Contractors often pay more total tax than employees earning the same gross income, but the reason isn't always obvious. The difference comes from self-employment tax (CPP contributions), lack of employer deductions, and inability to benefit from certain employee-only tax breaks. An employee earning $60,000 might take home more than a contractor earning $60,000 after all taxes and contributions are paid, even though the gross numbers match. One of the largest gaps between contractors and employees is Canada Pension Plan (CPP) contributions. Employees: You and your employer each pay 5.95% of your insurable earnings (as of 2026). Your employer's portion is a business expense they absorb. Contractors: You pay both the employee and employer portion (11.90% total) because you are self-employed. On $60,000 of net self-employment income, a contractor pays roughly $7,140 in CPP contributions annually, while an employee pays about $3,570 (with the employer paying the other $3,570). That's an extra $3,570 out of the contractor's pocket each year. This is the single biggest reason contractors often end up with lower take-home pay than employees at the same income level. Income tax itself isn't automatically higher for contractors, but the structure differs significantly.
Not automatically, but contractors typically pay more total tax (income tax plus CPP) on the same gross income because they pay both employee and employer CPP portions (11.90% total). However, contractors can reduce taxable income through business expense deductions, which may offset some of this difference.
A contractor pays roughly 11.90% of net self-employment income in CPP contributions, while an employee and employer each pay 5.95%. On $60,000 income, a contractor pays about $3,570 more annually in CPP alone.
Yes. Contractors can deduct legitimate business expenses like home office, equipment, vehicle costs, and professional fees from their gross income before calculating tax. Employees cannot claim these deductions, which gives contractors a potential tax advantage if they have significant business costs.
Contractors don't receive employer-paid health and dental benefits, pension plan contributions, or disability coverage, all of which reduce an employee's taxable income. Contractors must pay for these benefits from after-tax earnings.
Yes. Use the [Canadian Income Tax Calculator](/tools/tax-calculator) or [Self-Employed Tax Estimator](/tools/self-employed-estimator) with your actual numbers, including realistic business expenses, to see your real tax liability in either role before making a decision.