How to (Not) Launch Your Own Business While on Unemployment

There are plenty of reasons to go into business for yourself: It's a dream you've always had, you have a fantastic idea or you simply want to give it a shot. Nowadays, though, there's another reason people might have: They just got laid off and don't want to go back into the salaried world, and would rather work for themselves than get cozy somewhere, only to find the ground give out beneath them.

With the unemployment rate in Illinois rising since May to 9.9 percent, it made me start to wonder whether people who are collecting IDES benefits could use that money to help start their own business. No one at IDES would respond to my phone calls, emails and there was no way I'd wait in one of their infamous lines to ask about it. So, as many do, I took to the Internet and found myself calling Charles A. Krugel, a human resources attorney and counselor, who sent me an email that made me laugh with its bluntness:

"Frankly, the IDES is by far the worst Illinois agency for employers and employees to deal with. They're arbitrary, often poorly trained and unprofessional, & technologically they're 15 years behind. In terms of transparency, dealing with the IDES is like looking into the Chicago River."

I called Krugel to explore this issue – not with the intention of helping people circumvent the IDES, but instead to examine and explore the vagaries and issues inherent to the system when it comes to dealing with entrepreneurs.

In what cases can you not use your unemployment insurance to bankroll a startup? You said there is some gray area.

Charles Krugel: Well, pretty much in any case because the point of unemployment compensation – I think this is one of the paradoxes of it. You're supposed to be actively looking for a job. So, if you're starting a business you're technically not looking for work. That's why it's a paradox.

Is that stated clearly anywhere?

Charles Krugel: No, I don't believe it is. What is stated clearly is that you have to be able to work and actively looking for work. That part is stated clearly. There are definitions and explanations as to what they consider to be actively looking for work, but they don't talk about starting up a business, paying salaries or paying contractors to work for you as one of those activities.

In your opinion as an attorney, is this something that should be changed? I can see how people could take advantage of it, but I also think there are decent people who are having their dreams clips because they have to work full-time and do all these other things.

Charles Krugel: There are some organizations I'm aware of that are proposing to change that to reflect that. In the market today there's a lot of people trying to create their own work, trying to create their own jobs through their own businesses. And explicitly, the Unemployment Insurance Act should permit that. So, there is that. I don't think there's been a bill proposed by the legislature yet, but that is something to be discussed and debated. I believe, frankly, as somebody who represents companies that it's a good idea to do that.

What do you think it'll take for that be a reality?

Charles Krugel: Our legislature is pretty intransigent and they're usually not responsive, and I'm not a representative of public-sector entities myself, so I don't really have to worry about reputation. But I think if enough people tell the representatives, senators, state representatives, whatever, "Hey, this is something we want." I think that'll happen. I think Karen May, who's retiring, she's proposed something like that or discussed it. But she's retiring. There might be a few others who, I believe, discussed it. There are some organizations like the Small Business Advocacy Council, and they have discussed proposing this type of legislation.

I don't want this to be a guide for people to get around IDES, but I know that it's a not a particularly well-run entity.

Charles Krugel: No. Like I said, it's by far the worst Illinois agency for employees to deal with.

People obviously certainly use their unemployment to pay off their credit cards and to do lots of things that technically you're not supposed to be using it on. You said there's some gray area, and I don't want to tell people how to exploit that, but where is it?

Charles Krugel: It's definitely possible to game the system, and it's not that difficult. The gray areas are sort of money laundering or a shell game. If you're putting money towards starting a business and you can show, basically, that it's your own money, that the unemployment insurance funds or benefits are not co-mingled – that's a pretty simple thing to do for the most part in the real world. The IDES is not going to look that deeply. They may not ask for bank records to see money transfers to check out where that unemployment insurance was it deposited and when you paid off a contract or when you paid rent on a building or something like that.

They just don't have the manpower or, frankly, the interest to actually do that.

Charles Krugel: Not only that, but the burden of evidence – they don't have to prove anything beyond a reasonable doubt. Frankly, I don't think they have to be even 51 percent sure, necessarily, that malfeasance or inappropriate use is occurring. A lot of these times they've gone by what their gut is telling them.

Do you have any idea, actually, how often that happens where they react?

Charles Krugel: No, I have no idea. I would imagine maybe half the time or so – my theory is that they screw everybody equally.

Well, I'll tell you. I tried for about two or three weeks before I called you to get someone at IDES to talk to me. When I finally got through to someone, I believe it was an intern, and she told me they don't talk to the media but would transfer me to someone who could point me in the right direction. I was put onto a phone tree.

Charles Krugel: They're very difficult to deal with. I'm a pretty easy-going person, but sometimes I like to show my clients what it's like to deal with some of these agencies. I've had IDES personnel on speakerphone with my clients there. I've literally said, "Can't you just like a regular human being? I'm not even talking like an attorney. We're not gonna sue you. We're just trying to resolve an issue. Give me the straight dope on this. Don't speak out both sides of your mouth." Maybe half the time you'll get somebody who will just hang up on you and the other half the time they'll relax and let common sense rule the day and give you the straight information.

So how can people who find themselves laid off and wanting to go into business for themselves without getting in trouble with the IDES?

Charles Krugel: Well, not use the unemployment insurance benefits to fund a business. Unemployment insurance benefits aren't intended to be an investment vehicle. It's intended to help you to find a job to bridge the gap from one job to the other. Maybe it's really how they define a job, that a job is not something that can be created personally by an individual for themselves. A job is something that somebody else has to give you.

But what if someone decides to go into business with a friend, and then that friend "hires you." Can they actually find out?

Charles Krugel: No, I don't think they could. But your friend is basically using you as an employee and the money sort of gets washed through that employee and eventually lands into the business. So can the IDES actually track the money? They probably already could. Like I said, they don’t have to prove it by a fact. On the other hand, too, though, your friend now has to report you as an employee to the IDES. So there is this circular kind of thing where it might be money laundering for somebody to individually benefit. On the other hand, the money is going back into the state coffers via unemployment taxes that the business has to pay on your behalf. So, in the bigger picture, it should wash out.

David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a comedy-writing instructor for Second City. He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. When not playing video games for work he's thinking of dashing out to Chicago Diner, Pizano's, or Yummy Yummy. His first career aspirations were to be a game-show host.

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