How to Become a Contractor in UX and Service Design — Outwitly

As part of Outwitly Staffing , we often speak with design and research professionals currently working as full-time employees (FTEs), considering becoming an independent contractor or freelancer. However, because of the general lack of understanding about what working as a contractor means, it can feel quite scary for people to consider making this jump… which is where we come in!

This blog post will demystify a lot of concerns that UX designers, UX researchers, and service designers have about becoming a freelancer. Please note this information best applies to fellow Canadians, although some tips and advice will be widely applicable! We’ll touch on:

• Terminology
• The key differences between FTE and freelance/contractors
• Payment and compensation structures
• Benefits, time off, and equipment
• Admin, taxes, and accounting
• How to know if you’re ready to make the leap

Caveat — we are not accountants. We can provide you with our best advice and help you make sense of the world of contracting in UX and human-centered design, but we strongly encourage you to speak with an accounting professional.

Terminology: Making sense of full-time employment, contracting, and freelancing

First, let’s start with the basics. What are we talking about when we use the terms full-time employee (FTE), contractor, and freelancer? There are a lot of different terms used to describe these types of roles, but ultimately they are very similar.

Let’s break them down:

• Full-time employee (FTE) — means you work for a company or organization and they pay you to do work for them on a permanent, full-time basis.
• Contractor — means someone who works on a contract basis, often subcontracting under another firm to work for a client. Typically you’d refer to someone as a “contractor” when they are working on longer-term contracts for over 6 months at 40 hrs/week. Usually, contractors don’t have direct clients and often work with intermediaries like recruiting firms and other consulting firms.
• Independent Consultant — someone who works as a consultant on a project-by-project basis and typically isn’t dedicated to one client. Independent consultants still subcontract with other consulting firms/agencies.
• Freelancer — is along the same lines, works on a shorter-term, project-by-project basis, with no expectation of full-time hours, and typically isn’t dedicated to only one client.

Contractor, independent consultant, and freelancer can all be used interchangeably! All three of these roles are classified as incorporated or sole proprietors. Legally there is no difference between them. To keep things streamlined and straightforward, throughout this blog we’ll use the term “contractor” to describe all three roles.

Key differences between full-time employment and contracting in UX & HCD

As mentioned, making the leap from FTE to contractor can be daunting and intimidating! From the outside looking in, it’s hard to know what the major differences will be or how to prepare for them. Generally speaking, these are the key differences between life as an FTE and a contractor:

• As a contractor, you must be a sole proprietor or incorporated.
• How you are paid (i.e. bi-weekly vs. monthly invoicing).
• How vacation, sick leave, and benefits are handled.
• Administrative and bookkeeping requirements.
• Tax deductions and tax planning abilities.

We’ll dive into each of the above in more detail below — keep scrolling!

If you want even more of the juicy details on becoming a contractor, watch our FREE webinar: “Make the Leap from FTE to Contractor in UX and HCD!”

Compensation and payment schedules as a contractor

Full-time UX (user experience) & HCD employees are often paid an annual salary plus a package of benefits, whereas contractors can be paid on a time and materials basis at an hourly rate (this is the most common option!) or a fixed fee (value-based pricing). Generally speaking, contract rates are higher than FTE salaries to account for the additional administrative requirements, bookkeeping and overhead costs associated with running your own business! For short-term, part-time, and project-by-project contracts, rates can also be even higher to account for opportunity loss. If you want to learn more about how hourly rates can differ depending on the type of contract, check out our webinar.

In addition, the timing and schedule of when you’ll receive payment will differ whether you’re a FTE or a contractor. For the majority of employees in UX and HCD, you will be paid on a bi-weekly basis by your employer. Your paycheck will have certain deductions including Employment Insurance (EI) and Canadian Pension Plan (CPP), as well as taxes and other deductions related to your benefits. Payment schedules are different when you become a contractor — contractors are also paid on a set schedule, but still, payment terms in the contract can vary. We go into a ton more detail on this topic in our FREE webinar — sign up .

Here are two of our best pieces of advice you’ll want to steal when it comes to compensation and payment as a contractor:

1. Remember to save some of that money for tax time at the end of the year! Because tax isn’t automatically deducted from your payments, you have to factor this in yourself. If you forget to do this, come tax season, you’ll be in for a not-so-lovely surprise.
2. Have a plan in place when you first start contracting, as you may not receive payment for several months after you begin working. As mentioned above, payment terms vary. Go through your contract with a fine tooth comb, don’t be afraid to ask clarifying questions, and make sure you budget $ for that time.

Benefits, taking time off, and buying equipment 101

Let’s look at health/medical benefits, taking time off for vacation, and purchasing equipment and software. As a human being, you must reserve space for work/life balance — everyone deserves time off and becoming a contractor is no exception to this!

