Freelancing: A Good Option When You Are Unemployed?

If you are unemployed, freelancing may be a very good option for you to consider, especially if you have been unemployed for several months and can no longer collect unemployment compensation.

Employers typically view contract work very positively.

Being a freelancer fills “the gap” on your resumes and LinkedIn Profile.

Contract work is also proof that you didn’t just sit around and hit the “Apply” button over and over again.

Instead, you are motivated, interested in working to keep up your skills as well as your bank balance.

Should You Accept a Contract Gig?

When you are unemployed, your focus is often on finding that next role, and you may be afraid to look at contract roles for fear that employers will look at that kind of work as less than desirable.

Contract work has changed dramatically since the early days when the only freelance work you could find was a role in the file room or answering phones.

Working as a contractor/freelancer may be your best option to generate income, and it could turn into your next career.

If you are a college graduate, you may have assumed that you “had it made” when you got your degree.

Sadly, many job seekers with college degrees and even those with advanced degrees, such as an MBA, may find themselves in a slow-to-hire mode because they lack experience.

Often, job seekers find themselves in long-term unemployment after their job is downsized due to merger acquisitions or economic restructuring. Since the target jobs for the individuals with college degrees are typically at a higher pay rate, they may see high school graduates landing new roles faster than they find employment.

Freelancing may be the best option.

Reasons Employers Hire Contract Workers

Today, employers are increasingly turning to freelancers and contractors.

They might hire a part-time/contract employee for any of these reasons:

  • To fill the gap when they temporarily have a high volume of additional work to be done (like seasonal package delivery needs).
  • To fill the need when it is not a long-term requirement warranting hiring permanent new staff (like working on an IT or construction project, planning a big event, or teaching a college course).
  • To temporarily replace an employee on a long-term leave, such as maternity leave or rehabilitation after an accident.
  • To have a cost-effective solution when the company is unable to afford a new permanent employee.

Sometimes, employers hire contract workers as they do temporary staff — a try-before-you-buy experience. Both the employer and the contractor have an opportunity to observe and evaluate each other before the relationship becomes “permanent.”

Before you accept a freelance job, knowing the reason the job is short-term is good information for you to have.

You’ll be able to better gauge how long it will last and the probability that it might become permanent.

[MORE: See Freelance/Contractor Fields and Industries for an idea of where opportunities exist most frequently.]

How Contract Work Impacts Your Income and Unemployment Status

You have bills to pay, and contract work can pay those bills. This is an obvious plus even when you are collecting unemployment compensation.

If you collect unemployment, you must report any income you earn from work during this time.

This reporting requirement applies regardless of your situation –

  • Whether you work for a single day or several months.
  • Whether the work is part-time or full-time.
  • Whether you are an employee or working on a contractor basis.

In the USA, the employer will send you (and also the state and federal governments) a 1099 form at the end of the year instead of the usual W-2 form you received from your employer when you had a permanent job.

  Different States = Different Rules: Know YOUR State’s Rules  

Different states have very different rules about how income impacts your unemployment compensation.

If you are currently collecting unemployment compensation, you need to check with your state’s organization governing unemployment (in the USA) to learn how that impacts you. Do this before you accept any contract work so you can understand how it will impact you.

Your state’s unemployment commission will reduce your benefit payment for that week based on the amount you received in compensation for your 1099 work. The reduction may not be dollar for dollar.

  • For example, in one state, you can earn up to 125% of your normal benefit amount before your benefit is eliminated.
  • On the other hand, in another state, 80% of your freelance earnings are deducted from your unemployment compensation.

This is why it is so important to understand how your local government regulations apply to you and your situation.

  The Timing of Payments Matter  

With regular employment, you generally receive a payment at regular intervals — every week or every other week. Payment for contract work may be held until the job is complete. Depending on the job, you might receive several hundred dollars or many thousands of dollars.

In the case of contract work, you only report the money when you are paid. If you receive partial payment, you report that payment when you receive it, and report the balance when paid.

The timing of the payment you receive may have more impact on your unemployment benefits than how much you receive. Typically, as long as you meet the other requirements for collecting unemployment, payment for 1099 work reduces or eliminates your benefits only for the week you receive payment.

  Retaining Eligibility for Unemployment Compensation  

To be eligible for unemployment benefits, you must continue to actively look for work, and be available for work if you’re offered a suitable job.

If your 1099 position requires you to work particular hours at a particular location, especially if these amount to full-time hours, then you cannot meet the requirement for being available for work.

However, if you can fulfill the duties of the contract job on your own schedule, and you continue to look for full-time work, then you can probably continue to collect your unemployment benefits while completing the contract job.

Be sure to check with your state’s employment office to find out exactly what is required and what is acceptable in your state.

If you are interested in short-term temporary employment (days or a few weeks rather than months), read Job-Hunt’s Guide to the Temporary Work Option.

More Information About Contracting/Freelancing:

About this author…

Job-Hunt’s Freelancing and Contracting Expert Julie Walraven is a Certified Master Resume Writer and Certified Professional Resume Writer. She is owner of and has been helping people with their job searching since 1983. During that timeframe she has helped job seekers find employment as contractors, and she has acted as a contractor herself for many years, so she brings experience and a depth of knowledge to this topic. Follow Julie on Twitter @JulieWalraven.

Don't forget to share this article with friends!