Unemployment benefits are reserved for those individuals who have contributed to the unemployment fund. An individual is eligible after contributing for 6 months or more through regular paycheck withholding. Self-employed persons or independent contractors do not typically contribute to this fund. As a result, they are not eligible for traditional unemployment benefits. There are still options for assistance to these individuals, however.
Unemployment for the Self-Employed
Many individuals may wonder how a self-employed person could become unemployed. The individual does not get laid off like other unemployed individuals. Instead, the individual simply loses a high amount of contracts, typically as a result of a down turn in the economy. There simply may not be enough business available to sustain a previous salary. For example, a carpenter may work for himself, but he contracts regularly with home builders. If the home market crashes, the builders may take a break from their work, and the contractor is technically unemployed. However, this contractor never contributed to unemployment benefits through his previous paychecks, so he is ineligible for the benefits. He may have a mortgage to pay and a family to support. He cannot easily go find new work, because there are no builders hiring carpenters in this economy. Where does this person turn?
Private employment insurance is an excellent option for an individual who cannot afford to go a few months without a consistent salary. Technically, all unemployment benefits are a form of mandatory insurance on an income stream. Collecting unemployment is actually called collecting unemployment insurance, though it is rarely referred to by this name in the general public. If a person cannot purchase this public insurance, that person can turn to private insurance options. Many insurance companies sell unemployment insurance lines, particularly for self-employed individuals. A premium is based on the salary the individual earns. Similar to paying for your own health care benefits, which self-employed individuals do, the independent contractor will just pay this unemployment insurance premium each month. If there is not enough work available, and you have this insurance, all you have to do is file a claim. Similar to a public unemployment claim, your benefits will only last while you are actively seeking work.
If you are laid off and decide you would like to pursue self-employment, the government may be able to assist. you. The self-employment assistance program is designed to provide benefits to a person who may qualify for unemployment insurance but would prefer to try to generate an income through acting as an independent contractor. For example, imagine an electrician is employed by a building company. The building company experiences layoffs, and the electrician loses her job. Instead of collecting unemployment, she decides she would like to contract with other builders. The government encourages this because she will not become a burden on the unemployment system. She may qualify for assistance getting her business up and running, including periodic checks for some time after she is laid off. This option is run through the State Unemployment Insurance agency in your state.