Fractional Work While on Severance: What You Can and Cannot Do

US employers announced 45,849 job cuts in June, with AI cited as the leading reason for the fourth consecutive month, according to Challenger, Gray & Christmas. Nearly 400,000 cuts were announced in the first five months of the year alone. A large share of the senior people inside that number walked out with a package, and most of them are asking something their exit interview never answered: is fractional work while on severance actually allowed, or does the first invoice put the remaining checks at risk?

Usually it is allowed. But the answer lives in three documents, and almost nobody reads all three before the first client call.

Fractional work while on severance is governed by your agreement, not by general rules

No law says a severed executive cannot earn money. What binds you is what you signed, and that is typically three things: your original offer letter or employment agreement, your equity documents, and the separation agreement you signed in exchange for the package.

Read all three for four specific items:

• A non-compete, and the exact scope of what it covers
• A non-solicit covering customers, employees, or both
• A cooperation clause obligating you to be available for litigation, audits, or transition questions
• Any clause conditioning continued payments on your not accepting employment elsewhere

That last one is where people get careless. Some agreements cut payments off the moment you take a job. Independent work is almost never a job in that sense: you are contracting through your own entity on a 1099, not accepting employment. But if the clause says services rather than employment, that distinction collapses and you need a real answer before you countersign a retainer.

Salary continuation is the clause that quietly costs money

How the package is paid matters more than how big it is. Executives receive a lump sum 74 percent of the time and salary continuation roughly 14 percent, per Sequoia's 2026 severance plan data. A lump sum is a clean break. Continuation is not.

Continuation usually means you stay on payroll, which carries two consequences. First, policies that applied while you worked there, including outside activity and conflict of interest policies, may still bind you through the continuation period. Second, many states treat continuation payments as wages and defer unemployment benefits until that period ends, where a lump sum in the same state might not.

If you are on continuation, get one thing in writing from HR before you start: whether the continuation period counts as active employment. That email takes them five minutes and removes the only genuine ambiguity in the whole arrangement.

And if you are drawing unemployment, 1099 income has to be reported in the week you earn it. States differ on how much it reduces the weekly benefit. None of them treat unreported contractor income as a paperwork slip. That is fraud exposure, and it is a bad trade against a single invoice.

Non-competes bind less than the exit conversation implies

Exit meetings tend to leave people with an inflated sense of what they are barred from doing. In practice, enforceability turns on your state, your role, and how narrowly the clause is drawn, and several states will not enforce a non-compete against most workers at all. Our guide to non-competes and fractional work in 2026 covers where those lines actually sit.

The clause far more likely to matter is the non-solicit. It is narrower, more enforceable, and it points directly at the people you were about to call: your former employer's customers, and the team that used to report to you. The practical rule is simple. Your first client should not be your old company's second-largest account, and your first subcontractor should not be the director you managed last month. Build one degree away from the relationships the agreement protects and most of the risk evaporates.

Your former employer might be the best first client

This surprises people, but it is common. The company just removed a function and still has the problem that function owned. You know the systems, the board, and the politics, and you need no ramp. Some separation agreements explicitly contemplate a consulting arrangement after termination for exactly this reason.

Two conditions apply. It has to be a new agreement with its own scope, term, and rate, not an informal continuation of your old duties for free. And the rate has to be your rate, not a discount priced off your former salary. Companies anchor hard on what they used to pay you. Set the number before that conversation starts, using benchmarks rather than your old comp: our rates by role give you the range buyers already expect to pay.

Set the business up before the first invoice

Two months of runway is enough time to do the boring parts properly. Form the entity, open the business account, get a contract template you did not pull off a forum, and decide how you want to be taxed. The LLC versus S corp decision is better made before revenue than after, because the election has deadlines that do not move for you.

Contracting through an entity also strengthens the argument that what you are doing is independent contracting rather than employment, which is the exact distinction your separation agreement may hinge on. It is a small amount of paperwork doing a large amount of work.

None of this is legal advice. An hour with an employment attorney reading your specific agreement is the cheapest insurance in this entire process, and the answer usually arrives inside that hour.

The runway is the asset, and it expires

Here is the part that gets wasted. A severance package is the best-funded business development period most operators will ever have. Six months of covered expenses is precisely what a new practice needs and almost never gets. Yet the common pattern is to spend all six running a full-time job search, then start building at month five with the money nearly gone, which means taking the first client at the first price offered.

The search and the practice are not alternatives. Run both. A signed retainer strengthens your position in every full-time negotiation you enter, because you are no longer negotiating from an empty calendar and the other side can tell. And if the search stalls, which in this market it may, you are three months into a business instead of at zero.

The work in the first month is positioning and price, not outreach. Decide what you own, decide what it costs, then go get the first engagement. Both of those have a method: start with setting your rate, then work the channels that actually produce a first client. Neither requires permission from anyone, and neither requires the severance period to be over.

The package bought you time. Time is the only input a new practice truly needs, and it is the one thing in this whole situation with an expiration date. Create your free profile on ExecRoster.