Unemployment Benefits as a Transition to Hanging a Shingle
Back in the dark ages when I started my law firm, I took advantage of unemployment benefits to help pay the bills. I’d been working five years before a layoff lead me to hang my shingle, so I figured that I’d paid enough into the system to deserve some support. Although my unemployment benefits maxed out at the princely sum of around $250 back then, the money enabled me to cover my virtual office expenses, a few substantive legal guides and to avoid having to forbear on my student loans for more than three months.
I collected unemployment legally. At that time, the District of Columbia only required unemployment beneficiaries to state that they were seeking employment (which I could truthfully state since I continued to interview for jobs and seek out contract work) and to report any earnings since these would reduce the amount of unemployment that could be recovered. That’s not necessarily true in all states – several years back, New York determined that a laid off lawyer who started a payment-generating blog was running a business and therefore wasn’t eligible for benefits.
So why revisit the issue of unemployment insurance after all this time?
Well, I happened to stumble across a Harvard Business Journal article about how France’s decision to allow founders to collect unemployment insurance for three years increased the rate of new startups created by 25 percent.
To some, the results seemed counter-intuitive. After all, it’s assumed that those who start businesses are risk takers who shouldn’t need the safety net of unemployment benefits. Even so, entrepreneurship or shingle-hanging isn’t only about risk but about being able to start off right and stay sustainable – which is where a steady revenue stream can help.
Does your state allow business owners to collect unemployment benefits? It’s something worth checking out and may be just the thing to give you that extra push to shingle.
This is an intriguing idea. California is another state where you can be seeking contract work and still receive unemployment. Wages from your contract work will offset unemployment benefits during the relevant time period. As a practical matter, is there any difference between an unemployed lawyer who is trying to get some document review work while receiving unemployment, on the one hand, and a lawyer trying to start a practice and seeking work for clients, on the other hand? I don’t really see one. If unemployment benefits will help that person during the period in which she has more time than paying clients, why not? It increases her ultimate chances of succeeding, and not needing unemployment anymore.
Of course, this only works for those people who lost jobs and are eligible for unemployment. I don’t see how it helps a new attorney, just graduated from law school, who hasn’t had a job yet.
In New York, the formal rules of regular unemployment insurance here are set up so that it would be impossible for any attorney to collect the benefits if genuinely seeking whatever work is available. Under the standard rules, you cannot claim unemployment benefits for any day on which you engage in any kind of “self employment activity” which is defined so broadly that it would catch just about any efforts to find contract work. If I go on a job interview, in and of itself, that is encouraged under the UI rules, but if at the conclusion of that interview or in my initial contact I also inform the firm that I am available for per-diem or piecemeal work, then my effort to solicit contract work counts as self-employment activity, and I lose 25% of my weekly benefits for each such day. Any effort to seek non-W2 work would count as self employment activity under the standard UI rules, which essentially precludes collecting the benefits as an attorney.
There is, however, relief available. The state has set up a “self employment assistance program” which allows a person to engage in full-time self employment activity without penalty as long as you comply with the program’s requirements, which are to report your progress and attend business training. You then get the same six months of benefits that you would get if you weren’t working but only seeking work for others.
Cutting off at six months, I’m not sure that the program gives enough time for a truly successful transition to private practice if you started off unexpectedly and without resources, as I did; like the author, I started my solo practice when I was unexpectedly laid off. My benefits will end soon and I’m a bit scared of that milestone. I’m sure I’ll get through it, but it’s scary to see the safety net withdrawn.
Nothing like paying expenses to light a fire under someone. I just moved office space, and my rent is 2.5 times what I was paying, but still really cheap. Even so, it makes it all the more necessary that I hustle for work. Keep your expenses as low as possible, and you will make the transition smoothly. Good luck!