Firing yourself: Unemployment benefits for business owners

April 23, 2009: 6:35 PM ET

If you're out of business and out of work, you may have to fight for the benefits you're due.

Anonymous
My husband and I own a small business in South Carolina. Since the bottom fell out of the market, our business has come to a screeching halt and we're filing for bankruptcy. My husband is the primary officer of the company, but we'd also listed him as an employee and signed him up to draw a biweekly paycheck along with the rest of our employees. The company withheld taxes, Social Security and unemployment insurance from his paychecks.
Since we've not had work for four months now and my husband is unable to find even a regular job, he attempted to apply for unemployment benefits. (Our company paid $5,000 into that on his behalf over the last year.) After a month of deliberation, his claim was denied, since he is an officer of the company and supposedly had control of whether or not he was unemployed. I disagree - he's not in control of the company being unable to sustain itself due to lack of work and lack of sales. Shouldn't he be eligible to collect unemployment benefits?


By Lenora Chu, CNNMoney.com contributor
Laws regarding unemployment compensation differ from state to state, and each has its own rules regarding who's eligible to receive benefits, says Philadelphia-based CPA Martin Chan.

In the state of South Carolina, in order to be eligible for benefits you must be:

—Unemployed
—Able to work
—Available for full-time work
—Actively seeking employment
—Reporting to the local employment service office as directed, and
—Separated from your former employment through no fault of your own.

On the face of it, as someone who is out of work involuntarily, your husband should qualify for unemployment benefits, says attorney Stephen Savitz of the South Carolina labor and employment law firm Gignilliat, Savitz & Bettis.

"Plenty of officers of corporations are paid unemployment," says Savitz, including those who have some ownership interest in the corporation because they own shares of its stock.

However, there may be circumstances you haven't mentioned which preclude him from eligibility. For example, if your husband laid himself off but let other people continue working at the company, he wouldn't meet the requirement of having lost his job through "no fault of your own," says Savitz. "Because he would have made that decision himself - he voluntarily quit."

But if he closed the company and laid everyone off, that could be different, Savitz says.

Without knowing the specifics of the case, it's difficult to know whether being an owner affects his eligibility. Savitz recommends that you hire an attorney to evaluate your husband's options.

What happens next depends on where you are in the process. The next step may either be offering sworn testimony before an administrative hearing officer or appealing to the state's full three-member commission. Beyond the commission, your subsequent option is an appeal to the circuit courts, Savitz says.

In any case, an employment attorney can help you determine how to best prepare for the next step.

Give us your advice: Check out recent "Ask & Answer" questions.

Related links:

My business failed. What can I write off?

How to get inventory when you're low on cash.

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