Editor’s note: As of December 20, a second stimulus package was formed that will extend unemployment benefits under the CARES Act. This article will be updated as more information is made available.
Unemployment benefits have suddenly become a lot more complicated during COVID-19, due to all the different types of relief measures available from the federal government.
In this article, we break down which unemployment benefits are available for yourself (if you’re self-employed) and for your employees, and how all the different relief programs interact with each other when it comes to unemployment.
Further reading: PPP vs Unemployment Benefits: How to Choose
An unemployment benefits overview
The coronavirus CARES Act introduced three main changes to how unemployment benefits work.
1. Additional $600 a week
The first is an additional $600 to the weekly benefit amount an eligible (laid off) employee would otherwise receive. An employee who’s eligible for $700 in unemployment benefits would therefore be receiving $1,300 total, if they were to be laid off.
Referred to as the Federal Pandemic Unemployment Compensation (FPUC) provision, this will be available for all weeks of unemployment between April 5, 2020 and July 31, 2020 and will be paid out for any week where the individual receives unemployment benefits.
2. Additional 13 weeks of unemployment benefits
The second is an increase to the maximum number of weeks an individual is eligible to receive benefits. As part of the Pandemic Unemployment Emergency Compensation (PUEC) provision, an additional 13 weeks of unemployment benefits are available extending what is typically capped at 26 weeks to 39 weeks. These additional weeks will also include the additional $600 as outlined in the FPUC provision so long as they are before July 31, 2020.
3. Unemployment benefits for self-employed folks and contractors
The third change is the Pandemic Unemployment Assistance (PUA) provision which expands the program to apply to workers who would otherwise not qualify for unemployment benefits. Now, self-employed individuals and independent contractors are eligible for unemployment benefits if they find themselves unemployed, partially unemployed, or unable to work due to COVID-19.
Since these programs are state run, it’s best to reference your state’s Department of Labor guidelines to estimate the full amount of unemployment benefits you would be eligible for.
Self-employed individuals also qualify for the $600 weekly unemployment benefit under the Pandemic Unemployment Emergency Compensation provision.
Unemployment benefits and the Paycheck Protection Program
The Paycheck Protection Program is a key coronavirus loan that provides eight weeks of cash flow for business owners to cover payroll, rent, and utilities costs. The best part: if you use at least 60% of the funds on payroll costs (and the other 40% on rent and utilities), the loan is 100% forgivable—making it a tax-free grant.
If you’re self-employed, you can learn more about how the PPP affects you here.
In order to qualify for PPP loan forgiveness, the SBA requires you to maintain your monthly payroll expenses, and not allow them to decline by more than 25%. This means you can’t get your loan forgiven and lay off your employees (or significantly reduce their pay).
If you have already let go of employees or are considering letting them go so they can pursue unemployment benefits, know that this will hinder your ability to receive full forgiveness on your PPP loan.
But don’t worry, this doesn’t mean that you can’t pursue the PPP for a loan—not maintaining those payroll numbers will simply reduce the amount eligible for forgiveness.
If you have already let go of employees, you have until December 31, 2020 to rehire them back onto your payroll without penalty.
Unemployment benefits and the SBA Disaster Loan
There is a second important coronavirus-related business: the SBA Disaster Loan (or the Economic Injury Disaster Loan—EIDL). The qualifications for the EIDL are based on your sales revenue, cost of goods sold, and your being financially affected by the COVID-19 pandemic.
Unlike the PPP, the EIDL doesn’t have any payroll-related conditions or restrictions, so you can feel free to apply for the EIDL, and lay off your employees so they receive full unemployment benefits.
Further reading: How to Fill out Your EIDL Application
Unemployment benefits and tax credits
There are a number of payroll, leave, and unemployment tax credits available to business owners throughout the COVID-19 crisis. However, you can’t take advantage of these tax credits and apply for the Paycheck Protection Program.
Notable tax credits:
Employees forced to self-isolate (and who can’t work) can receive up to 80 hours of 100% paid sick leave. This entire amount can be deducted from your payroll taxes.
You can receive up to $5,000 per employee, per quarter if your business experienced a 50% or greater decline in sales revenue year over year.
You can pursue these tax credits on the employees retained while any employees that were let go can pursue unemployment benefits. If you are looking to retain a portion of your workforce and will not be pursuing a PPP loan, these programs will protect your employees’ income while also helping you out with payroll expenses.
You can read our article outlining these employee retention credits here.
More COVID-19 resources
- How the Executive Orders Affect PUA and Payroll Tax
- The Express Bridge Loan Pilot Program (A Simple Guide)
- Leading a Small Business Through a Recession: Five Best Practices
- COVID-19 Resources for Small Businesses, State by State
- How to Get an SBA Disaster Loan (COVID-19)
- Getting Through COVID-19: A Financial Game Plan for Small Businesses
- The Coronavirus Relief Bill: Every Benefit for Small Businesses
- Paycheck Protection Program: A Simple Guide
- How to Calculate Your PPP Loan Amount
- The CARES Act: A Simple Summary
- Car Insurance During COVID-19: Discounts, Rebates, and Refunds