Is contract work the future of business?
It’s no secret that the times are changing. Society in general seems to be at a breaking point of sorts, with the COVID-19 pandemic pushing many to re-evaluate many parts of their lives. Employees are quitting their jobs at an incredible pace. This is happening so frequently that some are deeming this period “the great resignation”.
The unchallenged model of work has typically been to seek employment for a set salary (and bonus if you’re lucky) in exchange for your soul, er, job security. You report to work for 35-40 hours per week. You spend more time at the office with your co-workers than your family.
The pandemic blew away many of the characteristics that we used to recognize as employment. Anyone who could work from home was doing so. Employers were forced to trust that the work would get done, without the typical tactics of micromanaging.
Employees loved this.
Overwhelmingly, the reduced commute time and lack of water cooler banter made employees a lot happier. But still, many corporations are holding on to the “old normal” and itching to get their people back in the office. I’ve seen lots trying to do this, but not many explaining why.
Gaining employment has always been the gold standard to achieve. Over the past few decades, the amount of work expected out of employees has become a little out of hand. It’s been a slow creep, usually triggered by team members leaving or retiring and not being replaced. Instead of filling these roles, corporations are splitting up their tasks amongst the remaining team members. This not only makes employees lose morale, but often will make them look elsewhere. If you look at the job descriptions for certain roles, the ‘duties’ list is getting longer and longer, without a higher salary to accompany it.
What is the alternative to traditional employment?
Contract work.
Contract work has always existed; however, it hasn’t been as desirable as employment. I think that the current atmosphere could cause this to change. Before I get into that, I’m going to break down the differences between an employee and a contractor to get everyone up to speed.
What is the difference between Employees and Contractors?
It is important to point out here that your definitive status as an employee or a contractor is not determined by you. There are various factors taken into consideration by the tax authorities during an audit which determine whether someone is working under an employment or a contract capacity. Since I’m Canadian, I will speak about the factors used by the Canada Revenue Agency (CRA) to make this determination.
The CRA uses five criteria to determine employee vs. contractor status:
1. Control. Who controls where, when, and how the work is being done? If it is the company, you would be deemed an employee. If you control where, when, and how you perform your duties, you would be considered a contractor.
2. Ownership of tools & equipment. Who owns the equipment you use to perform your tasks? If you are working with a company’s equipment, this would indicate that you are an employee. If you own and use your own equipment needed to perform work, you would be considered a contractor.
3. Chance of profit/risk. Who is at risk of financial loss if something goes wrong, or financial gain if things go amazingly well? Let’s assume you have dropped a ball and forgot an important deadline. If you are an employee, the organization ultimately bears any financial loss associated with your mistake. If you are a contractor, your mistake will cost you as you did not fulfil your contractual obligation and might face not being paid.
4. Dependence on the organization. Who needs who more? If you receive all your income from one company, it is likely you will be assessed as an employee of that company. Whereas if you are performing services for a variety of companies, and are not financially dependent on only one, you would be put into the contractor category.
5. Intention of the parties. How did the relationship start? For this factor the total relationship of the parties must be considered. This one looks at how the business arrangement came to fruition and the various ‘perks’ awarded to the person doing the work. If they have health benefits and paid vacation time this would look like employment. If they do not enjoy these “employee benefits” they would be deemed contractor.
A judgement is made based on a blend of the above categories. The ultimate decider is the CRA.
Traditional employment is losing its appeal
Employment used to be the gold standard because of the deemed sense of security it gives you. Those who have been in the corporate world long enough know that this sense of security can be a false one. Many have realized this and are taking their power back in the form of ‘the great resignation’.
There is one word that can describe so many places of employment: toxic. Toxic workplaces have become so prevalent as the focus has shifted away from keeping employees happy to the bottom line.
What if instead of focusing on the company you work for, you focus on what you do well. Then you do what you do well for a bunch of different companies. You offer a service for a contracted price and how and where you perform the service does not matter.
From the company’s perspective, rather than adding new projects to the already overflowing plates of existing employees, they hire a contractor or niche firm specializing in the deliverables they need executed. I am attempting to go this route myself with the launch of my CPA firm, and I am following in the path of some very successful entrepreneurs who have done it before me.
What does this look like in the real world?
Any time a company is paying someone outside of the organization to perform duties or tasks, the model of a contractor is being used. Whether it is an individual independent contractor, or an external company specializing in a particular niche, the deliverables move from an employees’ job description onto a service contract with the external party.
Humani HR is a business that has executed this model very well. Human Resources (HR) is a department whose duties can vary widely from company to company. Some HR departments are genuinely there to advocate for employees, but there are some that do not even attempt to hide the fact that they are only looking out for the interest of the employer. I’ve spoken with many in the corporate world who have simply lost faith in HR and actively avoid any dealings with that department as a general rule.
For HR tasks to be executed effectively, there must be trust. Especially in businesses whose employees have had trust issues with HR in the past, employees would welcome an independent body whose sole purpose is to uphold good HR practices. If your company needs a revamp of HR, I highly recommend that you contact Humani HR.
Companies in their beginning stages don’t need to hire a full-time HR Specialist, as it is not cost effective for them to do so. This concept can spill over into the work performed by most departments which support the running of an organization.
In this type of outsourcing arrangement, the company is protected from the potential of underperforming or unmotivated employees, and the contractor is protected against the phenomena of ‘scope creep’ in their duties, which is commonplace in corporate employment situations.
Why you should outsource your accounting projects
The typical accounting department is extremely busy. Especially in these unprecedented times, there is more than ever being asked of accounting professionals employed by corporations and governments.
The day to day functioning of these departments is usually enough to keep everyone busy. Add in the need for a new financial system, maintaining the proper documentation and testing of internal controls (for example) and you can end up with some very swamped individuals.
Speaking as a former accounting manager who was responsible for large implementation projects at the same time, it was too much for one person. The same could be said about the implementation of any software, such as a CRM or payroll software. A company can’t expect these types of projects to be done solely by internal staff.
These implementation projects as well as any ‘special projects’ which touch the accounting records of your business need to be properly planned and executed. It is not always feasible to expect your current accounting staff to take them on, and that is where I come in.
If you have an accounting project or system implementation that needs to be done, we can work together to clearly define the project and deliverables and I will take care of the rest. Of course, your employees will be involved in the process, but in a participatory way.
Why you should outsource your ongoing financial monitoring
When you are an employee working in an accounting department, you don’t always feel that you can speak your mind and tell those in charge what you really think. This can be because you’ve tried to speak up in the past and have been ignored, or because you have people above you who are flat-out uninterested in your input (these are the ‘my way or the highway’ types). Either scenario has the ability to produce an accounting department full of people who go along with the status quo not because it is the best way to conduct business, but rather because it is the path of least resistance for them.
For this reason, I think it should become regular practice to engage with an external CPA for internal accounting needs. This ensures that you are receiving objective advice and expertise. Rather than looking to hire an internal CPA for your growing business, please reach out to learn more about my Fractional CFO services.
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I LOVE banishing the “finance scaries” by teaching entrepreneurs in an easy-to-understand way. If you’re reading this, you might benefit from my FREE Financial Health Check, which will assess how you’re doing with the financial management of your business, and provide you with customized resources that will hopefully resonate with you.