Unemployment compensation is a state-administered system under which people who lose their jobs through no fault of their own can receive a weekly benefit to assist them while they look for work. The entrepreneurial spirit is something that is usually encouraged in a person who wants to pursue the dream of owning a business, but doing so could affect the person’s eligibility for unemployment benefits.
Unemployment System in the United States
Although unemployment compensation laws vary from state to state, two common eligibility requirements are:
- That the loss of the job was without fault on the part of the worker
- Benefits are decreased or end if the worker finds a job or is not making a good faith effort to find work
If you are laid off due to a lack of work or some other reason that is not your fault, you might be eligible to collect unemployment compensation benefits while you search for a new job.
Most states require unemployment recipients to be ready and willing to accept work in any occupation that is consistent with their training or prior work experience. Benefits can be withheld from workers who limit the hours or days when they can work.
Income from Starting a Business
Starting your own business while collecting unemployment benefits could affect your eligibility if you make money from the business. A person who accepts a part-time job while collecting weekly benefits must report the income to the state unemployment office. The result will be a reduction of the unemployment benefits in an amount equal to the income from the part-time job.
A Business is a New Job
Aside from the issue of money earned from a business affecting eligibility for benefits, another issue with a new business is one of the times. The time you devote to starting your new business takes away from the time you should be spending looking for a job. Officials at unemployment could also view your new business as a job and determine that you are now working and no longer eligible for benefits.
Federal Self-Employment Assistance Program
The federal government is trying to encourage states to amend their laws to allow unemployed workers to retain their weekly unemployment insurance benefits while starting a new business. The Self-Employment Assistance program would provide incentives to states that allow unemployment insurance recipients to keep their benefits while starting a new business.
Source: Small Business Administration, Self-Employment Assistance Center