In this economy, the loss of one’s job can be an invitation to self-employment.  After all, economic necessity may dictate doing something to generate income.  However, those who collect unemployment benefits and engage in self-employment too soon not only risk disqualifying themselves for benefits, they may be forced to pay back benefits they have already received.

Pennsylvania’s unemployment law does not define self-employment.  However, the courts have interpreted it very broadly.  Self-employment is not defined by having customers and income.  Advertising oneself as being in business is considered self-employment.  Forming a business entity such as a corporation or limited liability company constitutes self-employment.  Signing a contract to perform services as an independent contractor has also been deemed self-employment even when no work has been done.  Unless you believe you can make more money immediately from self-employment than from unemployment benefits, premature business activity can harm you financially. 

At first blush, it may seem the unemployment law penalizes the industrious and encourages laziness.  However, the law guards the state’s coffers from those that would use unemployment benefits as an incubator for new business endeavors.  Unemployed persons considering self-employment may apply for Pennsylvania’s Self-Employment Assistance (SEA) Program.  I will discuss the SEA Program in more detail in my next blog.  Only through the SEA Program may participants engage in self-employment and continue to receive benefits.

 Persons not eligible for the SEA Program who still wish to become self-employed should take the time while receiving unemployment benefits to study entrepreneurship, attend classes or seminars, talk to persons already in business, develop a business model, develop a budget and explore financing.  If you have concerns about what business activity may jeopardize your unemployment benefits, call our Yardley, Pennsylvania office.   Do not try to start a business until you have considered all the possible consequences.