Small Business & Unemployment: Are You Eligible if Your Business Fails?

The number of individuals filing claims for unemployment is steadily climbing as the economy continues to spiral out of control. Small business owners are especially vulnerable to failure during these times of uncertainty. If your small business fails, are you eligible for unemployment benefits?

Protection for Employees

Small business owners must consider the rights and interests of employees as part of the unemployment issue. As long as you are paying state and federal taxes on workers’ wages properly, they are completely eligible for full unemployment compensation. If you have to let employees go from your small business as a result of economic crises, they will not have any difficulty securing coverage from the local unemployment office.

Protection for Yourself

Contrary to popular opinion, simply paying state and federal taxes on workers’ wages does not make you as the employer eligible for unemployment protection if your business fails. Eligibility is determined by the structure of your business. Generally speaking, sole proprietors are not eligible for unemployment benefits. This is because a business owner is not considered an employee. They do not pay the unemployment tax, and are therefore, considered ineligible for coverage.

Under certain circumstances, however, the owner(s) of a limited liability corporation or incorporation may be eligible for benefits, so long as there is enough evidence to show that the business failed as a direct result of economic circumstances. In this case, the corporation rather than the individual is considered the employer. As long as the proper taxes have been paid by the corporation, a business owner should be able to collect unemployment benefits.

Risky Business

In general, self-employment is a significant risk because of the looming threat of small business failure. Small business owners generally aren’t aware that they could lose not only their business, but the government won’t be able to help them get back on their feet in the aftermath like employees who are laid off or lose their jobs for other economic reasons. As a small business owner, it’s important to have a backup plan in the event that failure knocks on your door.

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