The temporary workers who make up a growing part of our economy live in a personal finance penalty box.
Here's a concise summary of the financial situation facing temporary workers from McMaster University labour studies professor Wayne Lewchuk: "The reality is most of the folks on contracts are not being paid very well. They're paid less and have fewer benefits."
Let's get specific: Temporary workers usually don't have pensions, or at least a workplace retirement savings program where their employer makes contributions on their behalf. They likely don't have benefits to cover basic health care expenses such as dental work, new glasses and prescriptions, and they lack the basic group life or disability insurance benefits many employers offer their full-time workers.
"The reality for most of the folks who are on short term contracts is that they are not the high-paid consultants who charge $1,000 or more a day and are doing okay without benefits because they can afford it," Prof. Lewchuk said.
We need to think more about the impact of temporary work on personal finance because it's a growing trend. The most recent numbers from Statistics Canada show temporary workers accounted for 13.6 per cent of the work force in 2012, up from 11.3 per cent in 1997. Since the recession, temporary work has grown at better than triple the rate of permanent work; in the past 15 years, most of temp-work growth was among young adults.
The economic challenges of 20- and 30-somethings, often referred to as Generation Y, include high levels of student debt, unemployment at roughly double the national rate for people in their early 20s and low job quality for many who are employed. Contract work is another obstacle to what older generations would consider to be a normal life of building a career, buying a home and raising a family.
Temporary workers, here are some quick thoughts on how your personal finance needs differ from those of people with permanent jobs:
1. On budgeting for health care: Even routine dental visits can cost several hundred dollars a year. New glasses and frames? Easily in the $300 to $400 range.
2. On budgeting for kids: Beware the orthodontist. Braces can cost thousands of dollars, which you'll have to pay without the subsidies that some benefit plans offer to parents.
3. On saving for retirement: The importance of establishing a regular, without-fail retirement savings discipline cannot be overstated if you don't have a pension; on the plus side, a long history of contract work may give you the contacts you need to keep working past age 65.
4. On insurance: A modest amount of group life coverage is often provided to permanent workers, and there may be basic disability coverage as well. If they have dependants, temporary workers need to make sure they are properly insured against death. They should also be insured against a disabling condition or disease that prevents them from working. Problem is, disability insurance that will truly backstop your earning power is expensive. Buy when you're young, if possible, because coverage will be cheaper.
5. On emergency funds: The most ignored advice in personal finance is to have some cash stowed in a high-interest savings account to cover unforeseen financial setbacks; doubly essential for people working on contract, or least make sure you have a line of credit to cover emergency costs.
6. On non-mortgage debt: If you don't have a reliable income, don't burden yourself with fixed expenses such as debt repayment; your line of credit is for emergencies, not trips and furniture.
7. On home buying: If you have a history of steady contract income and can verify this in your notices of assessment from the Canada Revenue Agency, then you should be okay to qualify for a mortgage. With less than two years' history, a mortgage may be more difficult to arrange.
8. On living with your parents: A study that McMaster's Prof. Lewchuk participated in found that contract workers are more likely to live with their parents and less likely to live with a spouse; there's evidence that men in particular may marry and start a family later if they cannot find permanent work.
9. On picking a career: Continued growth in temporary work could hurt several professions that rely on payments received through employee benefit plans, including dentists, physiotherapists and massage therapists.
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Temp vs. Permanent
Here's how Statistics Canada defines the two job categories:
Permanent: A job that is expected to last as long as the employee wants it, subject to business conditions. That is, there is no predetermined termination date.
Temporary: A job with a predetermined end date, or one that will end as soon as a specified project is completed. Includes seasonal jobs; temporary, term or contract jobs including work done through a temporary help agency; casual jobs; and other temporary work.
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Rob Carrick