Federal Employee Entrepreneurship: Starting a Business While Serving

Federal employees across the country turn their skills and passions into extra income beyond their day jobs. Some consult, others sell online, but all face a clear reality – the opportunities come with rules that can’t be ignored.

Before you take the leap, you need to know how government ethics rules for business owners can affect what you can and cannot do.

Navigating Federal Ethics Rules for Entrepreneurs

The federal ethics laws in Title 18, Sections 201-209, and the Standards of Ethical Conduct in 5 C.F.R. § 2635 prohibit bribery, conflicts of interest, and using your position for private gain. Federal employees can’t use inside information from their government job or start a business that competes with what they do at work.

Key rules to follow:

• Get written permission before starting any outside work or business, even if it has nothing to do with your government job.
• Stay away from conflicts of interest, real or apparent.
• Check if your agency has extra rules.

Talk to your agency’s ethics person before you launch. They’ll tell you if your business idea breaks any laws or agency policies. Skip this step, and you could damage your career or face legal trouble.

Choosing the Right Business Structure

The type of business you choose changes your taxes, how much personal risk you face, and which ethics rules you must follow.

Here are the most common options:

• Sole proprietorship:With this structure, there’s no legal separation between you and your business. You can use your own name or select a business name. However, your personal assets could be at risk if the business gets sued or can’t pay its bills.
• Partnership:Two or more people join together to own and operate the business, combining their skills, money, and resources. Each partner is liable for the obligations of the business, and the conduct of one partner can create ethical concerns for the others.
• Limited liability company (LLC): LLCs provide liability protection with flexible management; however, you still must avoid conflicts with your federal role.
• Corporation: Corporations provide strong liability protection and potential tax benefits; however, they have a more complex setup and record keeping requirements.

Whichever structure you choose, confirm it complies with government ethics rules for business owners and get clearance from your agency’s ethics official before moving forward.

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Understanding Post-Government Employment Restrictions

Federal employee entrepreneurship doesn’t end with your time in service, but your activities afterward may still be limited. Under 18 U.S.C. § 207, certain post-employment rules prevent former federal employees from representing others before the government on matters they handled while in service.

• Lifetime ban:If you handled a matter personally and substantially as a federal employee, you are banned from representing anyone on that exact matter before the government after leaving public service.
• Two-year ban: You may be prohibited from working on some issues that were under your official responsibility during your last two years in service.
• One-year “cooling-off” period: Senior officials often face a one-year restriction on contacting their former agency.

If your business involves government contracts or advocacy, factor these limitations into your planning. For many, it’s wise to map out succession or transition steps before leaving federal employment so your business can operate without violating these rules.

Practical Steps for Starting a Business While Serving

Entrepreneurship for Feds works best when it’s planned carefully and executed within the rules. To set yourself up for success:

• Research your market and build a business plan: Understand your target audience, competitors, pricing, and financial projections before you start.
• Register your business and secure the required licenses or permits. Check both state and local requirements to ensure your chosen structure complies with agency ethics rules.
• Manage your time realistically: Set clear boundaries between your federal work and business hours, and avoid using government resources for personal business.
• Stay transparent and ethical: Follow all agency approval processes, keep ethics officials informed, and disclose potential conflicts of interest.
• Report your earnings: The IRS requires you to report all self-employment income over $400, even from a side business.

Solid preparation, disciplined time management, and a commitment to compliance will help you grow your business without jeopardizing your federal career.

Staying Compliant While Building Your Business

Starting a business while working in federal service offers real rewards. It also demands close attention to ethics rules, agency policies, and legal requirements. Every choice matters, from selecting the right business structure to planning for post-employment restrictions.

Meet with your agency’s ethics officials early in the process, and seek legal guidance when necessary to confirm your plans comply with federal regulations. Following the rules protects your career and preserves public confidence in government service.

If you’re ready to explore federal employee entrepreneurship, reach out to the team at Serving Those Who Serve at [email protected] for guidance tailored to your goals.

The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers  and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **