How to leave a job and offer services as an independent contractor

Question

I have been working with a company, building their infrastructure and software systems for the past 7 years. Their software (hosted applications) and the services around the software are what they sell. Because we have been a small business, I have been the primary IT person and am the only person that knows all of the systems.

A large investment firm recently started a new business that in turn acquired the company that employs me. In the past 6 months I’ve gone from being an integral part of the team to someone on the outside. Part of this is due to the fact that I work from my home some 500 miles from the office where all new employees are located and also because the new company is bringing in “their people”. Their last hire was a VP of Software Development, basically a replacement for me. Of course they have not worded it quite that way, but the writing is on the wall.

I have no ill will towards the company and I wish them success, however, I have poured myself into this company for 7 years and probably by the end of this year I will be asked to move local or lose my job. Fortunately I can survive without my job since my wife is gainfully employed, but while I have a small window of opportunity I would like to use any leverage I might have to capitalize on the situation

I have a couple of businesses interested in hiring me as an independent contractor for a limited number of hours per month, so perhaps this is a good time to make that move. My current salary is roughly 125K. I would like to go to the new owners, turn in my 2-week notice, and offer my services as an independent contractor going forward.

Here are my questions:

1. Is a 2-week notice necessary if I’m making myself immediately available as a contractor?
2. Do you see any red flags regarding the following arrangement and fee schedule as a contractor?
   
   • 6-month, renewable contract
   • Hourly Rate: $150
   • Retainer Rate: $120/hr (20% discount) @ 80hrs/month – this must be prepaid each month for duration of contract. If they insist on a contract period less than 6 months in duration, no discount will be applied.
   • All travel expenses are to be reimbursed by client.
   • No travel on Monday or Tuesday as these days are reserved for other clients
   • Point-to-point travel charged at ½ Hourly or Retainer rate
3. Rather than presenting them with the above option, I could give them a 2-week notice and explain that I have a couple of IC opportunities that I don’t want to pass up considering the current state of my job. If they ask if there’s anything they can do to keep me on (because I will be a painful loss at this point), I could give them an option to keep me on as an employee for the next 6 months for a $50K bonus (35K up front, 15K after six months) to compensate for the risk of losing the interest of my current potential clients. If they don’t like this then I can present the terms above and they can choose which, if any, option they would prefer.

Don’t get me wrong, I don’t think I am irreplaceable, but 7 years of knowledge is a lot to lose when the only two other IT-related positions have been with the company for less than 2 months.

I don’t necessarily want to “put the screws to ‘em”, but business is business and I don’t think they will hesitate to put ‘em to me if I don’t watch after my own interests.

Because I'm training my replacements, my value goes down each day. Therefore I need to move as quickly as possible.

Any advice you might have will be greatly appreciated.

Answer 1

I can imagine your situation and I can also understand why you are feeling desperate to switch. There are situations where I had faced avoiding employment offers and asked them to take me as contractors. On the other hand i have also seen people floating their own companies and keep getting projects from the mother company; this is quite common at least in India and may be at other place.

But my most important guidance to you is, contractorship is really not employment with margins reduced!

Many people do think that way, but in the process it hurts them. Employees usually think project by project and if they don't find interesting stuff, move on! Fundamentally, being independent contractor is to keep the existing customer and grow with more customers. Here, you must think longer term. Also, contractor faces much more uncertainty then employees, so you really need longer term relationship with people to get continual support.

My advice to you is probably opposite of what you might like to here:

1. You definitely need their good will
If you want to attain the good relationship as you move on, you must rather bring them to comfort. Find an easy point where they can switch more comfortably. This is loss making in the short run, but you do need their favorable recommendations when you leave; even more so, when you are becoming independent.

2. They can see more value in you in the time to come
It is important to show them that you are not leaving because you dislike, but because you are more enterprising than the job needs. Right now you might switch to someone else but the same organization might still see a value in you if you are successful in running the show.

3. Ask yourself why you want to take this path
Discover your true self. If you are quite done with your current job, you can pretty much get another job as well. I have seen quite a few people put the hourly plan calculations which are misleading. It is the uncertainty that kills more than paychecks. If you are having personal acumen to business itself and never want to do a job again or if you want to chase some specific dream, being independent make sense. If you think you will just draw 25% more home by being a contractor you are likely to attend the losses which could take more toll than you thought.

