Self-employment help! (I don't know what I'm doing...)

In My Humble Opinion
1

So, with COVID, combined with the general downturn in the energy economy, I’ve been essentially unemployed since St. Patrick’s Day. The time has come for me to find a new job- a frightening prospect for me, as I have worked for the same company since I got out of high school… and I will be 40 in one week.

I’ve been looking for work, not finding a lot in with all of my rather specialized knowledge, ESPECIALLY because I have been working since high school- and therefore don’t have a degree in this field (civil drafting, GIS, surveying), only 21+ years of experience. Most employment opportunities in my wheelhouse require a degree, though I apply anyway, with no luck so far.

A friend of mine called me three or four weeks ago, and asked if I could help him with a little problem, because he knew I had been doing computer drafting of some sort for the last twenty years. It was a simple little project, just throwing something together for him to do a presentation. I went ahead and spent an hour or so on it, and made him (and apparently, the higher-ups at his company) very happy.

Last night, he called again, and said that they would have another, similar project, but more detailed, and have also landed a contract for a further 27 such projects over the course of the next seven years, and were looking into several more opportunities that would be keeping them very busy in the future. He really wants somebody he knows and that he can rely on to help with this aspect, just putting together design and visual aids for laying out new facilities. His superiors really liked what I did before, and would like to pay me for the previous work I did, and would like me to come up with some numbers so that I can be retained as… an outside consultant, I guess?.. to do this work for them.

I am not sure how to go about doing that. My initial thought is just to start with what I know my employers charge for my services. Everything I do is hourly, charged out at about $80.00/hour. Of course, this is different work, so my next thought is to see what others performing similar services might charge, and use that as my starting point. I don’t want to undervalue myself, but I also don’t want to overdo it either.

So… yeah. As is probably apparent, I don’t know what the hell I’m doing. So I turn to the smartest folks I know- any advice or links to some resources I should be checking out would be most welcome.

2

This will be probably be higher than you can charge as an individual contractor, because it includes company overheads and profits.

The customer is paying extra for a guarantee of quality, support, and professionalism from an established company. They will probably expect to pay less to an individual.

What you need to do is take the salary you were actually paid by the company, and calculate an hourly rate from that, taking into account paid vacation time, paid sick leave, and all other benefits.

You will be able able to charge somewhat higher than that for contact work, because it’s uncertain, occasional, and on demand. So probably somewhere between the hourly rate the company was paying you, and the hourly rate they were charging out for your work.

You may find some guidelines by searching for current salaries and hourly rates in your field, and in your area, at PayScale and other sites.

3

I’m going to disagree with this advice. I see no reason why you wouldn’t be able to provide the same quality, support, and professionalism as your former employer did. The way to communicate this is to emphasize that they will get better support because they’ll be connected directly to you, rather than being filtered through corporate channels, and because you’re a small single proprietor, you take a personal interest and concern in all of your clients. When something breaks in the middle of the night, they’ll get you on the phone, not someone reading from a script who will log a ticket.

You have overhead to cover as well, just like an employer does. You’ve got utilities to pay, and software licenses to buy, and unbillable time spent giving quotes and finding leads.

And as the person taking the risk, you deserve the profits too! I assume that when employed, you got paid whether or not your employer could find a contract for you. Well, now you don’t. So get paid.

The fact that they were happy with your work and came back to you is a good sign. You’re good at what you do. Get paid for it!

4

By hiring you as a contractor, they are saving in payroll taxes and workers comp and other normal employee expenses. It is my experience that a contractor would charge a higher rate that an employee because of this.

You will also need to factor in the social security you have to pay as a self -employed person.

Don’t undervalue yourself.

5

I agree that you need to make an accurate calculation of all of the elements of compensation you don’t necessarily see directly in your paycheck. In addition, you need to factor in that there are some costs (health insurance for example) that will not be the same for an individual versus an employee.

If you want to ease in to the whole consulting gig, you might consider signing up with a technical services company. They are basically body shops for engineering and other technical specialties. They handle all of the overhead and background compensation and you get a paycheck. The money may not be quite as good as you could negotiate on your own, but the headaches are much lighter. We have a few preferred vendors that we steer individuals to if they aren’t already associated with a company (a lot of retirees end up coming back as a tech services contractor).

If you want to go it alone, you should consider incorporating. It provides some additional structure (and protection), and some companies (such as mine) don’t like to engage an individual contractor, working only with companies. So, it could broaden your potential client base.

6

$75-$80 per hour is a perfectly reasonable rate for this kind of work. You’re not being paid that amount for 40 hours per week; you’re being paid that for being available on demand. Unless you’re submitting timeslips to the company (where it might amount to fraud), don’t be afraid to round up from time to time, or to bill something closer to the number of hours a lesser talent would take to do the work. Value billing, we freelancers call it. For most projects of any size, I also find it easier to think in terms of $300 days rather than $75 hours.

Do remember that only $55 or so of that $80 is yours. The rest must be set aside for taxes.

7

I strongly recommend consulting with this organization first; when I did, they answered questions I didn’t know I had.

8

Thank you all for the advice and resources!

I do have an LLC I set up earlier this summer to use for this. My buddy and I are sitting down this afternoon to go over more of the details, timelines, requirements, etc. I feel a bit more confident already than when I started the thread!

9

Good to hear you have an LLC set up. I was going to mention setting up something like that to protect yourself.
My girlfriend and her former supervisor started their own consulting firm. So they were in a similar situation as yourself.
One thing you might consider, is that rather than trying to set an hourly rate, you might want to try to estimate each project and assign a cost per project. It’s another way to look at the work, and estimate what to charge.

10

A follow-up, buddy had been busy, but he and his supervisor finally got ahold of me today, I gave 'em numbers, and they took it with no quibbles!

Things might be looking up finally!

Thanks for the advice and ideas, all!

11

Congratulations!