In many cases, unemployment compensation simply doesn’t pay all the bills. It may keep you from starving, but the bills will continue to pile up. That’s when a side hustle makes sense, but you should understand how said side hustles can impact unemployment compensation.
If you’ve been recently laid off or fired, you’re not alone. I’ve been there and understand that it is one of the most stressful things that can happen to an individual.
Report Earnings as a General Rule
In most if not all states, you’re supposed to report any extra income you earn while collecting unemployment compensation. Some states allow you to earn a little extra income without a reduction in unemployment payouts, but it varies, and there is generally a cap. For example, in Pennsylvania, there is a “partial benefit credit” – this is 30% of your weekly benefit rate. So, if you’re receiving $200 a week in unemployment benefits, you can earn up to $60 extra without a reduction in your payout.
Again, this will vary by state but expect to have to report extra earnings regardless of where you live.
Unemployment Benefits by State
Each state has policies regarding the maximum amount you can earn weekly, and how long you can collect unemployment benefits for in terms of duration. Each state will use their own calculation based on your earnings at the time you lost your job.
Unemployment Considerations
Here is a checklist of things to consider as it relates to side hustles and unemployment compensation. I can’t offer legal advice, but many local bar associations offer a free lawyer finder service, where they will connect you to a free consultation. If income is tight, you can check with Neighborhood Legal Services or dial 2-1-1 to reach your local United Way Helpline.
Side hustle income usually must be reported when you file for unemployment. States generally require claimants to report earnings for the week they are earned or worked, not just when paid. In Pennsylvania, part-time earnings and self-employment earnings both must be reported.
A side hustle can reduce your weekly benefit amount instead of wiping it out completely. Many states allow partial benefits if your earnings stay under a certain threshold. In Pennsylvania, the state uses a “partial benefit credit,” and reported earnings reduce the weekly payment.
How income is counted can differ based on the type of work. In Pennsylvania, traditional job earnings are reported as gross pay, while self-employment earnings are reported as net pay after expenses.
A side hustle can create eligibility problems if the state sees you as self-employed full time. Unemployment systems are generally aimed at people unemployed from wage work, and some states scrutinize whether a business is just a small sideline or your main job. For example, Pennsylvania specifically notes that claimants may need to show a venture is only a sideline business and that they were separated from the job that was their main source of income.
Starting a new business while on unemployment can trigger extra review. The agency may ask whether you are still able and available for full-time work, whether you are actively seeking work, and how much time the side business takes each week. Those are common non-separation eligibility issues in unemployment programs.
If the side hustle becomes your main occupation, benefits may stop. Once the business looks like full self-employment rather than a small side gig, the agency may decide you are no longer unemployed in the way the program requires.
Failing to report side hustle earnings can lead to overpayments, penalties, or fraud issues. States cross-check wage and new-hire data to make sure people who are working part time or who returned to work are properly reporting earnings.
Self-employment income may not help you requalify for benefits later. In Pennsylvania, earnings from self-employment cannot be used to requalify for benefits after a disqualification.
There are special programs in some states for people starting a business. The U.S. Department of Labor notes that some states offer Self-Employment Assistance programs, which can let eligible workers receive an allowance while building a business instead of receiving regular unemployment in the normal way.
The exact rules are state-specific. Unemployment insurance is a joint federal-state system, so each state runs its own program under its own laws and procedures.
Conclusion
Because there are so many different types of side hustles, this topic is tricky. If you have questions, don’t hesitate to utilize your local bar association or Neighborhood Legal office for guidance.