Employment / consulting agreement (selling director)

In many family funeral homes, the owner is the reason the phone rings. Families call because they know the director who buried their parents, and clergy refer because they trust one person. A buyer paying for that goodwill wants the person to stay long enough to hand it over. The contract that makes that happen is the selling director’s employment or consulting agreement. This definition belongs to our seller’s guide hub.

What is a selling director employment or consulting agreement?

A separate contract, signed at closing with the purchase agreement, that sets the seller’s job after the sale. It covers duties, hours, term, pay, benefits, termination, and any restrictive covenants tied to the job.

It is distinct from the purchase agreement, which transfers the business, and from the sale non-compete, which protects the goodwill the buyer bought. Our funeral home non-compete definition covers that second covenant. The employment or consulting agreement is about work: what the seller does each week, for how long, and for what.

The agreement takes one of two forms. As an employee, the seller is paid wages, works under the buyer’s direction, and can join its benefit plans. As a consultant, the seller is paid fees, controls how the work is done, and pays self-employment tax. The IRS guidance on independent contractors and employees groups the test into behavioral control, financial control, and the type of relationship. A “consultant” who works a fixed schedule under the buyer’s supervision may be an employee whatever the contract says.

Why do buyers ask the seller to stay?

To move relationships, not to fill a staff slot. The first months after a sale decide whether families keep calling, and the seller is usually the best person to make introductions.

Typical duties include introducing the buyer to clergy, hospice and hospital staff, and community groups; meeting preneed families who expect a familiar face; training staff on local customs; and attending services during the handoff. Some buyers also need the seller’s license for a time. Whether a seller can serve as funeral director in charge under this kind of agreement depends on state law, covered in our guide to the funeral director in charge at and after closing.

How does the buyer’s financing change the agreement?

SBA financing sets hard limits; cash and conventional buyers set their own. Know the buyer’s funding before negotiating the role.

The SBA rules come from Appendix 15 of SOP 50 10 8.1, effective October 1, 2026. Because the 24-month cap counts extensions, a one-year agreement with automatic renewals is a problem in an SBA deal. So is pay that rises or falls with call volume, which can look like the earnout the same appendix forbids. Our guide to SBA loans for funeral homes explains the rest of the lender’s checklist.

How do you test whether the pay is fair?

Compare the hourly rate with what the market pays for similar work. Pay far above market suggests purchase price is being relabeled; pay far below suggests the seller is subsidizing the buyer.

1. Write down the expected hours, including on-call duty, for each phase of the term.
2. Convert the proposed pay to an hourly rate.
3. Compare it with a public wage benchmark for comparable roles.
4. Explain any large gap in writing, such as a seller’s unusual reputation or license coverage.
5. Have both CPAs agree on how the payments will be reported.

For step 3, the Bureau of Labor Statistics Occupational Outlook Handbook reports a May 2025 median annual wage of $78,790 for funeral home managers, with the highest 10% earning more than $156,400. Morticians, undertakers, and funeral arrangers had a median of $55,010.

Both sides also have a reporting duty. Under the IRS instructions for Form 8594, line 6 must be completed by both purchaser and seller, reporting maximum consideration on the assumption that every contingency is met.

How does the agreement work in a partial sale or family transfer?

Differently, because the seller is not leaving. When an owner sells part of the firm to a key employee or the next generation, the agreement usually keeps the seller employed and defines how authority shifts over time.

Here the contract is less about introductions and more about governance: who signs checks, who sets prices, who is director in charge, and on what date each duty moves. SBA rules for a partial owner buyout reflect that continuity. At least one original owner must stay on and guarantee the loan, every new owner must be a co-borrower, and outside individuals with fewer than 24 months of employment may buy only less than 50%. A buyer already on staff for two years or more avoids that last limit, which is one reason internal sales often start with an employee who has been there a while. Our guide to selling to a key employee walks through the staged structures.

How do sellers, buyers, and lenders use the agreement?

Sellers use it to protect income and dignity during the handoff, buyers to secure the goodwill they paid for, and lenders to confirm the seller is truly stepping out.

Sellers should record titles, roles, and promises about their place in the business in the Legacy Terms Ledger, testing each one: written, how long, what remedy, and whether it survives a resale. The deeper negotiating points are in our guide to employment and consulting agreements for selling directors.

Buyers use the agreement to stage the transition: heavier involvement in the first 90 days, then tapering. A buyer who does not need the seller long should say so early; a short, well-paid role beats a long, resentful one.

Lenders read it for compliance with program rules, for whether it hides price, and for whether the business can service debt without the seller.

What mistakes cause problems after closing?

Most problems come from a mismatch between the label and the reality: a consultant treated as staff, a fee that is really price, or a term that quietly renews.

• Automatic renewals in an SBA deal that push total consulting time past 24 months.
• Naming a consultant as director in charge in a state that requires an employee.
• Above-market pay with no written rationale.
• Restrictive covenants that restart when the job ends early. The FTC’s 2024 non-compete rule never took effect; the Commission voted in September 2025 to accede to its vacatur, so state law governs these covenants.
• No successor clause, so a resale of the business leaves the agreement in doubt.

Whether to stay at all is a separate decision, weighed in our comparison of a consulting role versus a clean exit.