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Freelancing, on demand and gig work is increasingly common, accounting for nearly 45% of all employment in Canada. But working for yourself comes with its own set of challenges, not least of which are financial. Setting yourself up, finding clients and paying bills are all more difficult when going it alone, and many people find themselves in need of a little extra help at some point. This is common for gig workers of all kinds, from graphic designers and online-based freelancers to delivery and ride-share drivers.
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First things first: there are multiple different types of non traditional work that fall under the general banner of the gig economy. Although some of these terms are used interchangeably, it’s important to know the distinctions, as they can potentially have varying tax and accounting requirements.
Freelancing is a broad term that refers to someone who works for themselves, taking on contract work, project work or one-off work for companies or organizations. They are considered as “contractors” by the companies that hire them, but are ultimately self-employed. A significant proportion of freelancers are long-term oriented, meaning they work on an ongoing basis for a handful of clients.
Gig work refers to work that is specifically project or event based; like freelancers, gig workers are not employed by a company, but are contracted to perform specific set tasks, and so are also technically self-employed. Gig work tends to distinguish itself from freelancing in that it is less structured, and more likely to be a person’s side project than their sole source of income.
Workers in the arts, entertainment and recreation are more likely to be gig workers, while workers in management, technical industries and business are more likely to be freelancers.
Although drivers for companies such as Uber, Lyft, DoorDash, Skip the Dishes and so on are all technically gig workers, it’s worth mentioning them separately here as they face a unique set of challenges, and because they make up such a large proportion of the gig economy. There are over 90,000 ride-share drivers in Toronto alone. These workers rely heavily on their vehicles, and face enormous income instability in the case of auto repair or expensive vehicle maintenance.
A new type of work is rapidly evolving: on demand work. This is like gig work, but the worker focuses on just one or two businesses and expects ongoing work from them. This includes seasonal work and more traditional forms of work, for example in retail, where staffing requirements fluctuate according to many factors. On demand workers are typically paid hourly rather than by project.
Lastly, just to add to the confusion, we have to consider the term “self-employed.” While all of the above categories are considered forms of self-employment, this term also includes those who set up their own business and run it for themselves – even if that business has employees of its own. If it’s a fledgling business, then these entrepreneurs may face some of the challenges that freelancers and gig workers face.
It’s important to understand the myriad of differences between permanent employment and the different types of self-employment. It’s not just a case of paychecks – the self-employed also don’t have access to extended healthcare benefits, vacation time, sick leave, pension contributions, or infrastructure support. This means that as a freelancer, you can potentially face unstable income, high set up costs, and the consequences of a lack of benefits. Emergencies and unexpected costs have the power to completely derail a self-employed person’s finances.
Unfortunately, this potential for instability does not go unnoticed by banks and other lenders. It is notoriously difficult to get traditional financial help, of any kind, without pay stubs and the promise of a steady income. Freelancers are considered high risk, as if you fall sick or simply are unable to find enough work, the lender is left holding the bag. And most freelancers and gig workers do not qualify for business loans in the way that an established small enterprise does.
Thankfully, online and non traditional lenders are stepping into this void to help freelancers via personal loans that are easier to qualify for, have a faster application and approval process, and less restrictive terms. The offset of these benefits is that interest rates are generally a little higher than if you were able to qualify for a business loan.
Personal financing for freelancers and gig workers comes in many forms, including:
There are many varied uses for personal financing, relating to both business costs and personal costs, including:
Getting a personal loan need not be an onerous process. Online lenders (and even some traditional lenders) offer online loan applications, so you can do your research and apply for a personal loan quickly and conveniently. These lenders also list their rates and eligibility requirements online, so you won’t waste time applying to a company you won’t be able or want to use.
Generally speaking, most lenders require you to be a Canadian resident and to meet certain credit score requirements. To apply for a loan, you will need your personal information, identification, information of existing debts, information on any assets you may be able to use as collateral, and income information. With all of this you can fill in an application and receive word surprisingly quickly on your loan approval status.
Money management is a key aspect of successful self-employment. Here are some tips to help ensure you stay on top of your finances:
1. Create a budget for startup costs and stick to it! Be conservative – you might not know exactly what you’ll need right away, and you don’t want to waste money on useless resources.
2. Make a monthly budget for business-related expenses, and another for personal expenses, and keep them separate. Separate bank accounts can help facilitate this.
3. Build an emergency fund as quickly as practically possible; this will help shield you in the event of unforeseen circumstances or if work takes a downturn.
4. Talk to an accountant about how to minimize your tax footprint. These professionals do not cost much to consult with, and will be able to advise you on what you can claim as a business expense. They will also advise you on your expected tax bill for the coming year, so you can start saving for it ahead of time.
5. Don’t forget that you get paid a gross income!
Keep track of your time! Time is money to a freelancer, so know your deadlines, have a time estimate for all of your work before you start it, and then track your actual time spent. This will allow you to become more efficient, and will also prevent stacking important deadlines for multiple clients.
Personal loans can be used by freelancers for a number of purposes, including personal expenses, but also for business-related costs such as business cards, website, vehicle maintenance, laptops or computers, phone bills, and much more.
Freelancers and gig workers do not have the security of a salaried position and the benefits that many companies offer to their employees, but they also don’t qualify for business loans. So a personal loan may be useful for any number of reasons – to cover costs to be able to work, to pay business-related bills, or to cover personal expenses.
Unfortunately freelancers and gig workers do not usually qualify for business loans; business loans can be tricky to get at the best of times, often requiring proof of business income, a credit score for the business, and a business financial history. They also require the business to be set up in a certain way for legal and tax reasons, which many freelancers do not bother doing. If your income is high enough, it may be worth speaking with a financial advisor on whether setting yourself up as a business will be more cost-effective overall.
Yes, the same tax rules apply to freelancers and gig workers as to everyone else. It’s important to note that while most salaried people receive paychecks that are net of tax (i.e. the tax has already been deducted), freelancers are paid gross. This means that at the end of the year, you will owe the CRA taxes on what you earned. It is very helpful to save for your expected taxes through the year, so you’re not left with a nasty surprise come April.
Many traditional lenders require proof of employment in order to approve a loan, but luckily some lenders, including many online lenders, do not have this stipulation. This means that loans are available even if you are a freelancer or are self-employed. You may need a solid credit history and it may be helpful if you can show tax records from the past few years as an example of your earning potential.