Contract Employment and Unemployment Benefits

Contract employees, a specific project
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Many companies rely heavily on “contract employees” to achieve their business objectives. For employees, this reality can be difficult to manage. Many individuals find it challenging to navigate their rights and responsibilities when working as a contract employee. Will they be eligible for unemployment benefits at the end of the contract? Are they required to pay the self-employment tax?

Employment Categories

A contract employee works for a company for a specific amount of time.

Using the term "contract employee" is misleading since this term is not used in the employment laws. The primary distinction under employment law is whether an individual works for a company (as an "employee") or whether the individual works for himself (as an "independent contractor"). The federal government provides a test to help companies determine the correct status for the individuals that they hire; this helps the company determine their tax liability.

When a company uses the term "contract employee," they usually mean that they have hired the person for a specified period of time, which is often short-term. This individual will be an employee of the company during that time.

Unemployment Insurance

According to the Department of Labor's (DOL) website, "The Department of Labor's Unemployment Insurance (UI) programs provide unemployment benefits to eligible workers who become unemployed through no fault of their own, and meet certain other eligibility requirements." The DOL's programs provide specific guidelines that states must follow when creating their unemployment programs. The state unemployment laws set requirements detailing wages earned and time worked that help determine a worker's eligibility. These requirements vary by state.

Read More: Ways to Collect Unemployment


In most states, employers are required to pay a tax that is used to provide the temporary unemployment payments to workers.

In most states, employers are required to pay a tax that is used to provide the temporary unemployment payments to workers. However, a number of states do not require this tax starting on the worker's first day on the job. They may not require the employer to pay it until a worker has been working for a specific amount of time. This can be confusing: people are often afraid that if the employer is not liable to pay the tax for a contract employee, then the contract employee will not be eligible to receive benefits. This is not necessarily true. Employer liability and employee eligibility are determined differently.

Qualifying for Unemployment

A worker who has worked a certain number of months and earned a minimum amount of money will generally be eligible for unemployment benefits.

Generally speaking, if a worker has worked for a company, even as a contract employee, for a certain number of months and earned a minimum amount of money, he will be eligible for unemployment benefits. The specific number of months and the specific earnings required are determined by state laws.

A worker is also required to meet certain other conditions. He must be unemployed through no fault of his own, and state unemployment programs usually require that the worker register with a state employment agency and do other job search activities while receiving unemployment benefits.


Many states allow workers to apply for benefits online.

Unemployed workers should apply for benefits with the appropriate state agency as soon as possible once employment has ended. This is the best way for a worker to find out whether he qualifies for unemployment insurance. Generally, a worker must apply for benefits in the state where he performed the work. Many states offer the option of applying for benefits online or even over the phone.

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