TechRepublic reader Joseph Serrago sent the following email:
I have seen several articles on TR about people leaving their jobs to work for themselves. What I have not found much is the opposite. I am closing up my own business and going to work for someone else, first time in 7 years. I wonder if you have written any posts about someone leaving their own business for the regular work force.
Why you might want to become an employee
Different people may have different reasons to stop consulting, but probably the most frequently voiced desire is for more consistent income. As a consultant, you can be motoring along with three or four loyal clients for years, and just when you’ve gotten used to receiving a certain amount each month, one of them drops off the radar and you must suddenly scramble for more business. Sometimes finding new work can take months. Meanwhile, you’re exhausting your rainy day fund, if you even have one. Worst case, you’re running up a line of credit and hoping you’ll be able to pay it off someday.
Even if you don’t have much trouble finding new business, you still have to devote a lot of energy to it. Once you get it, you have to balance the top priorities of all of your clients against your available time. You find yourself wishing that you could spend more time doing the work, and less time figuring out what you’re working on. Even though an employer may present you with conflicting goals, you can (theoretically) always boil those down to what is most important to your employer. Multiple clients always think their #1 is the most important.
Employees generally enjoy benefits that consultants have to pay themselves. Health insurance (at least here in the United States) can be a major drag on income, whereas most employers pay at least a decent portion of it — and they can negotiate group policies that often provide more coverage for less anyway. Paid vacation and sick leave come to employees — consultants have to plan for that unpaid leave. Often we don’t, so we end up not taking a vacation for years. When it finally catches up to us, the stress of illness is amplified by the realization that we’re also losing revenue. Employers often match retirement savings — guess who does the matching when you work for yourself?
Just managing the details of running a business consumes a lot of personal energy and attention. An employee doesn’t have to worry about that, unless it’s part of their job.
Things to watch out for before leaving consulting
Be careful, though, not to fall into the “grass is greener” fallacy. It’s always easier to focus on the negative side of our own experience. When we compare that to a proposed path that eliminates those pain points, we need to make sure we don’t ignore the different issues we might face in the new situation.
Are you ready to surrender a good deal of autonomy? Your employer may exercise more control over what you do than your clients even wanted to. Hopefully, your boss will be receptive to input, but ultimately the decision is no longer yours to make — for better or worse.
Have you fully analyzed the difference between your proposed compensation and what you’re making now? At least in the United States, the tax effects of making the transition from self-employed business owner to employee are significant and complex. Whereas you may have avoided income tax on a good portion of your revenue by tracking all business expenses, you won’t be able to deduct nearly as much as an employee. On the other hand, you won’t have Self-Employment Tax (which ostensibly makes up both the employer and employee portions of FICA contributions). Other nations will have different issues to worry about, I’m sure. In short, just as you can’t simply divide your desired annual income to come up with an hourly consulting rate, neither should you take your annual consulting revenue as a benchmark for your employee salary. Somehow, you end up losing money both ways.
Being an employee will make it harder to fire you, and in most cases should that happen you can take advantage of Unemployment Insurance. However, even though a consultant is easier to fire, that rarely happens with all of your clients at once. Being an employee is usually an all-or-nothing affair, and you’re committing more of your future success to the fortunes and whims of just one company.
What about your clients?
Assuming that you aren’t totally devoid of current business, you need to think about how to transition your clients away from needing you. That’s a requirement of human decency. Besides, it never pays to burn bridges. You might need them again someday.
If practical, try to finish up any current projects, or at least get them to a point where they’re stable and well-documented so that someone else can take over. If you have a colleague whom you trust, recommend them to your clients as a replacement. They don’t have to take your advice, but at least you didn’t leave them without an option.
In some cases, you might be able to continue to consult part-time while you work as an employee. If you do, you should make sure that both your employer and your clients know and approve. You don’t want your divided attention to compromise your effectiveness, or to create the perception that it does. In any case, it might be a good idea to keep your business licensed and your bank account open at least for a while so that if one of your former clients has an emergency you’ll be able to bill them and deposit their check.