My employer has notified that my position is being eliminated in a few days and I will be laid off. My preference is to resign instead (for whatever reasons). I realize that if I resign, I will lose severance pay (minor amount) and more importantly the unemployment benefit.

My plan is as follows (more like a gamble really ):

1. Resign from current employment and immediately join as an employee of a tiny S-Corp that my spouse owns 100% with <250K annual revenues but has been profitable for several years. It is in the same line of work as mine, and for me it is a re-hire as I had worked there before (like any other employee would) and resigned several years ago. The S-Corp agrees to pay me the same salary as current employment through their regular payroll.

2. I have some consulting opportunities in the pipeline on a contract basis but they are likely to take at a least month or so to sign. If I manage to get the contract work that is in pipeline, the customer will sign contract with the S-Corp (customer knows and agrees) and I will be assigned to work on the engagement as employee. This is the ideal scenario.

3. Question: In the unlikely event that I cannot get the pipeline work in 4-6 weeks, my spouse's S-Corp cannot sustain me beyond one or two paydays and I do not have any reserves so will need every bit of money. If I decide to get laid off from the spouses' company will I be eligible to collect unemployment benefit then? I meet other criteria and would receive the benefit if I don't resign now.

If it helps, we file a joint tax return (California). I am not worried about the tax consequences, and my spouse is okay with increase in unemployment rate for the S-Corp. So question is just whether I can safely claim unemployment benefit when laid off shortly after joining. Also can I share this type of plan and ask questions to the local labor office or is that a no-no.

Please help.

“ If I decide to get laid off from the spouses' company will I be eligible to collect unemployment benefit then?”======> Each state maintains its own criteria for unemployment eligibility, though these rules usually require termination through no fault of the EE. Since an S corp officer is an EE, as long as you, an officer, meet the state's requirements for unemployment benefits, including earning sufficient wages and time serving at the position, you should be able to qualify for unemployment compensation. How much you, as the former officer , receive depends on the rate of pay while serving with the S corp and the total length of service. The S corp is still free to challenge your right to receive benefits by filing an appeal with the state unemployment compensation department. HOWEVER,Voluntarily leaving a position under no duress does not usually qualify anEE, including an S corp officer, for unemployment benefits. However, an officer may still qualify for unemployment compensation if the corporation is moving to a different state and the officer does not wish to relocate.

Thanks Wnhugh. I have added clarifications below.

Yes it will be a termination by S-Corp through no fault of EE.

Although my spouse owns the S-Corp, I will be hired as just a regular employee, not an officer. So I would be a former employee but not a former officer. Unless the spouse employee of S-Corp owner is automatically treated as an officer. Does it?

With the current employer I have worked for several years continuously. The S-Corp will hire me for only 4-6 weeks with exactly the same rate of pay as current employment. There is no gap between leaving current employment and joining S-Corp.


The S-Corp has no problem with me receiving unemployment benefit.