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W-2 employee form on table with money around it

What You Should Know About Unemployment Benefits

September 29, 2020

The COVID-19 crisis has had a profound effect on the American job market — according to Pew Research, the economic downturn associated with the crisis has added 14 million people to the ranks of the unemployed as small businesses have had to cut costs wherever they can.

If you’re running a small business, you might be feeling the strain of this slowdown as much as everyone else, and you want to save money anywhere possible. But on the other hand, your employees are the lifeblood of your company and you don’t want to leave them out to dry. Here’s how unemployment works and what you can do to help.

Where Unemployment Money Comes From

You start funding unemployment money the second you hire a new person. You’re obligated to report your new hires to the state, which then adds that person to the headcount for your company. When the employee files for unemployment, their money comes out of the funds you’ve been paying in while they were employed.

There are both federal and state unemployment taxes to pay — the state taxes grant you a federal credit, so your financial responsibility can drop to almost nothing if you qualify for the highest rates of tax credit.

Unemployment and the CARES Act

On March 27, 2020, the Coronavirus Air, Relief and Economic Security (CARES) Act went into effect, granting a suite of short-term relief efforts to American workers and businesses. Most of these benefits are administered at the state level, based on the same unemployment funds that employers have been paying into.

The CARES act expands eligibility for unemployment, though state guidelines will still apply exceptions. Under the new guidelines, the following people are eligible for unemployment:

    • People laid off thanks to state-mandated closures
    • People laid off thanks to COVID-19 within their location
    • People laid off thanks to pure reduction in force
    • Employees quarantined by COVID-19, including those who are:

Living with someone diagnosed with COVID -19
Providing care for someone diagnosed with COVID-19
Providing care for a child who can’t attend a school closed due to COVID-19
Employees working reduced hours

It’s also worth noting that the CARES Act does not cover people who are working from home with pay or anyone receiving sick leave or other benefits, even if they would otherwise qualify for benefits.

The CARES Act also provided for an extra $600 a week in unemployment benefits, in addition to the weekly amount that the person would be entitled to under state law. That extra $600 comes from the federal government and shouldn’t affect the state unemployment tax that small businesses pay.

How You Can Help Your Employees

When an employee files for unemployment, the unemployment office will contact you (their former employer) to verify the details in their claim. You’ll have to tell them how long the employee was with you, how much they made, and why they lost their job. If they were fired for cause, simply quit, or were working as a contractor, they’re probably not eligible for unemployment at all.

It’s a good idea to get a separation agreement on paper when an employee leaves. In it, you can document the exact details of their separation, the money they used to make, and the reason for your separation.

You might think you’re helping an employee out by offering them a few hours part-time, but that might in fact be worse for their financial situation than cutting them off entirely. Ex-employees are required to accept any hours they’re offered in order to keep claiming benefits, so anything you offer them will be cutting into the benefits that they’re entitled to or making them ineligible altogether.

What’s Furloughing?

Furloughing is similar to laying an employee off, except they’re still eligible for the benefits that your company provides. Due to the cost, small businesses don’t generally use furloughing, but if you have specific roles that are going to be hard to replace, a furlough might be easier than finding another skilled employee. Furloughed employees can’t work for you at all, but they’re easier to rehire when things turn around.

Talk to the First Western

Navigating the world of small business ownership can be tricky, so it’s a good idea to talk to the professionals at First Western Trust for any questions you have. We’ve got years of experience in the ins and outs of small businesses, and we can help you make the difficult decisions that small businesses all over the country are making right now. Contact us today!

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