We hear all the time about unemployment benefits for laid-off workers. But what about unemployment benefits for entrepreneurs? If you owned an unhappy small business (or owned a business in an unfortunate time like the COVID-19 outbreak), are you out of luck when it comes to unemployment?
In normal times, you will only be entitled to unemployment benefits if your small business 1) pays you a regular salary and 2) pays unemployment tax on your salary. However, the coronavirus outbreak is leaving us in a time that is far from normal and new guidelines have been put in place to allow more self-employed workers to receive unemployment benefits.
Effects of the CARES Act on Unemployment Benefit
After federal lawmakers passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), unemployment benefits increased significantly. Pandemic unemployment benefits allow many self-employed workers to receive unemployment benefits who would normally not receive benefits, including sole proprietorships, independent contractors, and gig workers.
The CARES Act also extends Unemployment Benefit by 13 weeks (to a maximum of 39 weeks) and provides an additional compensation of $ 600 per week.
Small business owners are unemployed in the same way as other people under the CARES Act. In short, you must be unemployed due to direct COVID-19 impacts such as the required business closure. You can apply for unemployment benefit from your federal state. Note that in some states, you may need to apply for typical unemployment benefits and be turned down before you can apply for pandemic unemployment benefits.
Learn more in FindLaws Section Unemployment Insurance and COVID-19.
How unemployment benefits usually work
While each state designs their unemployment benefits programs a little differently, there is one general rule about unemployment for small business owners: When you pay in, you get paid.
So if your small business paid unemployment benefits on your salary, you are likely to be eligible for unemployment benefits. But here’s why that might be a problem for some business owners and small business owners: depending on yours Corporate structure, you may not have been paid a normal salary.
Structure and salary
If your small business was a sole proprietorship, you may not have received a regular paycheck as many sole proprietorships and partners choose to use the company’s profits to cover the cost of living instead. If you have not contributed to your state’s unemployment insurance scheme, you will likely not be entitled to these benefits (during normal times) if your small business closes. But shareholders and owners of suburban companies or limited liability companies (LLCs) can often take home regular salaries and sign up for their state’s unemployment program to provide benefits when business gets tough.
Don’t forget about the other requirements
However, unemployment benefit is not the only requirement to be eligible for unemployment benefit. Just like terminated workers, unemployed entrepreneurs looking for unemployment must meet the same criteria in order to qualify for unemployment. You have to be willing and able to work and are not allowed to find a comparable job. Depending on which state you live in, there may be additional factors.
In addition, some states have Strict prohibitions on gaining employment after firing yourself. So not only can it be difficult to prove that you can’t find a job after your business closes, it can’t do you any good either.
So before you close the shop and register as unemployed, contact an experienced one Labor law attorney First. If your business has gotten into financial trouble due to the coronavirus pandemic, also check other financial resources that may be available to you through your state and that US Small Business Administration.