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Contract Employment: The Pro's and Con's

Could be a foot in the door -- or a dead end

Column which ran in the

What would you do if, after meeting with the employer of your dreams and blowing their socks off in interview after interview—instead of receiving that juicy offer for a full time job you’ve been hoping for, they turn around and ask if you’d consider working for a specified period of time “on contract?” Should you accept and thank your lucky stars to have employment? Or pass and keep slogging away until a real job comes along?

Before jumping to conclusions, let’s look at what “contract employment” really means. Basically there are two types of relationships between workers and those who hire them: you’re either brought on staff as an employee, or paid like other third party suppliers—in this case as a freelancer.

As a full-time employee you generally qualify for whatever benefits the employer offers. Plus your income taxes and pension plan contributions are deducted at source (that is, taken off your paycheck directly by the employer). And if you’re ever let go without cause, the employer has to pay you, at a minimum, the statutory amount in lieu of notice, while you apply for Employment Insurance.

In terms of freelancing, you’re usually compensated only for the hours or days you work, or for completing projects that have been agreed to in advance. You’re paid the gross, or full amount, plus GST if applicable, and must remit all income tax payments on your own. As for pension contributions, holiday pay and other benefits, you typically don’t get them. In addition, when the contract has been fulfilled, you’re back to being unemployed, with little chance of receiving Employment Insurance.

In the murky middle of these two extremes comes the growing trend toward contract employment, especially when hiring to fill in for maternity leaves. In this arrangement the employer might offer you a “job” with them, but it’s for a fixed period, say three months, six months, a year etc. During this time you may be treated pretty much like you’re on staff. For instance when I accepted an 11 month employment contract with one of the big banks a few years back, to stabilize my income during the tough part of my divorce, I was provided with my own office, computer and internal network access, signing authority and the daily routine just like any full-time employee.

The differences were as follows: Instead of receiving a standard pay stub, I submitted an invoice for payment every two weeks because if I’d asked for direct deposit, Revenue Canada might have said I didn’t pass the sniff test as an independent contractor (more about this later); I was not eligible for benefits or staff training allowances; and because people knew I was there for a limited time they sometimes withheld privileged information, or left me out on projects that had extended timeframes. Oh, and I didn’t have to get mired in politics or butt kissing as much because I wasn’t bucking for promotion!

Also on the positive side, since I was considered self-employed I was able to deduct certain expenses from my income taxes, such as a portion of my car payments, rent and computer/internet costs. But I had to set myself up as a sole proprietor and charge GST once my billings reached more than $30,000. Details about the financial aspects as well as starting up are at Canada Business (www.cbsc.org), the Canadian government site for small business and entrepreneurs.

In other contract employment situations I’ve had, conditions have varied. With one six monther I was paid by direct deposit to my bank account, less deductions, and I had full benefits during my stay. But I couldn’t deduct expenses at tax time. And twice I’ve had contracts extended, once by an entire year, and another time a five month contract morphed into three years worth of work, ultimately as a full-time staffer. (Alright, so I got fired at the end…but hey, at least they had to pay me severance!)

The question at hand, however, is should you consider contract employment, and if so, when? I recommend it primarily to job seekers who are no longer employed, and who are either a) having some difficulty finding full-time employment after searching aggressively for some time, or b) running out of money. In either case, snagging a fixed-term job gets you a foot in the door and relieves your immediate financial duress. Plus, it allows you to get to know the employer and could possibly turn into something more permanent if it turns out there’s a fit.

A major downside of taking contract work is diverting you from conducting a comprehensive job search. You might well be letting solid opportunities slip by while toiling away in precarious labour. Furthermore, if you’re on severance pay and benefits from a previous job you’ve been let go from, you might lose the remaining portions once you accept new employment of any kind. Be sure to check the release you’ve signed so you don’t get burned. And if you’re thinking of keeping it a secret, be absolutely certain you can, because if the Employment Insurance folk find out, I’ll say again you’re at risk of losing any support you might have qualified for.

More negatives? If the contract lasts longer than a few months, you may have to explain to prospective employers why you chose (or settled for) temporary work instead of a permanent position. Cagey future employers might then try to offer you another contract, since you’ve already accepted before, and it’d relieve them of having to pay benefits or add to their head count, while ensuring they wouldn’t have to keep you around for too long.

If you do accept a contract assignment, it doesn’t stop you from keeping tabs on the online job banks, or from staying in the files of recruiters. You can also network within the firm you’ve contracted with to broaden prospects of staying on beyond your initial term. But if you leave for something else before you said you would, there’s a risk you’ll tarnish that sterling reputation you’ve worked so hard to burnish, especially in tightly knit industries where everyone knows everyone else.

So if securing a full-time position as a staff member is your true goal, and you can afford to conduct your job search until you hit the jackpot, you’d probably want to consider the contract route only if you’re pretty certain it could lead to a permanent job more so than other routes. Otherwise it can be a great way to earn a few bucks and insinuate yourself into a company. Just make sure you have the contract reviewed by an employment lawyer (416 947 3330 or a free half hour consult via the Law Society of Upper Canada), and keep in mind that when the contract expires, you may be back to square one in your job search.

Mark Swartz, MBA, M.Ed., is a speaker, career coach and author. He can be reached via e-mail. The above article may contain material not included in the edited version.

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