Can my employees file for unemployment benefits if my business gets a PPP loan?

In this 3-minute read:

  • What your employees need to be aware of if you get PPP funding
  • Unemployment benefit have changed due to COVID-19
  • How to maintain PPP loan forgiveness if you lose employees

With the crush of millions of businesses scrambling to get Paycheck Protection Program loans, many business owners may assume that their employees would prefer to receive their normal paychecks, or a portion thereof, rather than file for unemployment.

However, this is not always the case. Let’s go over some circumstances in which your employees may prefer to file for unemployment rather than their current (or former) paychecks, and what you can do to maintain your PPP loan forgiveness if you do lose some employees.

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help! Click here to learn more.

IMPORTANT UPDATE: On June 3, 2020, the Senate passed updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing requirements for maintaining staffing and compensation levels for loan forgiveness. Please read the details here.

If I get a PPP loan can my employees file for unemployment benefits?

If your business receives a PPP loan and you make an offer to retain your employees, they will likely not be eligible for unemployment benefits.

This worldwide crisis has created the circumstances for a potentially very problematic situation: suppose you struggle and sacrifice to maintain your loyal workers’ employment and paychecks even though you have been closed down due to COVID-19 or have taken a severe cut in revenue. And you are fortunate enough to obtain a Paycheck Protection Program loan to help ease the financial burden of paying your employees despite very difficult business circumstances.

However, rather than your employees thanking you for being so concerned about their welfare, they are furious that you reinstated their employment and paychecks. Think this can’t happen? This exact situation happened to this business owner.

Due to new modifications to requirements to apply for unemployment, as well as an increase of $600 per week in state unemployment benefits (which vary widely by state), in some cases workers are actually able to take unemployment and earn more than their full wages, depending on their pay level.

This is obviously not the intent of federal assistance, but due to the emergency relaxation of the rules, it does seem to be the case for now.

This is one reason why your employees may possibly be upset if you get a loan to keep them on your payroll. 

angry worker during COVID-19

This is a very problematic situation and every business owner should carefully weigh their options, ideally consulting legal counsel and a reputable business financial advisor.

What if my employees would rather take unemployment benefits than remain employed with my business after a PPP loan? How do I get my loan forgiven?

If your employees elect to “stay unemployed” rather than remain on your payroll, this can create a sticky situation for you. 

Under the terms of the PPP loan, 75% (now 60%) of the money must be spent on payroll during the “covered period” (the 8 weeks following the receipt of your funds–now 24 weeks), and the remainder spent on approved expenses like business rent, mortgage interest, and utilities, in order to have your loan forgiven.

This makes many business owners fear they will be unable to get their loans forgiven if their employees quit or refuse to have their jobs reinstated upon receipt of a PPP loan. However, this doesn’t appear to be the case. 

Under the terms of the PPP loan, you just need to demonstrate that you maintained or restored your former levels of employment of compensation, not necessarily that you keep the same employees.

Therefore, you can restore your former headcount and payroll, or rehire within the parameters of the PPP requirements and still have your loan forgiven. 

Some additional points about loan forgiveness: your loan forgiveness will be reduced if you decrease your full-time employee headcount. Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Learn how to apply for PPP loan forgiveness.

Will there be fallout for businesses who get PPP loans unnecessarily? Or for workers who file for unemployment when they have other options?

The main thing to remember is the government is providing this emergency assistance and guidance, and is expecting participants to follow in good faith.

Business owners need to show legitimate need in order to qualify for a PPP loan, and in order to have those funds forgiven, they must provide documentation that they used the funding in accordance with the treasury department’s directives. 

We’re already seeing the fallout for some very successful businesses that accepted large PPP loans (when they had various other means of support) and are bowing to social pressure and returning the funding.

business owner being accused and social shaming

By the same token, individuals who are considering filing for unemployment benefits during this crisis rather than accepting legitimate offers of employment may be opening themselves up to liability when the government decides to make a full reckoning and make an example out of any bad actors.

Womply can help you get the small business funding that’s right for you

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help!

Click here to check out our small business loans resources, or schedule a free, personalized demo of Womply’s small business apps to learn more!


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