Re: Transition from employee to consultant--any gotchas?

[Al Geist <al -dot- geist -at- geistassociates -dot- com>]

Regardless of how open the company is about paying you a retainer for 
your services, or selling you equipment for a buck, I would take your 
severance pay in lump sum.  You said yourself that the company is on 
it's last legs.  If you don't get the money up front, there is a good 
chance you will never see all of it.  I say this from both personal 
experience and from the experience of close friends and relatives.  I 
was offered a severance package once similar to yours.  I got two 
biweekly checks and that was it.  The company declared Chapter 11.  
Since I was a contractor, instead of paying me, I became a 
creditor...and one of the smaller ones at that which means there was 
nothing left for me after the big creditors were paid off.  Sure I could 
have sued, but I was a single parent with two kids and a mortgage....do 
I sue, or do I feed the kids??????  And even if I did sue, I wouldn't 
have gotten much than personal satisfaction over winning.   
Economically, it was wiser to accept the fact that I made a mistake and 
move on.   If you get the severance package in a lump sum, you won't 
have that worry.

As for it impacting your unemployment, if you are paid on retainer, that 
will probably be enough to negate any unemployment anyway, and there is 
the fact that as a consultant you will be self-employed.  The 
self-employed do not get unemployment.

Paying the severance in biweekly installments will also raise questions 
with the IRS because it appears to be just a different way to pay wages.

SO, my suggestion is: get the severance in a lump sum, then enter into a 
consulting contract that pays a regular retainer.  Keep the two separate.

Al

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