Can independent contractors receive unemployment?

An independent contractor does not receive unemployment.  However, if your boss classifies you as independent but you prove that you are an employee, you can receive unemployment if not terminated for cause.

Employees who are laid off or terminated may receive unemployment, so long as it is not a “termination for cause“–i.e., for doing something fairly bad, such as insubordination, violating company policy or a manager’s instructions, committing a crime at work, excessive absenteeism, etc. An independent contractor, however, is not an employee, and therefore is not entitled to unemployment compensation or insurance. The critical issue is: is the so-called “independent contractor” actually an employee, in which case be eligible to get unemployment regardless of what he or she is called in the workplace?

A true independent contractor is more like a small business than an employee. As the term implies, he or she is “independent” of any one client (a bona fide independent contractor has “clients” or “customers,” not an “employer”). He or she sets his or her own hours, determines how to do the job, provides his or her own tools, markets his or her services to other potential clients– ideally should have more than one client at a time, or at least in quick succession, etc. You can find fairly detailed analysis of and criteria for independent contractors on the U.S. Department of Labor website, but again, the touchstone or benchmark is “independence.” If someone meets the criteria for independent contractor, then they do not get unemployment when one of their clients (even an important or primary one) stops using them.

But most people called “independent contractors” nowadays by their employers are not in fact independent contractors. If someone works in the employer’s office or at their location, during hours determined by the employer, and the employer manages how they do their job, then that person is not an independent contractor. If the person has only the one employer and is totally dependent on them, does not market their services to other contractors, and uses equipment provided by the employer, that person is not an independent contractor.

Employers like to call many of their employees independent contractors so that they do not provide them health insurance, or vacation or sick days, or pay the employer share of the FICA (social security and Medicare) taxes, or pay unemployment assessments or contributions for them, etc. But it doesn’t matter what the employer calls them, since the law trumps how people describe a situation–if the person does not meet the criteria to be an independent contractor, he or she are an employee. And if an employee, then they are eligible to receive unemployment benefits when laid off (so long as not for cause) or terminated. (Remember: if someone voluntarily leaves employment—i.e., quits or resigns—he or she is not eligible for unemployment benefits.)

Case Studies: Independent Contractors and Unemployment

Case Study 1: Proper Classification and Independence

Alex works as a freelance graphic designer and has multiple clients. He sets his own hours, works remotely, and provides his own equipment. When one of his clients no longer requires his services, Alex does not qualify for unemployment benefits since he meets the criteria of a true independent contractor.

Case Study 2: Employee Misclassification

Sarah works for a delivery company as a driver. Although her employer classifies her as an independent contractor, Sarah works exclusively for the company, follows a set schedule, and uses equipment provided by the employer. Sarah consults with an employment lawyer to challenge her classification and prove that she should be considered an employee. If successful, she may be eligible for unemployment benefits if terminated.

Case Study 3: Dependency and Lack of Independence

Michael provides IT services to a single company on an ongoing basis. He works at the company’s office, follows their instructions, and relies solely on the income from this client. Despite being called an independent contractor, Michael’s working arrangement indicates that he should be classified as an employee. If his status is changed, he may be eligible for unemployment benefits in case of termination.