What a Consulting Rate Is Worth After CPP, EI, and Tax
The filing once you are actually self-employed is the self-employed tax guide. The point at which a corporation starts to matter is should you incorporate, and the salary-or-dividend choice after that is salary versus dividends. Instalments are quarterly tax instalments. If the contract income will also move a household benefit, run the clawback framework before you celebrate the gross. Replacing the disability policy your employer carried is the disability guide.
Employees pay EI and can qualify for regular benefits if they lose the job. A self-employed person does not pay into regular EI and does not receive regular benefits. An opt-in exists for special benefits such as maternity, parental, and sickness, and the opt-in is sticky. Confirm the current rules and the premium before you treat a contract as insured. The program shape is the EI guide. This page will not restate the benefit calculation.
Two hourly rates, and neither is the quote
| Load | On a salary | On a consulting invoice |
|---|---|---|
| CPP | You pay the employee share, up to the year's ceiling, and a second ceiling can apply. The employer pays the other share. That employer share is compensation you never see. | You pay both shares on pensionable self-employment earnings, up to the same ceilings. The employer-equivalent half is generally deductible. Confirm the ceilings and the deduction. They are not optional rounding. |
| EI | You pay a premium. The employer pays a larger one. Regular benefits are possible if you are laid off and otherwise qualify. | No regular coverage unless you are still an employee of someone. Special-benefit opt-in is a separate decision. Price a cash reserve for the gap. The reserve design is the emergency-fund guide. |
| Benefits | Health, disability, and sometimes life are partly or fully employer-paid. A disability benefit is often a percentage of salary. | You buy them, or you self-insure. Put the premium in the rate. A contract with no disability policy is a rate that has not been finished. |
| Paid time off | Vacation and statutory holidays are inside the salary. Your true hourly uses hours you actually work, not a 2,000-hour fiction. | Unbilled weeks come out of the rate. So does admin: proposals, invoicing, unpaid sales. A 40-hour week is not a 40-hour billable week. |
| Tax | Withheld at source. The return reconciles. | Nothing is withheld. You remit income tax, both CPP shares, and GST/HST if you are registered. The small-supplier threshold is a real line. Confirm the current amount before you decide you are under it. |
A rate that matches a salary
Start from the employment package, not from a round number you like. Take base, plus the employer's CPP share, plus benefits you would replace, plus the vacation you would stop being paid for. That is the after-load target the consulting practice has to produce, after tax, in the hours you can actually bill. Then gross it up. If you skip the gross-up, you have priced a hobby.
Suppose a salary of $120,000, and suppose you actually work 46 weeks after vacation. At 40 hours that is 1,840 hours, about $65 an hour of gross salary before the employer's CPP, benefits, and paid-time value. Those add more. The $65 is not your consulting rate.
Now suppose you can bill 1,200 hours a year after admin and empty weeks. You want, as an illustration, $130,000 of pre-tax profit to cover a similar life, both CPP shares, and benefits you now pay yourself. $130,000 divided by 1,200 hours is about $108 an hour before GST/HST. If a quarter of your time is unbillable and you pretended it was not, you would underprice by that quarter. None of these hours or dollars is a market rate, a CPP ceiling, or a tax bracket. Substitute your billable hours and the package you are leaving. If the client will not pay the grossed-up rate, the salary is the better hourly.
Once you are registered, the tax on the invoice is the Crown's money sitting in your account until you remit. Spending it is how consultants create a debt that feels like a surprise. The small-supplier test, the reporting period, and quick-method eligibility change. Confirm them. Do not bury the tax inside "what I earned." Business cards and expense separation, if you incorporate or stay a proprietor, are business credit cards.
When a corporation starts to matter
Incorporation is a cost — a T2, payroll if you pay yourself a salary, a minute book, GST if it applies, and an accountant. It starts to earn that cost when at least one of these is true, and usually more than one. You do not need all of the profit to live on, so deferral is real. Clients or liability actually require a company. Or you are past the point where sole-prop income, taxed every year at your full marginal rate, is the expensive way to save. None of those is a dollar threshold. A remembered "incorporate at this revenue" line is how people buy a T2 for a job that should have stayed a T4.
If you do incorporate, the next decision is how the money comes out. Salary builds RRSP room and CPP. Dividends do not. That tradeoff is the next article, and the longer "should the company exist" test is already written. Do not let a rate-card conversation skip either one. Personal cash flow still has to work in the months clients pay late. Route drawings on purpose. The household side is the cash-flow system.
If the payer controls how, when, and where you work, provides the tools, and bears the chance of profit and loss, CRA or a court can call you an employee. The invoice rate you calculated as a proprietor is then the wrong structure, and the payer may owe source deductions. The label on the contract is not the test. If the work is a job, negotiate it as a job, using total-compensation math, instead of laundering a salary through a corporation.
Key takeaways
- Price both CPP shares, the missing EI, benefits, and unbilled weeks before you compare a rate to a salary.
- Your employment hourly is salary divided by hours you work, not by 2,000. Your consulting hourly is profit divided by hours you bill.
- Nothing is withheld. Tax, CPP, and GST/HST have to leave the account on a schedule. Instalments are part of the rate.
- Incorporate when deferral, liability, or the client requires it, not because revenue crossed a number you heard.
- A captive contract can still be employment. The control test beats the invoice.
Related reading
- Self-employed tax guide — the return once the rate is real.
- Should you incorporate — when the T2 earns its cost.
- Salary versus dividends — how to pay yourself if you do incorporate.
- Employment insurance — regular benefits versus the special-benefit opt-in.
- Disability insurance — the policy the employer used to carry.
A rate without a return is a guess.
CPP deductibility, instalments, and GST are tax. The 2026 tax guide is the half of the invoice that is not yours.
Get the 2026 Tax Guide — $49 CAD
