Business owner getting unemployment?

August 15, 2009 7:34 AM

This weekend I might (finally) give up my business and close it down ... been losing money all year, cash gone, prospects not looking good, etc etc. I'll lay off the 5 employees. And they will all be able to claim unemployment benefits on Tuesday (we're in NJ, USA). But what about me?

I'm not an employee as such, I haven't paid myself anything for 10 months. I've hardly taken any kind of 'owners draw' in those 10 months (maybe $1000). My understanding of unemployment is that the benefit is paid based on average wages earned over the last xx months. (ie approx zero for me). Can I get unemployment? Or some other financial help? If I did struggle on with the business should be start paying myself some huge salary to make myself eligible for unemployment later? (or should I have been doing that?). Please - nice (but helpful) answers only. Not going to be a fun few days. Thanks

posted by anonymous to Law & Government (5 answers total)

According to this document on the NJ Dept. of Labor website:

You will not be considered to be unemployed from any corporation of which you are a corporate officer or in which you have more than a 5% equitable or debt interest. As you will not be considered unemployed, your claim for benefits will be determined INVALID. Should the corporation permanently cease operations and file for formal dissolution in accordance with the New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 et seq.; or file for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code or should your corporate officer/owner status be terminated, you could be considered unemployed and you
may be eligible for a VALID unemployment claim.

I'm afraid it doesn't look good for you. I'm sorry.
posted by cerebus19 at 8:05 AM on August 15, 2009

I should also note that, since you (I assume) haven't been paying unemployment taxes on yourself, since you haven't been paying yourself a salary, you'd have a tough case to make that you should get benefits.

If you want to be 100% certain of your options, you should contact the department yourself and ask. That's what they're there for.
posted by cerebus19 at 8:08 AM on August 15, 2009

I'm not sure you can get unemployment, but that doesn't mean you can't get help. Your income is essentially zero. That sounds to me like you're eligible for at least some of your state's welfare programs. I'd guess food stamps at the least. This website is run by New Jersey and is set up to tell you what help you might qualify for.
posted by kingjoeshmoe at 10:22 AM on August 15, 2009

I'm afraid it doesn't look good for you. I'm sorry.

I disagree. I read this as "If you were a corporate officer or owned 5%, and you are removed from the company against your will --- but the company continues to operate -- you are ineligible for unemployment. If the company formally closes down and either files former papers of dissolution or is closed under Chapter 7 of the US Bankruptcy laws, then you could be considered eligible."

Since the OP has stated that he is closing down the business, as long as they file the formal corporate dissolution papers, they should be eligible.

OP: However, you should take a very, very close look at any outstanding liabilities. If there are any, you may not be able to formally dissolve the company. Instead, you'd need to either remove those liabilities, or declare Chapter 7 bankruptcy. Of course, if you are forced down that path, you'll almost certainly lose any assets you had left in the company, whereas if you were the sole owner and you dissolve the corporation, you'd have access to those assets. DO note the tax liability there, consult a tax professional.

In either case, you won't be able to file immediately, you'll need to have the formal paperwork done, either the stamp on the papers of dissolution or the final Bankruptcy court order.

If you want to hold the corporation in abeyance, hoping to bring it back, you will be ineligible for unemployment.

I'm sorry your company didn't make it.
posted by eriko at 12:41 PM on August 15, 2009

I had to manage a few rounds of layoffs recently so had occasion to research how it works here, but I'm sure state to state rules vary (I'm in Vermont). First thing I'd note is that at least in Vermont the state unemployment office has a separate hotline for businesses to contact. They have all sorts of good information about the options and impacts of your decisions, so I'd look that up first thing on Monday and give them a call.

Second is that at least in Vermont (and I think pretty common) the system for determining payments is far more arcane than just the last few months. Here there are three methods and the most common has you considering the two highest salaried quarters of the four before the most recently completed, or something obscure like that. I guess the bottom line is to avoid companies gaming the system by lowering or raising salaries for a few months before a layoff.

Finally, you should talk to you accountant who may know the answer right away. That is because unemployment benefits are based on paying unemployment tax and I believe it is possible for sole proprietor or shareholder to not be included in this class of employee. I'd have to think that if you'd never paid tax on your employment you wouldn't be eligible for benefits.

So sorry to hear the hard times. Good luck in making the transition as smooth as possible and on starting whatever comes next.
posted by meinvt at 8:25 PM on August 15, 2009