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Barry Choi: The unexpected costs of being self-employed: With more freedom comes more expenses


Being self-employed is a dream for many people. You get to choose your work schedule, do something that you’re passionate about, and be your own boss.

The number of self-employed individuals in Canada was 2.6 million in 2021, according to Statistics Canada. Since then, the number of self-employed people has been on the rise, increasing to 2.7 million in March 2022. Self-employment has now been steady year-over-year for 2021 and 2022.

Despite economic difficulties, there are opportunities for those who want to apply their skills for new ventures.

But it isn’t all sleeping in and writing off business lunches. While it’s easy to look at the positives when you’re considering going freelance, there are also quite a few negatives that you need to factor in.


Depending on the type of work you do, you’ll likely need some kind of insurance policy. Disability insurance is arguably the most important type of insurance since it can provide you and your family some income if you get into an accident that prevents you from earning an income.

Generally speaking, disability insurance will cover between 60 per cent and 85 per cent of your regular income. However, you might have a fluctuating income if you’re a freelancer. To get coverage, you’ll usually need to provide insurance providers with your tax documents from the last few years.

Other types of insurance you may need could include life, critical illness, liability, professional, and errors and omissions. It’s a good idea to talk to an insurance broker in order to go over policies that you may need depending on your industry and get an idea of how much they’ll cost you.

CPP and EI contributions

When you’re employed by a company, they split the costs of Canadian Pension Plan (CPP) contributions with you. In addition, the deduction is taken off before you receive your paycheque.

For self-employed individuals you must pay both the employer and employee portions of CPP. For 2022, the CPP contribution rate was 5.7 per cent, up to maximum contributory earnings of $61,400. That means self-employed people would pay up to $6,999.60 in CPP contributions annually.

CPP contributions are required for self-employed people. This ensures that you’re getting some guaranteed income in your retirement years.

On the other hand Employment Insurance (EI) contributions are optional. If you’re self-employed and want access to EI, you need to register and pay the premiums. Once enrolled, you’ll get access to maternity leave, family caregiver, compassionate care benefits, and more, as long as you meet the eligibility requirements. In 2022, this optional benefit was $1.58 for every $100 you earn, up to a total of $952.74 in premiums.

Unpaid vacation time

The government of Canada requires federally regulated employers to provide full time employees with at least two weeks (10 days) of paid annual vacation time. After five consecutive years with the same employer, it increases to three weeks. Once you reach the 10-year mark, you’re entitled to four weeks of paid time off each year.

As a freelancer, you get zero days of paid vacation time. Self-employed individuals that aren’t working, typically aren’t making an income. As a result, you might not be able to take much time off, or you’ll have to carve out time to work during your holidays.

Health and dental expenses

Another huge disadvantage for freelancers is that you don’t get the health and dental insurance benefits that employees typically offer. While it’s possible to purchase your own health and dental plans, it can be costly.

That said, insurance is there to protect you. If you have a plan in place, and then need expensive prescription drugs or dental work, you could benefit from paying for insurance. On the flip side, insurers have the right to increase your premiums. If you claimed $10,000 in prescription drugs one year, your insurer can increase your premiums the following year.

Buying health and dental insurance could save you money, but you might be better off just setting aside money each year for any anticipated expenses. If you want to be extra careful, save a bit more or budget for things you may need in the future, such as braces for your children.

Startup and ongoing expenses

When you’re employed by a company, all of the tools you need to do your job are usually provided for you. However, freelancers and self-employed individuals need to cover the startup costs and ongoing expenses.

For example, a rideshare driver must pay for a vehicle, auto insurance, gas, and ongoing maintenance. A graphic designer would require a computer, tablet, fast internet, and other tools.

In addition, whenever you need to make an upgrade, there’s no IT department or office admin who can get what you require. You’ll need to take the time to source new products, and you’ll need to pay for them out of pocket. Some of these capital expenses can be quite high, so you need to budget accordingly.

Claim business expenses

Most expense that’s related to your business can be claimed on your taxes. That doesn’t mean you’re getting those items for free. It just lowers your taxable income, so the taxes you’ll owe are more manageable. Some of the expenses you may be able to claim include legal fees, travel expenses and office equipment.

It’s a good idea to check the government of Canada website, where you can learn about what business expenses can be deducted. Some items may seem trivial, but every dollar you can reasonably claim will lower your overall tax burden.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.