Unemployment Benefits and the CARES Act

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

In 2020, the CARES Act introduced three main changes to how unemployment benefits work.

These changes have carried over into 2021 as part of the second stimulus bill.

1. Additional $300 a week

The first is an additional $300 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 $1,000 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 December 26, 2020 and March 14, 2021 and will be paid out for any week where the individual receives unemployment benefits.

2. Additional 11 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 11 weeks of unemployment benefits are available extending it from the original 13 weeks to 24 weeks. These additional weeks will also include the additional $300 as outlined in the FPUC provision so long as they are before March 14, 2021.

3. Unemployment benefits for self-employed folks and contractors

The third change is the continuation of 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 until March 14, 2021 if they find themselves unemployed, partially unemployed, or unable to work due to COVID-19. Additionally, PUA has been extended from 39 weeks to 50 weeks.

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 additional $300 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.

For loans obtained in 2020, you had until December 31, 2020 to rehire any employees back onto your payroll without penalty. For loans received on or after December 27, 2020, you have no later than the last day of your covered period 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.

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

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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