Taking a part-time, contract, freelance or volunteer job when you're on unemployment can prevent you from collecting unemployment benefits or shrink your unemployment check now and in the future.
States set their own rules for unemployment benefits, but to collect, most say you must be able and available to work and looking for work. If you're working a contract, freelance or part-time job or volunteering, you're not available to work, and that could lead to a reduction or outright elimination of your benefits.
How much you'll lose depends upon your state's rules. New York reduces benefits by 25 percent for any day you work even one hour, says Delyanne Barros, an associate with the law firm Outten & Golden LLP in New York City. If you're going to work eight hours a week, you'll lose only 25 percent of your benefits by working eight hours on one day versus losing all your benefits by working two hours a day four days a week, she says.
Don't Trust UI Advice
Before taking any assignment, read your state's unemployment insurance rules. Don't rely on the unemployment insurance office staff for advice. Their job is to follow the rules and pay as few claims as possible -- not to help you collect the maximum benefit.
If you do work part-time and collect partial benefits, be exact in reporting any income. That's the lesson San Francisco writer Lauren Willard learned when she started working part-time in mid-2009 after being laid off from a full-time job in late 2008. She reported the job to California's Employment Development Department (EDD), but wasn't exact to the penny about her income.
"If you're off in the amount you report, they'll flag it, and instead of calling you, they'll just stop giving you money," Willard says. When she called to find out why her checks had stopped, the EDD said it didn't know.
Any legitimate, on-the-books employer will report your income to the IRS, says Richard Betheil, a labor and employment partner at the New York City law firm of Pryor, Cashman LLC. "It's all cross-checked by computer with unemployment benefits," he says.
Failure to report income is fraud. If the mistake was small and unintentional, you might get your benefits restored, but it will likely take months to clear up the issue.
Part-Time Work Resets Your Unemployment Benefits
Part-time work can do more than slow or stop the flow of benefits this year -- it can also reduce your benefits next year, says Leslie Jacobs, author of Survival in the Unemployment Line: A Humorous Look at Being Unemployed.
Suppose you're laid off from a job where you made $4,000 a month and your unemployment compensation is $2,000 a month, Jacobs explains. You pick up part-time work and make $1,000 a month this year. Next year, your unemployment benefits will be based on the total you made the year before -- $1,000 a month rather than the $4,000 a month you made working full-time.
Volunteer Work Makes You Unavailable
Working for love rather than money can mess up your unemployment benefits as well.
To keep volunteer work from interfering with your benefits in New York, for instance, you must work for a charitable, religious or cultural organization; take no payment; and have no chance of being hired by the organization. The work also can't interfere with your job search or the days and hours you're willing to work.
If you want to keep your benefits while volunteering, read your state's rules to get an idea of what the unemployment division staff might ask and how to answer questions about your volunteer job.
Contractors, Self-Employed Can Find Themselves Out of the Money
In some states, taking a contract position or starting a business may turn you into a self-employed businessperson and disqualify you from receiving unemployment benefits.
States handle self-employment differently. New York may take away your benefits if it finds out you're preparing to start a business. "You may also be disqualified if you're self-employed or working on a contract basis, even if you're not currently making sales or not getting paid until a later time," Barros says. "In fact, even doing favors for another business or a friend may disqualify you from receiving benefits, regardless of whether you're getting paid or not."
Oregon, meanwhile, has a program that lets you collect benefits while starting a business. Massachusetts takes a middle ground. It allows you to collect benefits while self-employed part-time, but cuts you off if you work for yourself full-time, even if you make no income from your new business.
Be careful, too, that if you take a temporary job, you're taken on as an employee, not as a contractor. In some states, becoming a contractor can cause the unemployment office to consider you to be self-employed, making you ineligible for benefits. In other states, the employer can call you a contractor, but if you're supervised, directed and controlled by the employer, the state will consider you an employee, so you'll likely be eligible for unemployment benefits when the job ends.
The bottom line: It's easy to blunder yourself out of benefits by taking a temporary, part-time, contract or volunteer job, so don't do it without first knowing your state's rules.