Freelancing and Unemployment insurance: Yipe!

November 24, 2009 10:59 AM

After being laid off, do I lose unemployment benefits if I try to support myself and my family by freelancing first?

First off, I am a software developer. I just received word from my boss that I was being laid off. Evidently there is just not enough work to keep me paid. So once I found out I was being laid off I looked into ways to pay the bills (I have a wife and children). In addition to looking for other full time jobs I also looked for part time “freelance” work. I found a few freelance jobs that can help pay the bills (food and rent) but only for a few months. From then on after I have no idea how much work there will be if any.

So here are my questions …

1. If I don’t apply for unemployment benefits from my employer right away do I lose them? On one hand I don’t want to apply for unemployment benefits when I can bring in enough money from “freelance jobs” but I have no idea if these “jobs” will last. It would be nice if I could “defer” the unemployment insurance to when the “freelance” jobs ran out and I had nothing.


2. If I support my family by freelancing after this layoff, do I then end up being deemed “self-employed” and ineligible for unemployment insurance altogether?

Thanks for any advice! This is my first time being laid off so I am not really sure how it all works.

posted by mountainfrog to work & money (13 comments total)

Yes, check with your state's unemployment office. In Oregon, people who are out of work can fulfill their "must look for work" requirements by trying to start their own business. (There's more to it than that, of course, and I don't know the details, but I'm aware that there is something there that's worth looking into.)
posted by spacewrench at 11:08 AM on November 24, 2009

Why don't you get the unemployment benefits right away and keep them, untouched, in the highest-interest but still-accessibly savings account you can find until you need that money? You end up with more money that way (if slightly at today's interest rates) and you don't have to worry about the defering?

That said, I have no idea how freelancing works into that/affects it at all, but it always seems better to get the money now, and control it yourself, if you can.
posted by brainmouse at 11:08 AM on November 24, 2009

I am going to explain how this works in CA, because I'm pretty sure this works the same way in every U.S. state:

If you are laid off (not fired for cause), you can file an unemployment claim. Based on past earnings, they award you a claim for one year. However this claim only has enough money in it to last six months (right now, there is a lot of extended unemployment coverage, but let's keep this simple).

So, every two weeks, you get a form, asking among other things if you worked, and how much you earned. If you earned zero, they send you a check for your weekly award amount times two, and deduct that from the total claim amount you have left for the year.

If you worked a little, you get the difference between the award amount and what you made. if you made more then the weekly award amount times two, then you get no check for that two weeks. However, nothing is deducted from your total claim for the year. So, in essence, you are "saving" some of your claim for later. The next time you aren't earning anything, that money will be there waiting, you'll check "didn't work," and they'll send a check.
posted by drjimmy11 at 11:10 AM on November 24, 2009 [2 favorites]

To answer question two, unemployment awards are based on earnings in the past year. So you can get a one-year claim based on your old job you got laid off from.

However, if you only freelanced for a year, didn't earn anything on a W2, and tried to file another claim next year, I'm pretty sure you'd be out of luck, because there is no real "employer" to pay for the benefits. (Note that if you work freelance through a temp/contracting agency, they tend to pay on a W2, so you can collect unemployment based on those earnings. You don't have to "quit" the agency either- you can collect unemployment during periods where they are trying to find you a gig, but can't.)
posted by drjimmy11 at 11:13 AM on November 24, 2009

@spacewrnech - Thank you ... I will look into this

@brainmouse - From the amount that I have read I think I would have to report the freelance income and it would be deducted from any unemployment. I am fine with this however I am concerned that I would be deemed "self employed" and therefore not eligible for any unemployment. Sort of a catch-22.

@drjummy11 - I was wondering if this is the way it worked. This would be great as I could use the unemployment if needed but try and make it by with freelance work for as long as possible.
posted by mountainfrog at 11:19 AM on November 24, 2009

I know from personal experience that is how it works in CA. Check with your state to make sure, they probably have all the info on a website.
posted by drjimmy11 at 11:22 AM on November 24, 2009

Actually it's completely different in Ohio, so you should definitely check.

In Ohio, you get awarded a fraction of your average pay at your most recent job (W-2, natch) for between 20 and 26 weeks, depending on how many weeks you worked during a certain period of time (your "benefit window"). Each week, you file a claim. Then they ask you how much you earned that week, if anything; if you freelanced, did odd jobs, etc, you report that money. If it's more than 20% of your weekly benefit amount, they deduct anything above that 20% from your benefit. If you make more than 120% of your benefit they don't pay you at all that week. Not clear whether it's deducted from your total award or not.

If you are an officer of a corporation, I think that kicks you off unemployment entirely.

I am just an underemployed freelancer, not a lawyer. (Not an underemployed freelancing lawyer, either.)

In other words, it is probably a new and brilliant bureaucratic nightmare in each state. Enjoy.
posted by chesty_a_arthur at 11:28 AM on November 24, 2009

It works similarly in New York, though you can file your claim online. You also file your claim each week instead of every two weeks. Note that New York's unemployment insurance payout sucks the big one and is barely enough to pay rent with each month. Don't expect to have any excess money.

You may also try to find some work that will pay you under-the-table, so that income is not considered taxable (unless you are really really honest with the IRS). Legally, you need to pay taxes on such income but with the economy and the unemployment being what they are right now I think it's a fairly safe risk to take.
posted by camworld at 11:35 AM on November 24, 2009

you absolutely must look into this with your state's unemployment office. here in pa, if you take steps toward being self-employed (and the definition of this really, really varies) you lose your unemployment and have to pay anything back you might have earned. however, some freelancing work is okay, and as long as you declare what you earn, you're still eligible for unemployment. so you might get partial payments one week, no payments the next week because you earned too much freelancing, etc. it REALLY varies here in pa. it's fucked up and confusing and they come down on you HARD if you do it wrong. so check with your state. call them or go in, don't rely on their website. talk to someone and ask really specific questions.
posted by misanthropicsarah at 11:52 AM on November 24, 2009

It varies *widely* by state. You need to post your state to receive relevant advice, and discount any advice given by anyone who does not have recent personal experience/knowledge of your state's unemployment benefits system.
posted by Jacqueline at 12:23 PM on November 24, 2009

I think in Indiana, you have certain time period in which to file after being let-go. I made the mistake of jumping right into freelancing when I was downsized and missed the window. As far as I can tell, even if freelancing goes belly-up, I am no longer eligible for any unemployment benefits. I've rummaged around the state website and it's pretty hard to find any information relating my situation. It's all seemingly geared toward blue-collar employment.
posted by Thorzdad at 1:01 PM on November 24, 2009

In California if you claim that you worked two weeks in a row, they consider you employed and cancel your claim. [I'm pretty sure its a newer thing] You can re-file, but its a hassle and you lose a week. It just happened to my old roommate and took a lot of phone calls to figure out what happened.
posted by mattsweaters at 4:41 PM on November 24, 2009

Thank you everyone. I will indeed contact my local employment office and see what the situation is in my state. My hope is that it is similar to California in that a set amount is set aside if you need it and those weeks when you can find work (and don't need unemployment insurance) you don't get it. Thank you again for all the information. :)
posted by mountainfrog at 6:05 PM on November 25, 2009