retirement)
• Paid vacation, sick days, and statutory holidays
• Employment standards protection
• Regular, predictable income

Contractor advantages:

• Higher potential earnings (with proper rate setting)
• Business expense deductions
• Flexibility in work schedule and location
• Tax planning opportunities (especially with incorporation)
• Ability to work with multiple clients