If you’ve ever been laid off from a job, you may have been eligible for some form of unemployment compensation until you get another job.
While the amount of your weekly benefit may depend on several factors, one thing is for certain: the funds can soften the blow to your wallet.
But what if you’re self-employed? Well, you can kiss employment insurance benefits goodbye. That is, unless you’ve properly organized your business and your state allows you to collect.
Get Trusted Legal Advice — Choose Your Service Here >>
Let’s be totally transparent for a moment. Initially, I found it surprising that self-employed individuals could legitimately claim unemployment benefits. But then again, if you pay your fair share of taxes, why not? Here’s how it works:
Sorry to be the bearer of bad news, but sole proprietors don’t qualify for employment insurance benefits.
Owners of Incorporated Businesses (S and C Corps)
If you pocket all of the earnings that your business generates as payments come in or take withdrawals as needed, you won’t qualify. However, if you put yourself on the company’s payroll, you may be able to draw unemployment. This depends on your state of residence.
In most cases, if you’re required to remit funds to your respective state’s department of revenue, you’re eligible to draw benefits. Except for Indiana, Rhode Island, New Jersey, Nebraska, D.C., New Mexico, and Washington, all other states offer unemployment insurance benefits.
To determine if you meet the criteria, check with your respective state’s unemployment office. If you don’t qualify, a few states offer in-house financial assistance programs for individuals who are self-employed.
Running a Business or Self-Employed? This Online Accountant Is Designed to Support You >>
What if You Don’t Qualify?
Before you go into panic mode, take a deep breath. There are several actions you can take to prepare yourself for a rainy day. And even if you qualify for employment insurance benefits, you should still consider the following actions to get your financial house in order:
1. Secure Long-Term Contracts
As a freelance writer, I’ve never been a huge fan of one-off projects for one reason: Accepting too many standalone assignments makes it virtually impossible to project my income for the month.
When you’re self-employed, there’s no absolute way to guarantee that you’ll make a particular amount the way you can as a W-2 employee, but it helps to have as many streams of stable income as possible.
2. Minimize Expenses
In my opinion, one of the biggest benefits of being self-employed is the ability to give yourself a raise. But earning more doesn’t necessarily mean that you should spend more.
A smarter option: keep expenses low to alleviate the stress that comes with making ends meet during the rocky months.
3. Save Like Your Business Depends On It
The balance of your rainy day fund could very well determine how quickly you’re forced to close the doors to your business if revenues plummet. Therefore, you should sock away as much disposable income as possible.
I completely understand that you may want to treat yourself after a rough week or month, but do so in moderation or your splurge session could very well come back to haunt you.
Build an Emergency Savings Fund With a Money Market Account — Get Started >>
4. Capitalize on High-Income Months
Did you have a record-breaking month in terms of your income?
Kudos to you for going the extra mile to bring in the bacon. But that is not an excuse to engage in an over-the-top retail therapy session.
Instead, use this as an opportunity to load up your emergency fund. The same rule applies to financial windfalls.
5. Secure a Line of Credit
It never hurts to explore a line of credit with your financial institution. Even if you don’t need it at the moment, it helps to have a line of credit available just in case you need it in the future.
As a last resort, you can always solicit the assistance of family and friends to help you weather a rough financial storm.
A Final Thought
A word to the wise: Don’t wait until you’re in the middle of a financial meltdown to start looking into employment insurance benefits. Be proactive and start conducting your research early, just in case your business hits a rough patch and you’re forced to file a claim.