Business owners and gig workers are often frequently ineligible for unemployment insurance.
But thanks to COVID-19, small business owners, gig economy workers and independent contractors who’ve lost income can access a range of benefits, including unemployment insurance.
So if you’re your own boss but your finances have taken a hit this year, it’s important to understand what programs you may access and what the application process is like. Here’s what to know unemployment benefits for small business owners.
Unemployment Insurance for Self-Employed Individuals
The Coronavirus Aid, Relief, and Economic Security Act, also called the CARES Act, allows states to extend unemployment insurance to independent contractors and others who are typically ineligible for the program.
You may qualify if you’ve lost work and are not eligible for regular unemployment assistance.
This expanded unemployment benefit is based on disaster unemployment assistance, says Michele Evermore, senior research and policy analyst for the National Employment Law Project. So while a self-employed worker couldn’t technically “fire” him or herself, “when there’s a disaster, self-employed people can actually truly become involuntarily unemployed,” Evermore says.
How much is unemployment insurance for self-employed people worth?
This Pandemic Unemployment Assistance, or PUA, provides up to 39 weeks of benefits to qualifying individuals who are unable to work due to COVID-19. Additionally, the extra $600 weekly payment, which is part of the Federal Pandemic Unemployment Compensation program, is also available to self-employed unemployment insurance recipients.
Your exact benefit amount will vary by state and your reported earnings.
Keep in mind that you can still be eligible for the $600 weekly additional benefit even if you’re earning minimal unemployment insurance, so it’s worth staying on the program even if your base benefit is small. “If you even get a dollar’s worth of unemployment benefit, you still get $600,” says Ed Gjertsen II, past national president of the Financial Planning Association.
How do I apply for unemployment insurance?
Your state will administer the program, so it’s important to check with your state’s benefits office for the specific procedures and unemployment application portal.
The information you’ll need to apply for unemployment insurance varies by state but can include:
- Social Security number.
- Your contact information.
- 1099 forms.
- Pay stubs.
- Bank statements.
Folks who encounter a backlog and delays should be paid retroactively.
If you are starting to reopen your business or take on any work while receiving unemployment, make sure you’re reporting income to the relevant office. It will be used to calculate your benefit amount. “You do not want to run afoul of a state’s unemployment insurance program,” Gjertsen says.
Paycheck Protection Program Loans
When her self-employed clients come to her asking for advice, Nadine Burns, a certified financial planner based in Ann Arbor, Michigan, likes to remind them of the Paycheck Protection Program, or PPP loans, too. “The first thing I talk to them about is a PPP loan,” she says.
PPP loans gained a lot of attention when they were initially launched and funds were drained within weeks. But after a relaunch, there is still money available.
As part of the PPP loan program, business owners can apply for 2.5 times their average monthly payroll costs up to $100,000 per year. Burns calculates the maximum that one of her self-employed clients can get is $20,833, which can make up for several months’ worth of lost income.
The loans offer forgiveness if a set percentage is used toward payroll. If not, loans are repaid at 1% interest over five years.
Financial Relief Programs
Keep in mind that various lenders and agencies are providing relief to struggling individuals and businesses during the pandemic. There may be bills you don’t have to pay if you can work with your landlord, utility companies, credit card issuers and other creditors. Some relief programs are mandated under federal law while others may be designed by your state or individual companies.
Burns also recommends looking into other loans, such as those from your local bank or a peer-to-peer service like LendingClub if you’re looking to make ends meet.
Stack the Programs
For her self-employed clients, Burns recommends looking into utilizing multiple relief programs. For example, a business owner could take unemployment insurance until July 31, when the extra $600 under the CARES Act expires, then in August, qualify for the PPP loan to replace salary for the weeks going forward.
One pitfall to avoid, Gjertsen says, is to count on any new stimulus program before it is enacted into law. “Until something becomes law, i.e., what they’re wrestling around in Congress now, please do not anticipate any benefit that’s coming out,” he says.
In the meantime, use resources from your local chamber of commerce, small business association or other local groups to seek advice and help.
