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Self-Employment and Unemployment Insurance

Updated : December 13th, 2022

The Story of Lisa Parker

Lisa Parker, a budding dot com entrepreneur in her late thirties runs a small company that deals with web development and maintenance for local enterprises in Detroit, MI. Her husband works as a marine engineer employed with a shipping conglomerate. Lisa has two kids who are in high school.

Lisa’s firm, Web Success is registered as sole proprietorship with the local authorities and she pays mandatory taxes into the Michigan Department of Treasury. She has carefully nurtured her business meeting timely expectations of various needs of her clients winning laurels and referrals. In her path to success, Lisa has provided employment to five individuals who assist her with their expertise in content development, web designing etc.

Due to the slow onslaught of economic crisis since 2010 that engulfed the city of Detroit, Lisa gradually lost business from local clients who were themselves victim of this crunch. Many of her clients filed for bankruptcy which resulted in deferred revenue for Lisa as they could not afford to pay her. Web Success was able to sustain for close to two years, thanks to the cash balance and other investments Lisa made which aided continuity of her enterprise and timely payment of salaries.

Web Success had meticulously planned their fall in the second calendar quarter of 2013 as they were no longer getting any deals from existing clients nor were able to sign up any new ones. Lisa decided to call it a day and laid off all her 5 staff members with a severance pay for 6 months. She was left with nothing in her bank after she shut down her business and started looking for employment opportunities outside Michigan.

While she was working hard to find a suitable job, she decided to apply for unemployment insurance benefits provided by the labor department in MI for those who are looking for a job but are currently out of one. Unfortunately, her application was rejected as she was self-employed and did not pay unemployment taxes into the system.

Unemployment Insurance for Self Employed

If you were  self employed  and are currently out of work because of no fault of your own, your chances of receiving unemployment benefits are not that high. However, you should check with your state unemployment office to check your eligibility, as there are some situations in which you would be able to get jobless benefits even if you were self-employed. The labor department in your state will be the best authority to clear the air for you.

Do Not Loose Hope
Do Not Loose Hope

In a few cases that can be considered an exception,there can be light at the end of the tunnel. Please read below to find out more.

When can self-employed workers receive unemployment benefits?

  • Talk to your state unemployment office to find out if you were wrongly classified as self-employed. Long term contractors are classified as employees in some states that make you eligible for UI benefits.
  • Apply for benefits if your business is incorporated and you can’t find work. You should be eligible as long as the corporation paid unemployment insurance.
  • Apply to your state unemployment office if you are not working and you live in a region affected by a disaster. If you lost your employment because of a disaster, you should be eligible to receive disaster unemployment assistance even if you are self-employed.
  • If you are an ex-military service member who was self-employed before entering the service, apply at the state office of the state you reside in after leaving the service, regardless of where you lived before.
  • Talk to your state labor office if you have started your own company since being laid off. Under a special program, you may be eligible for a self-employment allowance while you are establishing your business.

If you’re unemployed and are looking forward to applying for benefits, always consider applying for it before concluding if you will/not qualify.

Note: The character of Lisa Parker is a fictional creation by the author out of his experience working on various fora on this website interacting with people. Any resemblance to a living/dead person is purely coincidental.


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