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Using Unemployment Benefits and the PPP to Re-Build Business

Shareholder-employees have paid into the unemployment system, both in their State and with the Feds.

Under recent Federal legislation, other business owners operating as sole proprietor owners or as independent contractor (ICs) businesses are also eligible to file a UI Claim with their State. This also includes partnerships and LLCs that pay guaranteed payments to partners.

The information overload can be dazzling – so for the Paycheck Protection Program (aka PPP) along with the Unemployment Insurance Benefit, here’s how it might work for you and your company, or a variation thereof:

For LLCs, partnerships, ICs, and sole proprietors WITHOUT employee payroll, and S Corp shareholder-employees:

  • Apply for unemployment by filing a UI Claim effective at the downturn or shelter in place date, or whenever gainful employment ceased or lessened. For shareholder-employees on salary, have your company convert to a wage, and so report on the UI Claim. Discontinue wage payment from your company to yourself.

  • Apply for PPP now if you have not already

  • Adjust unemployment benefits to partial at your first UI Claim report date if you start or are working partially. Since self-employed persons generally are ‘working’ at all times on or in their business, to determine what ‘partial’ is you might best use a gauge such as time open, loss of business, patients seen, versus prior to COVID, or something similar that is a fair representation. For shareholder-employees, adjust your wage accordingly for being at work ‘part-time’

  • Come off unemployment when you get PPP funding

  • From the PPP proceeds, pay your full shareholder-employee wage (or income amount for everyone else) over the 8 weeks after funding

  • Re-apply for unemployment benefits if you still are not back to working full time at the end of the 8 week PPP period.

For LLCs, partnerships, and sole proprietors WITH employees , and S Corps with employees other than the shareholder-employee:

  • For employees your company terminated, or will terminate, and other employees that file anyway, they apply (or could have applied, and still can) for unemployment by filing a UI Claim effective at the downturn or shelter in place date, or when terminated

  • For employees your company did not and will not terminate, they are not eligible for unemployment, but are eligible for COVID paid sick leave during lockdown (and for other specific reasons previously explained) from your company effective April 1 for 80 hours (more hours but at a lower rate for other ‘stay-at-home’ reasons after the lockdown). If an employee is working less hours than prior to COVID, you draw from the 80 hour pool to make up the difference until that is used up. Your company gets a payroll tax credit on your federal payroll filing to get reimbursed for COVID paid leave costs.

  • For missed work prior to April 1, any employee, terminated or not, may use accumulated sick pay or vacation, or an advance of the same from your company for retained employees. {The federal DOL says that salaried employees can be forced to take such leave, but some state regulations disagree}. Check your state regulations or just don’t require that of salaried employees.

  • For terminated employees your company brings back to work, the employee adjusts the UI Claim to partial, or drops it altogether if employed for the same hours as previously, as is normally the process. I believe your company has a choice here on an employee-by-employee basis, whether to pay ‘full pay’ (same hours/rate as previous to COVID) when an employee is working less hours than before; or to pay for hours worked only, and permit the employee to adjust unemployment to partial benefits.

  • All the payroll your company actually pays out during the 8 week PPP period goes toward the loan forgiveness calculation. If your loan is not completely forgiven, the balance is paid over 2 years, now at 1% interest (previous reports had indicated a 4% interest rate with a 6 month forbearance)

  • If an employee comes off unemployment at any time, including during or upon the 8 week PPP period, that employee would be eligible to re-apply for unemployment benefits if that employee is not back to working the same hours as previous to COVID as of the end of the 8 week PPP period. It is possible, but unknown, that coming off and back onto unemployment benefits may delay or reduce the UI benefit to your employee.

All parties, and all your company employees should be aware that clear and accurate reporting about your UI Claim must be made timely and as required by your state. States ask for UI benefits to be returned if a worker mis-reports, and generally add penalties. We recommend that all business owners and employees also document reporting, as that may be useful if your State later claims that unemployment benefits were overpaid.

All this points back to my #1 recommendation, which is to first design financially what your business re-build looks like with a budget and forecasted expectations (and review/update that regularly), then decide how the government assistance best suits you to implement.

Keep in mind, that is exactly what the government is expecting and wants you to do – to re-build a successful and thriving business in the best way possible.

In addition, the government assistance is designed for workers to retain their same or similar income, which your company can also do whatever your specific re-build design looks like.

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