Is it better to be an employee or to create your company as a contractor/freelancer?

Working remotely means working either as a contractor or an employee. If the company has a legal entity where you live, you’ll be an employee. If not, you’ll be a contractor. But what’s the difference? Is it worth it to be a contractor? Or is it better to be an employee?

The short answer is: it depends. But let’s see why!

Employee

Being an employee is where we all start and it’s good for the majority of cases. When starting, you don’t want to deal with crazy paperwork, accounting, or some nonsense. You just want to work and take a salary home.

Drawbacks

You don’t have a large choice when it comes to optimizing your taxes. Your employer does that for you, so it’s up to them to optimize things.

You don’t have a choice when choosing your healthcare/retirement plan. You take what your employer has to offer.

Advantages

Your employer will do the majority of work for you, especially declaring and paying taxes.

Having a stable income makes it easier to get a mortgage. Banks are more open when they see you’re a salaried person than when you say you’re a company owner.

Contractor/Freelancer

Being a contractor/freelancer means you’ll be receiving your full salary/payment. For taxes, you are responsible for filing and paying them. This means creating your own company or some other legal structure if possible in your country.

A lot of people don’t prefer to go this route given it involves a lot of work and bureaucracy. But we’ll see when this makes sense.

Advantages

More control over your salary. You can play with it in a way that’s more beneficial to you.

Using your company for expenses is a way to reduce taxes and you directly benefit from that.

Drawbacks

Creating a company is a pain. Dealing with accounting and a lot of paperwork on an ongoing basis. Also, you need to take into account that there are new monthly expenses for accounting, bank account, and others.

If you want to get a mortgage, it will be hard given you’ll be considered as an entrepreneur/business owner. Those are riskier and banks give them a higher % on their credits.

What’s good for you?

Being a contractor/freelancer makes sense if you are taking a big leap in the pay/salary. The optimizations you’ll be making on your salary, taxes, and expenses are worth it! Otherwise, staying as an employee is probably a better idea.

If you decide to go the route of creating your own company, we have a guide for you. It explains all that you need to know if you’re working online: Creating a legal structure, paying taxes, getting health insurance… Give it a look at makeitlegal.ma.

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s