By Debbie A. Duran, eHow Contributor updated: March 25, 2011
Some people like the freedom of working as a contractor. Contract employees significantly help organizations to achieve their goals over a certain time period without the expenses that comes with having a full-time employee with benefits. Employers do not generally provide benefits such as health insurance, vacation or paid time off for contracted employees. Contract employees can work full-time, 40 or more hours per week, or part-time, 20 or less hours per week.
Contract Employee and Independent Contractors
There is often a misconception between a contract employee and an independent contractor. A contract employee is generally hired by an organization to provide services for a certain period. Contractors generally follow the same rules and guidelines as the full-time employees, and employers provides Workers' Compensation insurance and withholds all taxes. Independent contractors are in business for themselves and can be hired by an individual or company. They have their own work rules, and they are responsible for paying their own taxes.
Contract employees are typically eligible for unemployment benefits. This is because businesses normally pay unemployment benefits in their payroll taxes. A business typically pays the contractor's federal and state taxes and workers' compensation insurance. These are the employer's actions that justify the qualification of the contract employee's qualification for unemployment benefits. State laws that address unemployment vary from state to state.
Independent Contractors and Unemployment Benefits
Independent contractors are not eligible for unemployment benefits. This is because they do not pay payroll taxes or unemployment insurance and they pay their own taxes, which are normally estimated taxes. Even if an independent contractor tried to claim unemployment compensation, the labor department would investigate the wages and unemployment insurance payment made for the Social Security number. It would then show that the Social Security number was not participating in unemployment insurance and the claim would simply be denied.
The rules are the same for contractors as they are for full-time employees when applying for unemployment benefits. An employee cannot quit her job and should only have become unemployed through no fault of her own. Other considerations are the number of weeks and hours worked. Each state has different eligibility requirements.
A contract worker should apply for benefits as soon as they find themselves out of work and should always apply in state where they worked.
IRS: Independent Contractor (Self-Employed) or Employee?
State of New York Department of Labor: Unemployment Insurance
U.S. Department of Labor: Unemployment Insurance
LegalZoom.com; Employee vs. Independent Contractor; Ellen Feig; October 2007
National Employment Law Project;Temp Work and Unemployment Insurance; August 2008
Read more: Can Contract Employees Collect Unemployment?