What to Consider When Becoming a New Associate: Employee or Independent Contractor?

September 27, 2021 | Alexandra Macqueen, CFP


As a new associate, should you opt to become an employee or an independent contractor? This guide will help you better understand your options.

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If you're a new associate in a medical or dental practice, you may be facing a choice about how you'd like to structure your relationship with that practice – as an employee, or a self-employed independent contractor. Here's an overview of the factors to consider.

As a new associate, should you opt to become an employee or be a self-employed independent contractor? How you structure your relationship with a practice will influence factors like your earning potential, benefits, retirement options and taxes. Here's what to consider if you're trying to decide which is the right fit for you.

Working as an employee of a practice

When you're an employee of a medical or dental practice, the terms of your employment will be set out in an offer of employment. Then, when you accept that offer, you accept those terms, which become the basis of the employer-employee relationship.

The benefits of becoming an employee:

  • Your compensation will be in the form of salary (and potential bonuses), negotiated between you and your employer.
  • You'll qualify for Employment Insurance, which will provide some income if your employment comes to an end through no fault of your own.
  • You may qualify for severance pay from your employer if your employment ends.
  • Both you and your employer will contribute to Canada Pension Plan or Quebec Pension Plan premiums, depending on your province of employment, on your salary income.
  • You may also be offered employee benefits — such as extended health care or retirement savings — as part of your employment.

Potential downsides of becoming an employee:

  • The amount you can earn is generally set by your salary, and your ability to earn more may be limited.
  • You may be restricted, by the terms of your employment, from working for anyone other than your employer.
  • The hours and other conditions of your employment are largely set by your employer and may be inflexible.
  • You are required to pay Employment Insurance premiums, even if you never benefit.
  • Although you may be able to deduct some work-related expenses from your taxable income, these deductions can be minimal.

Working as an independent contractor

As an independent contractor, you are not an employee of the practice. You operate under a contract of service negotiated between you as a service provider. The practice is the purchaser of your services. The terms of your contract may be more extensive than a contract of employment, allowing you to negotiate more aspects of your working relationship, such as compensation and hours of work.

The benefits of being an independent contractor:

  • You negotiate the terms of your contract, including compensation.
  • Your terms are generally more flexible than with an employment contract.
  • As a contractor, you can deduct various expenses associated with the provision of your services from your taxable income. This means your take-home pay may be greater than you might receive as an employee.
  • You generally have more control over your hours and other conditions of your work.
  • You are not required to pay Employment Insurance premiums.
  • You are generally free to work for more than one practice, subject to the terms of your agreement.

Potential downsides to being an independent contractor:

  • Independent contractors generally have less employment security than an employee.
  • You are not entitled to either severance or Employment Insurance if your contract comes to an end.
  • Compared to employees, you are required to keep more extensive financial records to support any claims.
  • Unless you incorporate and structure your compensation in the form of salary, not dividends, you will be required to pay both the employer and employee shares of Canada Pension Plan or Quebec Pension Plan premiums each year.

Incorporating as an independent contractor

Structuring your relationship as an independent contractor also opens up the possibility of incorporating. Your corporation would enter into the contract of services with the practice. In this case, the corporation would bill the practice for its services, and you — as the owner and principal shareholder of the corporation — would be paid in turn by your corporation. You could opt to take compensation from the corporation in the form of salary, dividends, or a mix. If you opt for dividends, you may not be required to pay Canada Pension Plan or Quebec Pension Plan premiums. You may also structure your compensation for greater tax efficiencies, aligned to your specific situation and preferences. For example:

If you wanted to make contributions to a Registered Retirement Savings Plan, you might arrange to take more salary than dividends or to take all of your compensation in the form of salary.

Read related story:

Should You Incorporate Your Medical Practice? Understand Your Options

Salary or Dividends as an Incorporated Physician – What's Right for You?

The Different Types of Medical Practices

This article originally appeared on the RBC Healthcare - Advice & Learning