While a job loss can be a devastating moment, it’s also an opportunity for many people to chase an entrepreneurial dream. If you’re considering starting a business while collecting unemployment benefits, there are some things to consider before you begin. There may be unemployment requirements to keep in mind. And, for those who do take the leap in a down economy, sources of financing and consumer spending habits may be in flux. Having a solid plan that takes the economy into account is essential.
Can You Collect Unemployment and Start a Business?
You can start a business while collecting unemployment, but it may affect the amount of your weekly benefit and could be impacted by the time you need to spend searching for a full-time job.
When you’re collecting unemployment, there are typically work-search requirements where you must be performing regular job searches and be available to work immediately if a position is offered to you. This may eat into the time you spend on your business or could require you to step away if a job is offered.
Rules vary from state to state, so you’ll want to review yours. But generally, nothing prohibits someone from starting a business while collecting unemployment, according to David L. Barron, a labor and employment lawyer at Cozen O’Connor.
“Use this time to do all the legwork, groundwork, and planning of starting a business,” Barron said in a phone interview. “None of that jeopardizes your unemployment, as long as you’re meeting your state’s requirements for looking for work.”
What will matter is income: Should your business begin earning money, you need to report that, and it may reduce your unemployment benefits. For example, in California, you can earn up to 25% of your weekly unemployment benefit. After that, your weekly unemployment benefit will be reduced by the remaining amount earned.
Job-search requirements can be time-consuming, depending on your state. So it’s important to take into account the time that you’ll need to spend job hunting and interviewing to satisfy your state’s reporting requirements. If you fail to meet them, you may risk losing your benefits.
Unemployment benefits typically also require you to be ready to return to work immediately, if a job is offered. While there are lawful reasons to turn a job down, not returning to work for a qualified position would likely result in the termination of your benefits, Barron said.