Sole trader and unemployment benefits: how does it work?

Sole trader and unemployment benefits, is it compatible? Yes, and it might even be the ideal time to test your entrepreneurial ideas. The rules applied by France’s unemployment agency (Pôle Emploi) depend on when you set up your sole trader business. Here’s everything you need to know about combining unemployment benefits with a sole trader business.

Becoming a sole trader while already unemployed

If you’re already unemployed and still receiving benefits, and you want to become a sole trader, you keep your unemployment benefit rights until they run out, regardless of your age (a distinction between over- and under-fifties existed before October 1, 2014).

However, your total income — your business revenue added to your unemployment benefits — must not exceed your Reference Daily Wage (SJR, Salaire Journalier de Référence). This is calculated based on the income you received during the twelve months preceding your last day of paid work.

Declarations you must not forget

You must notify Pôle Emploi that you have set up your sole trader business, without waiting for it to generate any revenue.

Once you hold sole trader status, you declare your revenue monthly or quarterly. Pôle Emploi then calculates what you’re owed on a pro-rata basis of what you declare.

You must declare your revenue to URSSAF, even if it’s zero. If that’s the case, you receive your full ARE (Aide au Retour à l’Emploi, the main unemployment allowance). If you declare income from your sole trader activity, you’ll only receive part of the ARE.

As a jobseeker, you’re required to update your situation with Pôle Emploi every month. To keep receiving the ARE, you must confirm that you’re still looking for a job.

You must declare whether you’ve worked, which is the case for your sole trader business. Since you don’t necessarily declare your revenue to URSSAF every month, you need to fill in your Pôle Emploi declaration by answering 1 for the number of hours worked in the month, without specifying your income.

How Pôle Emploi calculates the ARE for business owners

Pôle Emploi calculates your ARE based on the income you’ve declared. Send your URSSAF declaration to Pôle Emploi via your personal account, so it can run its calculations quarter by quarter. You automatically receive 70% of your normal ARE, and this figure is reviewed for the following quarter based on your actual numbers.

First, Pôle Emploi applies a flat-rate deduction to your revenue depending on your activity type:

• 34% for BNC (non-commercial profits);
• 50% for other BIC activities (commercial/industrial profits);
• 71% for buy-resell activities or accommodation supply.

Next, Pôle Emploi subtracts 70% of the resulting figure from your monthly allowance.

If your revenue grows quickly and the combined total of your ARE and your sole trader income — after the deduction — exceeds your SJR, you’ll no longer receive unemployment benefits.

Extending your entitlement period

The shortfall in your ARE is converted into extra days of unemployment benefit entitlement. To calculate this, divide the ARE shortfall by the daily ARE amount.

Becoming a sole trader before registering as unemployed

You may have set up your sole trader business while you were still an employee. If your employment contract ends for any reason — end of a fixed-term contract, company closure, layoff, etc. — you can register with Pôle Emploi while keeping your sole trader business.

In that case, you’ll be able to combine your sole trader income and your unemployment benefits in full, under certain conditions:

• you must have set up your sole trader business at least one month before your contract ended;
• you must continue actively looking for a job;
• you must complete your monthly declaration with Pôle Emploi, answering “yes” to the question “are you still looking for a job?”;
• income from your sole trader status must remain below 70% of your former salary;
• you must declare your revenue to URSSAF on time, even if it’s zero.

If these conditions aren’t met, you’ll temporarily or permanently lose your benefits, depending on the situation.

You read that right — you receive your benefits “in full”, regardless of your revenue. So it’s very much in your interest to set up your sole trader business before registering as unemployed. If you know your contract is coming to an end, you can set it up beforehand, even if you don’t have time to work on it while you’re still employed. You’ll just need to declare zero revenue to URSSAF, but as a sole trader, you pay no contributions as long as you have no income.

Sole trader and unemployment benefits after a resignation

Since November 1, 2019, new rules apply if you resign to set up a sole trader business (this also applies to setting up a standard company). You can receive unemployment benefits under certain conditions:

• you must meet the standard prior-employment duration requirements, like any employee;
• you must have worked for the same employer for at least five years;
• you must prove that this is a genuine, serious project.

To check this last point, a special committee is set up to review each case individually.

This right to combine benefits with a business is renewed every five years.

ARCE as an alternative to ARE

When you set up your sole trader status, you can request to receive the ARCE instead of the ARE. ARCE stands for Aide à la Reprise ou à la Création d’Entreprise (business creation/takeover support).

In that case, 45% of the total ARE amount you’re entitled to is paid out as a lump sum. This lets you launch your sole trader business with a meaningful budget, if you need to invest to get started.

The ARCE is paid in two installments: half when you set up your business, and the remainder six months later.

ARE or ARCE: which should you choose?

ARE and ARCE cannot be combined, so you have to choose, and that choice is irrevocable. There’s no absolute right answer, since it all depends on your personal situation.

If you need starting capital to set up your business, ARCE looks like the best option. It saves you from borrowing money that would accrue interest. If you can start without any investment, it’s often more worthwhile to keep the ARE, which guarantees you a regular income while your business grows enough to support you.

You should also draw up a realistic forecast budget. If you’re confident your revenue is going to grow, ARCE is preferable, since your lump sum can’t be reclaimed from you, whereas the ARE will decrease quickly.

Sole trader status and unemployment rights

All the rights we’ve just covered are tied to your status as an employee. When you’re employed, you contribute toward unemployment insurance, whereas a sole trader does not contribute toward unemployment insurance. If you close your sole trader business after your ARE rights have expired, you won’t be entitled to unemployment benefits.

However, the “Avenir professionnel” law of September 5, 2018 provides a substitute income for self-employed workers. You’re entitled to this benefit, which is less than €800, if you earned annual income of at least €10,000 over two years, or if your business was subject to a court ruling opening compulsory liquidation proceedings or a receivership procedure. This allowance is paid for a maximum of six months.

The 2020 ACRE for sole traders

ACCRE — Aide aux Chômeurs Créant ou Reprenant une Entreprise — became ACRE in 2020 — Aide aux Créateurs et Repreneurs d’Entreprises.

The ACRE scheme grants you a temporary exemption from social security contributions, as well as ARCE entitlement.

Calculating your ACRE entitlement depends on when your sole trader business was set up.