Is any work better than no work? Not for unemployment benefits.

Unemployed Americans who take parttime or temp work may find that their unemployment benefits get cut after that job ends. It's a disincentive to work, but Congress is moving to remedy that.

Roberta Hanson of North Haven, Conn., had been searching for work for 22 months when she landed a parttime job weekend afternoons and nights for a nearby municipal parks and recreation department.

But now Ms. Hanson rues the day she took that work. Why? The Connecticut Department of Labor used her negligible earnings in her parttime job as the new baseline for Hanson's unemployment benefits. She went from receiving $483 a week to getting nothing.

“Afterwards, unofficially, they said I shouldn’t have taken the job,” Hanson says.

It's a twist in the law that may affect thousands of other workers, given that the ranks of the long-term unemployed are now so high. Many people who have been out of work for a year are picking up work as temps or part-timers, unaware that state agencies will recalculate their unemployment benefits after a year – and use their most recent work history and pay level to do it.

“What is going on for these workers is that because their most recent wages are much lower than the wages they earned in their prior fulltime job, they are facing substantial cuts in their weekly unemployment benefits,” says George Wentworth, a consultant at the National Employment Law Project (NELP) in New York.

Benefits recalculated after a year

Most of the people caught in this snag are on Emergency Unemployment Compensation (EUC), a federal program to help those who have exhausted their state benefits. However, after workers have been jobless for 52 weeks, states are required to check to see if a worker has requalified for state benefits. If someone is eligible for state benefits – no matter how small – federal law requires that he or she stop collecting EUC and go back onto state benefits. The states, many with unemployment pools that are borrowing from the federal government, are dramatically reducing the amount paid out to individuals.

Mr. Wentworth cites the example of a Massachusetts woman who had been getting $540 a week in unemployment benefits and, when returned to state benefits, saw her weekly benefit cut to $103. To make matters worse, her husband, also unemployed, saw his benefit drop from $600 a week to $199 a week. Each cut came as a result of having taken a short-term job.

Hanson’s situation is even worse. Connecticut's formula for parttime workers is to take two-thirds of their gross salary (in her case $130 a week, which is $87) and subtract that amount from $39, which would be her weekly benefit based on the parttime job. This gives her a negative $48, or no benefit at all.

“Something is wrong,” Hanson says. “I am allowed to get nothing!”

Temp jobs on the rise

The potential reduction in benefits for parttimers and temps comes as temp services are starting to hire more workers because businesses don’t want to add fulltimers until they're sure the economic recovery is permanent. In February, temporary help services added 48,000 jobs, the US Bureau of Labor Statistics reported. Since September, jobs at temp services have risen by 284,000.

In the 1990s, the last time America saw high long-term unemployment among a sizable share of its work force, Congress changed the law to prevent the unemployed from being penalized for taking up parttime work. However, that change expired.

Now, Sen. Jack Reed (D) of Rhode Island is sponsoring legislation to accomplish the same thing today. Senator Reed attached his proposal to a bill that extended several tax provisions, plus farm disaster assistance, unemployment benefits, and COBRA health benefits.

“We need to incentivize people to find work, not unfairly punish folks who were able to find short-term, temporary employment,” said Reed in a statement.

However, the legislative package, which passed the Senate on March 10, is in limbo because the House version is different.

Reed argues that his change could potentially help states, because the long-term unemployed would receive benefits from the US Treasury. Many state unemployment funds are now insolvent and have had to borrow from the US government.

It could also help people like Hanson, who worked for 28 years for a Connecticut social services program that was eliminated. She is trying to support her elderly father as well as herself on her parttime job, credit cards, and Social Security. “I have written everyone from President Obama – from whom I [have] heard nothing back – to my local representative [in Congress], Rep. Rosa DeLauro (D), who is very supportive,” she says.