Answer 2

Short Answer

Based on your statements in your question you don't have the leverage to demand what you are proposing, if you did they would have offered you a retention package. In the absence of a retention package the acquiring company probably doesn't have the desire to do what you propose anyway. There doesn't sound like there is a situation to capitalize on here.

Long Answer

Their last hire was a VP of Software Development, basically a replacement for me.

If their last hire was a VP of Software of Development, that would not be a replacement for an individual contributor as you describe yourself. Put it into perspective, ask yourself a few things? What is your title? Is it VP of Software Development? If it was, was it just honorary because it was a small company or are you really a Vice President of something? Why would a VP not be included in the details of business dealings with an acquiring company?

Either way, I doubt they saw you as that person and don't see that VP role and that person as not replacing you as much as they do filling a void. They might have hired that person to be your boss.

If the acquiring company didn't offer you a retention package when they acquired your company, they don't hold you in very much critical importance to the business; definitely not as much as you do yourself. No retention package means they don't really find you as critical as you think you are, for whatever reason.

If they didn't offer the retention package, I personally think if you quit they will be find with it and seriously doubt they will be interested in paying you contractor rates to work remotely. It would be in their personal interests to just hire someone locally and not have to deal with the complications you would be introducing to the new owners.

In the past 6 months I’ve gone from being an integral part of the team to someone on the outside.

No matter how much you would like to think you are irreplaceable, you never are.

I would not expect to be able to get much work out of the new company unless you have extremely tight personal ties to the former C level management that would have a personal / non-business desire to keep you engaged. The lack of a retention contract, and the outsider comment leads me to think you don't have these critical personal relationships and you should not expect much.

Answer 3

Dot the I's, cross the T's and leave with a professional attitude. Do not cause a fuss, just leave.

I feel for you, but remember, you were paid to do a job. If you fell into the trap of thinking the job was worthwhile, or that you were integral to the project, then fool you. Learn from this experience and never get into that position again. That which does not kill you, makes you stronger. I have never witnessed a good outcome of a take-over. Its always bad for the company being taken over.

As for self employed, go for it. best thing a person can do, unless of course your after the quiet, stable life, which isn't a bad thing, but means that you got to "put up with" the working practices of companies as an employee.

As for contracts on a job to job basis. Well that's up to you my friend. Bottom line is, number of hours worked for the rate of pay your prepared to work for. Its never written in stone and changes from job to job.

As a contractor this is one of the pit falls. High pay, low stability. I reiterate if you want the stable life, don't become a self employed contractor.

Never tie yourself up in any contractual agreements, just concentrate on payment per day or per hour, and number of hours to work per day. If your good at what you do, you won't need the retainer or any of the other defensive stuff you require. Contract work/self employment is hi risk, hi reward.

Answer 4

My personal take:

Is a 2-week notice necessary if I’m making myself immediately available as a contractor?
Not "necessary" in the legal tense, but yes if you want goodwill. "Starting tomorrow..." would seem a bit rude.
Do you see any red flags regarding the following arrangement and fee schedule as a contractor?
6-month, renewable contract
Hourly Rate: $150 fine
Retainer Rate: $120/hr (20% discount) @ 80hrs/month – this must be prepaid each month for duration of contract. If they insist on a contract period less than 6 months in duration, no discount will be applied. I would make it a sliding scale 80-60-40-20-0 as that will be what they want to see.
All travel expenses are to be reimbursed by client. fine
No travel on Monday or Tuesday as these days are reserved for other clients
Yes, although you may want to allow special circumstances to be friendly
Point-to-point travel charged at ½ Hourly or Retainer rate No, I'd suck it up in your rates
"35K up front, 15K after six months" well I'd forget that 15k arrangement, but if you do, make sure it's in writing that you like. My company got screwed for $20k last year and I'd hate to see it happen to you. As the the 35K, I guess you can try but you'll need to be prepared for no's and negotiating, so you'd need to have your ducks in a row for how valuable you are.