Here are 5 frequently asked questions:

1. Will I get medical benefits as a contractor? Unlike full-time employment, contractors are responsible for acquiring their own health benefits. Don’t worry — getting medical benefits for yourself and your family is easily doable, and the price point can be very approachable! In some cases, you may even want to consider a Health Care Spending account (HSA). Each province’s health care plans will differ in coverage and cost, so we’d recommend starting your search through companies like , , , and .
2. Do I get to take a vacation as a contractor? What happens if I’m sick? When you’re a contractor, there is no paid time off for vacation or sick leave — you’re only paid for hours worked! You can voluntarily pay into EI benefits, but neither are deducted from your invoices as they would be on a full-time paycheck. Taking care of yourself is of the highest importance, so you can still take vacation and sick days, you just won’t be paid for them. Many contracts will account for vacation, and the total number of hours allotted on your contract may work out to having 2–4 weeks of unpaid time off.
3. Do I have to ask permission, and is there a process for time off? No, you don’t need to ask for permission! However, you should always use your best judgement in planning vacation time. Align your time off with the project schedule and always alert clients, team members, and key stakeholders of your time away. Communication (as always) is key !
4. Can I work from abroad? One of the greatest perks of contract work is working when, where, and how you want. As long as it’s within the terms of your contract, you have autonomy over your schedule! Some contracts may dictate in-person work or work within Canada (or your country of residence) for security reasons. In other cases, your work has no boundaries. Be mindful of time zones if you’re working abroad because you’ll likely still be expected to align your working hours with your teammates.
5. Will they cover/provide subscriptions to design and research software like Figma, Miro, Adobe, Calendly, Dovetail, Typeform, etc.? Again, this can vary depending on the contract (type of company, security requirements, duration, etc.) However, most of the time, the onus is on the contractor to pay for their software subscriptions, but these are tax-deductible expenses! We’ll get into that more in the next section.

If you want to learn more about laptops/equipment or travel costs as an independent contactor, be sure to listen to our free webinar !

Admin, Accounting, and Taxes

The staffing team at Outwitly meets with hundreds of service design and UX practitioners yearly! The elements of contracting that folks tend to be most nervous about are admin tasks, accounting, and taxes. We get it, this stuff can be stressful, but we have your back and are here to make things a simpler!

First, let’s jump into sole proprietorship vs. incorporation.

Sole proprietorship is an unincorporated business owned by an individual — the simplest business structure! If you’re a sole proprietor, you file and pay personal income tax on the net income generated by, you guessed it, .

Incorporating your business means your corporation is an entirely separate entity from yourself. An accountant is required to file your income tax at year-end, the business pays corporate taxes on what it earns, and you pay personal tax on what you withdraw from the company (or what the company pays you.) With incorporation, you’ll need a separate bank account from your personal one. So, when should you incorporate your business? Generally, you start seeing significant tax savings when your sole proprietorship reaches $50,000 to $60,000 in gross annual revenue before expenses. If you’re projecting your business to earn over $50,000 in twelve months, you’re better off incorporating right away! Again, make sure to speak to an accountant before making any decisions!

Let’s face it — tax talk isn’t glamorous or fun! Instead, it can be quite confusing and overwhelming, especially if you’re new to working as a contractor and are used to full-time employee life. There are a ton of tax planning strategies out there unique to being a contractor, including ways to take advantage of tax breaks and maximize your tax deductions. If you want to hear more on that, we’ve recorded a FREE webinar you have to get your hands on.

Want an in-depth breakdown of tax planning, strategies, and money-saving opportunities for contractors? Our free webinar has you covered!

Get Instant Access

Community and Career Development for Design Contractors

A common concern we hear from designers switching to contracting is the fear of losing their sense of community. Something full-time employment is good for is constant interaction with co-workers! Conversely, in contract work, it’s up to you to fund your personal development (hello, tax deduction!) and initiate your involvement with design communities. Luckily, there’s no shortage of ways to build and maintain a network of professional relationships.

Here at Outwitly, building community is always top of mind! Folks who work with Outwitly as contractors (aka, Outwitlians ) have access to…

• An incredible community of designers — including our online Slack group.
• Design coaching — join group coaching calls led by an executive-level service design consultant, available to help you navigate any challenges you might be facing.
• Design resources — an entire library of design tools, methods, and templates at your fingertips.

We’re always looking for independent contractors in UX Design & UX Research, UI/Visual Design, Design Research, Design Strategy, Service Design, and Project Management to assist us with private and public sector client work.

Ready to make your dreams of being your own boss a reality? Join our independent contractor pool today!

Learn More

When to make the leap from FTE to contractor?

If you’ve made it to this point in the blog, past the daunting questions about compensation, timesheets, taxes, and bookkeeping, congratulations — you’re crushing it! If you’ve decided contract work interests you, the time has come to determine you should make the leap! In meetings with potential contractors, we’re often asked questions like, “how do I if it’s the right time to make the leap?” or “how can I that contract work is right for me?” Hopefully, the following advice will help bring you closer to your answer.

We suggest making the leap when you have had a few years (3–5 years) of experience in the workplace. There is a ton of benefit in gaining in-house work experience straight out of school! It’s good to see how companies operate from the inside before branching out on your own. You should never underestimate the value of building professional relationships during your first years in the workforce. Plus, UX and service designers are expected to possess certain critical soft skills that can only be learned through working with others.

With charging higher rates, contractors are also expected to be more senior in their careers and mature. A key piece of maturity for designers is possessing impeccable communication skills! Sometimes you need to learn this as an employee first, acting like a sponge as you absorb everything you possibly can from managers and colleagues who are more experienced. Before you’re ready to jump into contracting, it’s important that you are a self-starter, highly organized, and have good risk tolerance. As we mentioned above when talking about payment schedules, we suggest you have a solid nest egg to fall back on that can cover you for a few months between contracts or while you wait for the payment to come in.

We hope today’s post helped you learn more about the exciting and abundant world of contracting in UX and human-centered design. Ultimately, having a small freelancing business (even as a side hustle) can offer unique tax planning advantages that all individuals should consider! Remember, ALWAYS seek professional advice from an accountant — we are not accounting professionals.

Originally published at https://outwitly.com on March 23, 2023.