Job Hunt Can Threaten Jobless Benefits

For a professional in transition, freelancing, volunteering, networking, or preparing to launch a business can shorten the path to the next job. But if you're not careful, it can also prevent you from collecting unemployment compensation.

While rules governing jobless benefits vary from state to state, in general a claimant must be able to work, available to work and actively seeking work.

"If you're doing so much freelancing and volunteering, or you take on so much networking that you honestly have to say you're not available (to work), that's going to be an issue," says Douglas Holmes, president of UWC, a national business lobbying group for unemployment insurance issues.

"The intent of unemployment insurance is to assist you in getting to the next job so it's not inconsistent to be volunteering and networking and still available," he adds. "But, you have to be careful about how you characterize what you do."

If you're volunteering as part of your work search, say that. If you're volunteering, but able to leave at any time if someone calls you in to work or an interview, say so.

If You're In New York

New York State's rules on volunteering, freelancing or opening a new business are especially direct.

Delyanne Barros, an associate with Outten & Golden LLP, a New York law firm representing individuals, says you can volunteer and collect unemployment benefits if all the following apply:

- You work for a charitable, religious or cultural organization

- You are not paid in any form

- Your work is not a pre-condition for being hired or rehired

- It doesn't interfere with job search.

Business Start-Ups

New York's policy on starting your own business is stringent. To collect, you must be "totally unemployed," says Dan Schlein, a New York employment lawyer. Performing activities related to the start-up of a business will cause you to lose your benefits, he says.

Even if you make no money from the start-up, the New York Department of Labor figures you stand to gain from the continued existence of the business, so it's not going to pay you further unemployment insurance benefits, Schlein explains.

It's not just New York that penalizes the unemployed from exploring business opportunities. Texas resident Sandra Talley, a laid-off IT sales and marketing expert, lost a week of benefits when she attended an insurance sales training course.

Barros explains that states like New York may deny unemployment benefits even if you're receiving no payment at the time but may receive payment in the future. There are exceptions for approved training and self-employment, but you must get approval before starting a new venture.

Freelancing and Unemployment

Those who freelance can also run afoul of the rules. During a year-long bout of unemployment, New York communications professional Bob Johnson earned a couple thousand dollars freelancing. He called the state first and was told freelancing wouldn't cause his benefits to end.

"I took the work to show any future employers that I've been productive during this down time," he says.

In July of 2009, the state began investigating his freelance activities, and audited of one of his two clients. The last he heard, the state was denying him benefits.

"Hindsight is 20/20 and I never would have taken on that freelance work if I had known I would have to go through all this," he says. "In these times, it really benefits people not to accept any freelance work. Is it really worth the $50 or $300 to put your claim at risk?"

Report All Income

If you do accept any type of work while unemployed, be sure to report it because states cross-match unemployment benefits with business tax returns.

"If someone is claiming benefits and not reporting income, there's a presumption of fraud," Holmes says. He cites the case of a woman who earned $200 in benefits and didn't report $31 in weekly income from her church. "The Attorney General in Ohio prosecuted her for fraud, and it stuck," he says. "She got big penalties and had to pay the benefits back with interest."

Do Your Work In a Single Day

New York State will reduce a claimant's normal weekly benefit by 25 percent for each day or partial day he or she is unavailable for work. "If you're freelancing, you're better off working eight hours in one day, rather than two hours a day for four days," Barros says.