If your business is forced to close due to a natural disaster or economic downturn, you may suddenly find yourself looking for help. Regular employees are eligible for unemployment benefits from the government. For business owners, however, eligibility can be slightly complicated. Here’s how to determine which unemployment benefits you can collect and how to go about claiming them.
[Read more: Can Fired Employees Collect Unemployment?]
Criteria for filing for unemployment as a business owner
Small business owners can file for unemployment under certain conditions. Eligibility depends on factors such as the business structure, how you compensate yourself, and whether you have been paying your unemployment taxes. The rules also vary depending on your state.
“Requirements for small business owners to qualify for unemployment are dictated by the state. Typically, however, a business owner will only be eligible for unemployment benefits if they are an employee within their own business,” wrote SoFi.
If you meet the criteria listed below, you can likely claim some unemployment benefits as a business owner.
- You are a W-2, wage-earning employee of the company.
- You have a title and a role with defined responsibilities (such as CEO or president).
- You paid federal and state unemployment taxes.
- You lost your status as an employee.
- You can prove that you’re seeking alternative employment.
Note that your business structure does matter. For instance, sole proprietors are unlikely to qualify because they usually do not pay themselves wages or unemployment taxes.
“[Many] LLCs, partnerships, and sole proprietors tend to form their businesses without setting themselves up as W-2 employers. While this can save time and costs upfront, if you do end up in a situation where the business closes, you don't have the cushion of filing for unemployment,” wrote the experts at LegalZoom.
You can learn more about the unemployment benefit requirements for your state by searching this database.
What kinds of unemployment benefits are available to business owners?
Business owners who pay themselves wages as W-2 employees and contribute to state unemployment insurance may qualify for traditional unemployment benefits that vary by state.
[Read more: Employer's Guide to Unemployment Benefits for Employees]
The amount of weekly benefits you’ll receive depends on where you live and your prior earnings. SoFi reports that the weekly benefit amount ranges from $215 to more than $900. Benefits typically last between three and six months, depending on your state. Note that once you’ve received your full benefit, you usually can’t file another unemployment claim until a year after your original one.
Business owners who pay themselves wages as W-2 employees and contribute to state unemployment insurance may qualify for traditional unemployment benefits that vary by state.
What if you aren’t eligible for traditional unemployment benefits?
You may still be able to access assistance if you don’t meet the criteria listed above. For instance, there’s a way to claim unemployment under a previous employer that could work, depending on your timing.
"If you only recently started working for yourself, your previous employment would actually be examined to determine eligibility,” Kristin G. Roberts of Trestle Law APC in San Diego, California, told LegalZoom. “There's a minimum base period of a year in almost every state. This means that the earliest four of the last five complete quarters of the calendar year will be examined to determine both eligibility and benefit amount."
Special programs like the Self-Employment Assistance Program (SEAP) can also provide support while you figure out your next steps. SEAP is a federally endorsed program available in select states, including New York, Delaware, and Oregon. It allows individuals to collect unemployment benefits while working full-time on starting a new business. Participants must meet specific eligibility criteria, such as being a dislocated worker and committing to full-time self-employment activities.
Another option is the Disaster Unemployment Assistance (DUA) for anyone who had their employment or self-employment interrupted due to a major disaster. SBA Economic Injury Disaster Loans and other SBA loans could also be available, depending on your situation.
How to apply for unemployment benefits
Start by locating your state’s unemployment insurance office on the Department of Labor website. Review the rules for your state to make sure you qualify and to figure out what documents you’ll need to submit. Usually, the application will ask for your EIN, last year’s paystubs, and your business and personal tax returns.
“Small business owners will need to complete two forms: one as a business owner and another as an employee,” wrote Indeed. Start with the employee form, since that request is then sent to the employer. As the business owner, you are also the employer; you’ll have to respond and complete that part of the application as well.
The Department of Labor says that it generally takes two to three weeks after you file your claim (and it gets approved) to receive your first benefit check. “Once you have qualified for these benefits, you have to be ready, willing, and able to work while you’re receiving unemployment benefits,” wrote FreshBooks.
Many business owners supplement their unemployment with additional loans, grants, or contract work while they search for their next opportunity. Speak to a financial advisor in your state to find the right combination of support for your business endeavor.
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