Human Resource Blog

Utilizing a laid off employee as a contractor

We would like to use an employee that was laid off (on unemployment) for a project. This will be temporary and he will be paid an hourly rate for the work he does. Is it ok to bring him back on a contractor basis? Will it affect his unemployment benefits?

Yes, you can use an employee who is laid off on an independent contractor basis, or hire him as a temporary employee. However, it is important that you ascertain which category he falls into. If you control when, where or how he works, he is an employee. Hiring him as an independent contractor would be a violation of federal minimum wage and overtime laws. If this is the case, you should hire him as a temporary employee for a short-term project. He can be either full-time or part-time.

If you will not control when, where or how he works, especially if the work is performed off your premises, then he may legitimately be an independent contractor.

In either case, the employee need not lose his unemployment benefits. He needs to report any amount earned each week. (Failure to report earnings — even from a part-time temporary job or an assignment as an independent contractor — is fraud.) His unemployment check for the week in which he had earnings may be less, but he will still qualify for the same total dollar amount of unemployment benefits. (In many states, a worker can earn up to 50% of the amount of his unemployment check, with no reduction in benefits.)