Tuesday, December 11, 2007

Making the Independant Distinction

I received some interesting advice recently regarding how the government of Canada can view long-term contracts.

I'm currently being sub-contracted by a consulting firm. This firm basically puts me out on contracts they source under their banner, and I in turn invoice them for my time at my rate. To the end-clients, it appears that I'm just an employee of the company though.

However, going into these sort of arrangements can get dicey depending on how Revenue Canada views it. Instead of you being an independent consultant on a contract, they could say that you're just a term employee with a different pay structure. Items such as business cards with your name on it but with your client's logo on it only help Revenue Canada's case.

So what can you do? Make sure that you show that there's a clear separation between yourself and the organization you're contracting under:

- Create your own website and your own online identity, clearly stating that you are available for contract work and open to being contacted.

- Get your own business cards made up. Don't fret too much about a logo, or color scheme, or anything like that; you can always change that later. The important thing is that you have something to hand out that clearly shows you as an independent entity.

- Get other work. You may have a great sub-contract going on providing great work, but you should still try to get other work and show that you are truly diversifying your client base and not just "terming" it with one company.

- Don't sign anything that limits your outside activities. Most companies will want you to sign some form of "Invention Covenant" or the like, which will state that the consulting company holds rights to anything you create during the course of employement. That statement alone I have no problem with: if you work for them, and you create a framework on their behalf or for their product or whatever, then its theirs. BUT, where it gets dicey is when (and most typically will add this in) they specify that the reach of those rights extend beyond working hours, and include anything done at home or for any other client. This is where you need to draw the line...the company is just protecting their interests and insuring their own trade secrets don't get leaked out, which is understandable...but you need to protect your own organization's interests as well.

- Before signing anything, have it reviewed by your lawyer and possibly also by your accountant. Your lawyer can identify any concerns or issues with the agreement, and your accountant can warn you about any concerns from a taxation point of view (in this case, whether Revenue Canada might have issues with the agreement)

- Retain a lawyer if you don't have one, and get an accountant if you don't have one. ;)


Registering for GST Account

I've finally come to the point where I need to register for a GST account with the government.

I'm somewhat relieved to be finally doing this, as I had alot of different information thrown at me about whether I should do this earlier than later, or whether I should have done it right from the beginning, or just wait until hitting the magic number...but I went with my accountant's advice and waited.

The process is a little misleading, as you don't just sign up for a GST account; rather you register for a business number with the federal government. In turn, this lets you open a variety of accounts with them: payroll, import/export, corporate income tax, etc., ... and a GST/HST account.

For a sole-proprietorship, you need to have some information ready:

Business Structure
This is just whether you're a SP, or incorporated, or a partnership

Legal Name
What your business name is legally. For a SP, its just your given name

Whether you're incorporated or not

Operating Name
This is the name that you use for marketing, advertising, etc. So for example, you might use your name with "Consulting" attached at the end.

Effective Date
This is when you became eligible for charging GST.

Operating/Mailing Addresses
Where to contact you/send you stuff

Reporting Period
Although the government site says you should be aware of this, they never actually ask you about this on the online registration form...and this is actually assigned. The reporting period is how often you have to send in your GST monies

Fiscal Year End
When your fiscal year end is. For most SP's, sticking to the calendar year is the easiest.

Business Activity
What your business does, and what pecentage of services make up your business.

They'll ask for your SIN

There are also a tonne of rules about whether you can apply online, but the site does a good job of explaining those. Once you submit your application, its reviewed and you'll receive a letter with the information about your accounts and your business number (which you use in dealing with the government).

For more information on registering for a business number, check out the link below.


Lawyers are Good Things

No, I'm not in any trouble where I need a lawyer...but I have visited one to get moving on creating my own contract for consulting purposes.

I had a great lunch with another consultant who talked about the importance of creating your own contract and having that available for engagements. After meeting with the lawyer he recommended, I realized how naive I was at the types of things to think about.

The idea of "warranty" for instance. I assumed that you would of course want to "warranty" your software. But then I was challenged on what "warranty" really meant: is it a bug, or a feature that's now requested...and if the latter, then how do you avoid getting into a "well that should have been in the original and its under warranty" argument. The word "warranty" is too grey of a word with software, so the safer road it seems is to say you won't warranty it...which opens the door to you as a consultant to offer value-added services for your clients. "Even though that wasn't in the initial agreement, I'll make the fix for you because you've been such a good client."

There's also the issue of liability, and although insurance should always be a consideration there's alot that you can do up front in a good agreement to deflect many of those concerns. For instance, specifying up front that any damages due to failing of software is not your responsibility. Now, you might think "Well, that doesn't sound fair...if you're building software shouldn't it work properly?" Of course...but consider this situation:

You write an application that provides some sort of financial calculation. As is always the case with software, its reliability is not tied directly to itself: network reliability, hardware access and reliability, proper maintenance, etc. are all part of the broader scheme...but many of those things are out of your control as the software developer: you can't dictate how often the IT department does routine maintenance on the servers your application will run on for instance.

So let's say that your application is busy running calculations for a mission-critical portion of a business, when the server crashes due to no fault of your software. As a result, the data files that were being used for the calculations become corrupt and unrecoverable. Without the agreement up front regarding liability, the company could come after you trying to make an argument that the software failed and cost the business, even though it wasn't the software that directly caused the issue.

Lots of things to consider around the legal side of things, and obviously the important part of this should be that the customer realizes that they're not getting someone that will shirk their responsibilities and try to sneak away with money for crap work...but taht's where reputation and experience play a larger role. But covering your butt isn't a bad thing; its a smart thing. It's just too bad that you have to paint broad strokes over everyone that they could be unsrupulous.