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I saw a job posting asking for "incorporated software developers" and asking them to state their "incorporated rate" when applying. What's the difference between an incorporated developer and a contractor/freelancer? Google isn't helping.

My best guess is that an incorporated developer is just a freelancer/contractor who sets up a corporation and works as the sole employee of that corporation, rather than freelancing under their own name. But since (I assume) you would have to pay both corporate and income taxes if you did that, rather than just income taxes, what would be the point of doing that? There would be some protection from legal liability, but that generally isn't a big risk for software developers.

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3 Answers 3

up vote 5 down vote accepted

In most parts of Canada it's trouble for a business to hire a contractor and provide them with a desk, computer and software to do their job. A contracted software developer often doesn't have vacation pay, sick leave or severance pay.

With the exception to corporations. A software developer operating under the name of his own corporation is exempt from these rules. He will have no rights to claim that a business hired him on contract, and that he's entitled to employee privileges.

Therefore there are a lot of businesses here that will only hire contractors who are incorporated.

The incorporated contractor industry here is huge, with large companies like (Rogers, Bell, IBM, etc.) making up a percentage of their workforce with external contractors who operate under the name of their own corporation. They sit in desks along side regular employees doing exactly the same work.

There are lot of people working like this who enjoy it, and those who don't. Incorporating just so you can find contract work is a decision that usually means a long term commitment to contractor status.

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In my jurisdiction, it is common to require contractors to be incorporated. There are a number of reasons this is good for both parties. In part, it helps ensure that the contractor will not be considered an employee.

Taxes will need to be filed for both the corporation and the contractor. However, the corporation may be able to deduct expenses which would not be applicable otherwise. Amounts paid by the corporation to the contractor are generally deductions for the corporation.

Corporate tax rates may be lower than the top rate the contractor would pay. In this case it may make sense to leave some earnings in the corporation and pay them out during lean time, or after retirement.

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Can you give some examples of expenses that are deductible by a corporation, but not the individual running a business without incorporating? –  cnst May 18 at 23:23

Not sure it's relevant to you, but an incorporated engineer can be one that has standing in the relevant professional (sometimes chartered) body.

The BCS appears to be one such organization.

Quoted from that web-site:

Incorporated Engineers maintain and manage applications of current and developing technology, and may undertake engineering design, development, manufacture, construction and operation.

IEng registrants are also variously engaged in technical and commercial management and possess effective interpersonal skills.

IEng registration shows your employer and peers that you have demonstrated a commitment to professional standards, and to developing and enhancing your competence.

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