Unemployment For The Self-Employed

By Abby McCain - Jan. 6, 2021

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Life during a pandemic is strange in many ways, and one of these is that many self-employed workers who were previously successful have suddenly found themselves without work.

One of the downsides of being your own boss is that you don’t have a company that will pay you severance when you’re fired or laid off or allow you to be eligible for unemployment benefits. When you’re self-employed, you’re the one who is responsible for your work and finances, for better or for worse.

The government knows this and has put some measures in place to assist the self-employed who have suddenly found themselves without an income or struggling to pay their employees.

Defining Self-Employment

Being self-employed can mean a lot of things, but here are a few categories of worker that this term usually encompasses:

  1. Small business owner. If you’re the owner of a small business (under 500 employees), you’re usually considered self-employed. This also applies to those who are sole proprietors, which means they’re the only person running or employed by their business. Franchise owners also usually fall under this category.

    Many of the programs listed in this article also provide assistance with keeping your workers on the payroll, so look into those opportunities as well.

  2. Freelancer. Freelancers generally work on projects on a short-term basis with clients, and they’re in charge of finding clients, setting the rates they charge and paying their taxes. Some of the most common fields for freelancers to work in are writing, web development, and graphic design, and many work for multiple clients at once.

  3. Independent contractor. Like a freelancer, independent contractors can also work for more than one client and are in charge of their finances. This type of self-employment usually comes with longer contracts that are more like temporary jobs. Freelancers can be considered independent contractors, but independent contractors aren’t considered freelancers.

    Because they often contract for a company but are in charge of their own pay and practices, doctors and lawyers are also usually considered independent contractors.

    If you’re in a position like this where you work for one company long-term but are technically an independent contractor, you, along with the rest of the self-employed workforce, generally don’t qualify for traditional unemployment benefits.

  4. Gig worker. Similar to freelancers, gig workers also take on a variety of clients and projects, but they usually only work on one job and one client at a time, where a freelancer might work on several at once. Gigs are usually short-term projects with a clear endpoint, such as performing at an event or digitizing a company’s files.

Unemployment and Side Hustles

If you make an income from being self-employed on the side of your regular job, you won’t be able to collect unemployment if you lose your side hustle but still have your day job.

Depending on the state you live in, if you lose your day job and still have your side hustle, on the other hand, you may be able to collect some form of unemployment. You must honestly report your side business when you apply, though. If you don’t, you’re committing fraud.

Some states may reduce the amount of unemployment you receive if you’re self-employed on the side, and some may disqualify you altogether. Those who do allow you to keep working your side hustle while on unemployment will often require that you show that you’re still trying to find work in your main field to remain eligible for unemployment.

Suppose you start or expand your side hustle while you’re collecting unemployment. In that case, this can not only disqualify you from receiving your benefits, but it could also mean that you have to pay fines for violating the requirements. Avoid this by carefully looking at your state’s policies before you start anything on your own.

Types of Unemployment Benefits for the Self-Employed

  • Coronavirus Aid, Relief, and Economic Security (CARES) Act. The president signed the CARES act into law on March 27, 2020, and it allows states to provide unemployment insurance for more workers than they’re normally able to by expanding the terms of who’s eligible.

    This expansion extends to those who are self-employed, and it will continue to do so until the end of 2020.

    There are several provisions included under the CARES Act:

    • Pandemic Unemployment Assistance (PUA)

    • Pandemic Unemployment Compensation (PUC)

    • Pandemic Emergency Unemployment Compensation (PEUC)

    As a whole, this Act provides unemployment benefits to self-employed individuals, allows unemployed workers to receive additional supplemental aid, and extends their unemployment benefits if they’ve used up their state benefits and still don’t have a job.

    To receive these benefits, you’ll need to file with your state unemployment office. There they will determine if you’re eligible for this program and the amount of assistance you’ll receive.

    Since you don’t have an ex-employer to verify anything for you, you’ll likely need to provide proof of income to file for unemployment benefits. Bring documents such as tax forms, pay stubs, or tax returns when you go to apply.

  • Payroll Protection Program. While the CARES Act is a government-funded program, the Small Business Association (SBA) runs the Payroll Protection Program (PPP).

    Please note that this program closed to new applications in August of 2020, but keep an eye on it in case it opens up again.

    This program is designed to give forgivable loans to small businesses with the goal of helping these businesses avoid laying off their employees.

    However, these loans are also available to self-employed individuals who don’t have employees. So, if you’re a freelancer, sole proprietor, independent contractor, or gig worker, you might be able to benefit from this program as well.

  • Families First Coronavirus Response Act Tax Credits. As a part of the Families First Coronavirus Response Act, you might be eligible to receive paid sick leave if you need to quarantine due to COVID-19 and up to 12 weeks of family leave if you have children home from school that you need to take care of.

    This benefit is in effect through the end of 2020, and some, if not all, of this money will come in the form of tax refunds. While there are caps to the amount that you can receive, this could be an effective way to offset some of the expenses of not being able to work as you usually would.

  • Disaster Unemployment Assistance (DUA). If you ever lose work due to a disaster declared by the president of the United States, you should apply for the Disaster Unemployment Assistance (DUA) program.

    Because the president has declared the COVID-19 pandemic a disaster, you may be able to receive unemployment benefits from this federal program. However, you have to be ineligible for all other unemployment benefits to qualify for DUA.

    While this is a federal program, you’ll also need to apply for this with your state unemployment office.

  • Company benefits. If you’re self-employed but work for one main company that relies on contractors to operate, look into what that company is doing to help you and others like you. This is especially true if you work in an industry that relies on you being able to be face-to-face with customers since you won’t be able to make an income if you have to quarantine due to COVID-19.

    Many companies in this situation are providing paid sick leave and financial assistance for their workers.

  • Freelancers’ Relief Fund (FRF). The Freelancers’ Union started a relief fund to provide extra cash to freelancers and gig workers who lost at least half of their income because of the pandemic.

    To qualify for this, gigs and freelance work have to be your sole source of income. Once you receive the money, you can use it for necessities such as food, utility payments, or anything else you would normally cover with your paycheck.

    This fund is made possible by donations, so once you’re back on your feet, you might consider donating to help other freelancers.

  • Self-Employment Assistance Program (SEAP). This program is one of the few that started long before the COVID-19 pandemic. Because of this, it operates a little differently than most unemployment programs.

    States can choose to participate in this program, and if they do, they can provide an allowance to self-employed individuals to help them get their businesses off the ground.

    To be eligible for this program, you have to have been eligible for unemployment. This means that if you had a job, lost it, have been on unemployment for a while, and are now actively trying to start a small business or work as an independent contractor, freelancer, or gig worker, your state can give you this money to help you out.

    You can only do this if you’re likely to run out of employment benefits soon (meaning, you don’t have a lot of job prospects, so now you’re pursuing self-employment in order to make some kind of income) and if you show that you’re putting full-time effort into becoming self-employed, even if that simply means you’re regularly attending workshops or meeting with advisors.

    If you think you may qualify for this, check with your state’s unemployment office to see if they offer this program.

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Abby McCain

Abby is a writer who is passionate about the power of story. Whether it’s communicating complicated topics in a clear way or helping readers connect with another person or place from the comfort of their couch. Abby attended Oral Roberts University in Tulsa, Oklahoma, where she earned a degree in writing with concentrations in journalism and business.

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