Contractor Pay in Canada: Calculating Your Hourly Rate from a $90k Annual Salary

To calculate your hourly rate based on an annual salary of $90,000 in Canada, you can follow these steps:

1. Determine the number of working hours in a year: A typical full-time work schedule in Canada is about 40 hours per week for 52 weeks, which equals 2080 hours (40 hours/week x 52 weeks/year).

2. Calculate the hourly rate: Divide the annual salary by the total number of working hours:

Hourly Rate {Annual Salary} / {Total Working Hours} {90000} / {2080} ≈ 43.27

So, if you are earning a $90,000 salary, your approximate hourly rate would be about $43.27.

Keep in mind that this does not account for any deductions or taxes, which may vary based on your specific situation. It also does not factor in benefits or other compensation that might be included in a contract.

Long Story Short: Why Simply Dividing by 2080 Isn't the Full Picture

Many cheapskate agencies will try to sell you the simplified formula of dividing the salary by 2080, the approximate number of standard work-week hours in a year. However, you should not believe them, as being a contractor is quite different from being an employee. Here’s why:

1. No Benefits

Mere division by 2080 doesn't account for any benefits. Contractors typically get no vacation, no sick leave, and no holidays. This can reduce the total working hours to around 1840, not 2080. In the United States, many contractors save several hundred to thousands of dollars per month on health insurance from their employers. In Canada, similar benefits might not be provided, further reducing your net hourly rate.

2. More Paperwork and Taxes

Being a contractor often means keeping detailed records for tax purposes. In the United States, this involves a substantial amount of paperwork. In Canada, you'll likely have to fill out invoices, track payments, and possibly pay estimated taxes. This can take a significant portion of your time away from work.

3. Varying Client Workload

A contractor may not work as many hours as an employee. There is no guarantee of consistent client work, which can lead to reduced income or irregular income flow.

4. Different Tax Rates

In many countries, including Canada, contractors pay different tax rates compared to employees. This variability introduces additional financial considerations.

More Precise Hourly Rate Calculation

To get a more accurate hourly rate, take the following factors into account:

Add the value of your benefits if they are not included in the salary. Compensate for the risk of contracting versus being an employee. Add for business overhead, including incorporation, hiring an accountant, and lawyer fees. Add for marketing, getting business cards, establishing a web presence, and learning to run a business. Add for higher taxes if applicable, with research on the additional costs in your country.

Finally, divide by the number of hours you realistically think you will work per year, which is likely to be no more than about 1600, or 3/4 of the standard work-week hours.