You’ve likely heard the term “golden handcuffs’ being tossed around, especially if you are interviewing for a new position. The handcuffs are broadly defined by Oxford as “used to refer to benefits, typically deferred payments, provided by an employer to discourage an employee from taking employment elsewhere”

When I first entered my physiotherapy practice as a fresh graduate it was in a role of an employee. I was drawn to the golden handcuffs of the employee-employer relationship. What’s not to like about secure pay, structured hours, benefits, vacation pay, RRSP contribution?

My 25-year-old naive, insecure self, lunged at that opportunity.

I was in that role for close to a year, then I did the math, and have not looked back since.

Why Did I Unshackle Myself?

In 2012 I was earning $33/per hour, 37hours/week: ~$63 000 per year (before taxes, source deductions, etc). Assuming the blended marginal tax bracket of 23%, my net income was: $48 510 or $25 per hour.

BUT

I had benefits, right? I saw my dentist twice ($400), didn’t have any prescription drugs, and took two weeks off paid vacation ($1875 net). What I did not have was a RRSP contribution match.

Wealthsimple revealed that most employers will RRSP match between 3-5% of pre-tax salary. Let’s use 4% in the above example. That would be $2520 ($63 000 * 0.04). In total it would be $5040 ($2520 *2).

So even though I only took home $48 510 net income, the golden handcuffs allowed me to save ($400 + $1875 + 2520)= $ 4795

Put differently, it provided me an additional benefit of $ 2.49 per hour ( $4795 / 1924hrs/year)

My decision, at that point in my life, was deciding if it was worth it to stick around in a position that was not fulfilling, did not allow for independence, a flexible schedule, or the chance to increase my income each year, for $ 2.49 extra per hour.

That decision was easy for me, No.

The next year I started a new role as a sole proprietor. It was a commission-based position earning 40% of services rendered, which averaged out to $40 per hour.

Let’s do the math.

$40 per hour at 40 hours/week (I didn’t have to take lunch breaks so I worked through the lunch hour): ~$83 200 per year (before taxes, source deductions, etc). Assuming the blended marginal tax bracket of 25%, (because I had $5000 in expenses, that allowed me to deduct from my income). My gross income was then $78 200 and my net income was: $58 650.

And yes, since I didn’t have benefits I had to pay $400 for the dentist out of pocket, I didn’t have any vacation pay ($1875) and did not have an RRSP contribution match of $2520, so I technically lost out on $4795 of benefits.

BUT

I earned a total of $10 140 more than the year prior. So even if I forfeited $4795, I was still ahead by $5345.

AND

I had the flexibility of controlling my schedule, the benefits of deducting legitimate expenses off my income, the potential of earning more income if I worked longer or more efficiently. I just had more freedom. That’s what it came down to for me.

For me, it was a no-brainer switch. For you, it may be more complicated. Ask yourself:

🧐 Do you value security or flexibility?

🧐 Will you make use of those benefits being offered?

🧐 Do you/your dependents require healthcare services not offered by government health plans?

🧐 Does your partner/spouse have a similar benefits package? If so, would it make more sense to take more of a self employed role to hedge employment risk?

🧐 Are you built to hustle and are comfortable with having a variable income?

🧐 Will you be purchasing a home in the near future? Self Employed income is not looked on as favourably as employment income by major lenders.

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