Leaving a Big Shop to Work for Yourself? The Overhead That Walks Out With You

The number most people carry out of a larger contractor is their hourly wage. It is the least useful figure they own. What decides whether self-employment works is the gap between what the company billed for your time and what it cost the company to put you in front of a customer, and almost nobody who works on the van side of that business has ever seen both halves written down. Building the judgement to decide well means reconstructing those halves from what you can observe, then testing the reconstruction against a few quotes you can actually obtain.

Start by separating hours you were paid for from hours anyone billed

At a larger shop, a full-time year runs about 2,080 paid hours. Some portion of that was on a job with a customer number attached. The rest was drive time, shop time, waiting on a supply house, warranty callbacks, safety training, a morning standing around while someone sorted out an access problem. Dispatch absorbed that. You were paid the same either way.

You cannot know your old shop's exact ratio unless someone showed you the reports. You can approximate it. Think back over a normal month and count the days where you were on a billable job for six hours or more. That rough count, annualized, is the only honest starting point, and it will be lower than you expect. Then subtract further, because self-employment adds hours nobody pays for and the company used to cover: writing estimates, invoicing, chasing a customer who is forty days out, pulling permits, answering the phone during someone else's job.

A useful planning figure for a first year on your own is somewhere between 1,100 and 1,300 billable hours, not 2,080. If your own count lands higher, good, but build the decision on the lower number and let the upside be a surprise rather than a requirement.

A worked example, with the parts you have to go and price yourself

Take a salary of $72,000. Treat every figure below as a placeholder for a quote you will go get, not as a market rate.

• The wage itself: $72,000.
• The employer half of payroll tax: your employer paid 7.65 percent of your wages in Social Security and Medicare. Self-employed, you pay both halves as self-employment tax at 15.3 percent on net earnings. On $72,000 that extra half is roughly $5,500.
• Health coverage: unknowable from here. Your premium depends on your state, your age, your household, and what you qualify for. Pull a real quote before you go further. For the arithmetic below I have used $800 a month, or $9,600, purely as a stand-in.
• Everything the shop owned: truck payment or depreciation, fuel, commercial auto insurance, general liability, tools and replacement, phone, estimating and invoicing software, licensing and bond renewals, an accountant. Call it $14,000 as a placeholder.
• Time off: two weeks unpaid is 80 hours you will not bill, already inside the 1,200-hour estimate.

That totals about $101,100. Divided by 1,200 billable hours, your break-even is roughly $84 an hour before you have earned a dollar more than the salary you left. Your old shop may have billed your time at well above that, and the difference was not profit. It was dispatch, the service manager, the office, the yard, the warranty reserve, and the jobs that went sideways.

Two conclusions follow. First, the rate you need is not the rate you were paid. Second, if the number you can realistically charge in your market sits below your break-even, the problem is visible now, on paper, for free.

The things the larger organization was holding in its own name

Some of what the company carried does not transfer, and this is where decisions get hard to reverse. In many trades the license that permitted the work was the company's, held through a qualifying individual. Your hours counted toward your own credential, but the authorization to pull a permit may not have been yours. Before notice goes in, confirm in writing with your state board what you personally hold, what you still need, and how long issuance takes.

The same applies to bonding, to workers' compensation coverage (rules on whether an owner must carry it on himself vary by state), and to manufacturer certifications that were issued to the business rather than to you. A certification that lapses when you leave can take a class and a fee to reinstate, which is survivable if you know in March and expensive if you discover it in a customer's basement in July.

Read your employment paperwork for non-solicitation and non-compete language, and have an attorney read it too if there is any. The practical question is narrow: which customers can you approach, and when. The answer shapes your first six months more than your rate does.

Test the decision before you resign, not after

Judgement here comes from evidence, and you can collect most of it while still drawing a paycheck. Three tests are worth running.

Price one real job end to end. Take a job you recently completed for the company. Rebuild it as if you had sold it: materials at your own account pricing, your hours at your break-even rate, drive time, the permit, the callback allowance. Compare your total to what the customer was charged. You learn more from that one comparison than from a month of thinking about it.

Find out whether the larger organization would subcontract to you. Many do. Overflow work from a former employer is lower margin than direct work, because they keep the sales and warranty burden, but it fills calendar gaps in a first year when gaps are the actual risk. Ask before you leave, and ask what their insurance and documentation requirements are for subs, because meeting them costs money.

Model one bad quarter. Write down what happens if billable hours come in at 200 for a quarter instead of 300. How many months of fixed costs and household expenses do you have in reserve? If the honest answer is under three months, the decision is not wrong, but the timing probably is.

The first-year mechanics that quietly decide the outcome

Self-employment moves tax from something withheld to something you remit. The IRS is responsible for the estimated tax system that replaces withholding, and payments are due quarterly rather than annually. The mechanical fix is dull and effective: a separate business checking account, a fixed percentage of every payment received moved into a second account the same day, and a conversation with an accountant before the first quarter closes rather than the following April.

Set a floor rate from your break-even arithmetic and write it on the wall. Work quoted below it is a decision to subsidize a customer, which is sometimes worth doing deliberately and never worth doing by accident. Revisit the number every six months with real figures, because after two quarters you are no longer estimating your billable hours. You are counting them.

The people who make this change well are rarely the most skilled hands on the crew. They are the ones who went and got four quotes, rebuilt one invoice from the material cost up, and found out in February that the permit authorization sat with the company. The arithmetic is not complicated. It just has to be done before the notice, while the paycheck is still arriving and the answers are still cheap to collect.