Unemployment for business owners: Eligibility and how to apply

Whether it’s a layoff because of restructuring or the company is going out of business, most full-time employees are eligible for unemployment insurance (UI) benefits that can help tide them over until they get a new job.

Unemployment for business owners is more complicated. Unfortunately, however, it is becoming increasingly important to understand how it works, as small business employment decreased by 51,200 jobs in the 12 months ending October 2024, marking the most significant year-over-year decline since 2015.

In this post, we'll go over how business owners can be eligible for unemployment, how to apply, what kind of benefits you can expect, and other options if your business is taking a downturn. 

Jump to:

• Can small business owners collect unemployment?
• Eligibility requirements for business owner unemployment
• How to apply for unemployment benefits
• What kind of unemployment benefits can you expect?
• Other financial options for struggling business owners
• Next steps for self-employment success

Can small business owners collect unemployment?

The short answer: Typically, small business owners and solopreneurs can’t collect unemployment benefits. There are exceptions, however, depending on how you’re compensated, your tax contributions, and the company’s employment structure.

Eligibility requirements for business owner unemployment

Businesses with W-2 employees 

To be eligible for UI as a business owner, you also have to be a W-2 employee who has contributed unemployment tax.

You’ll need to prove you had a defined role in the company (like a CEO or general manager) and that you lost your job to circumstances beyond your control—such as the closure of the business.

And, like other W-2 workers, you’ll need to meet your state’s eligibility requirements and be actively seeking new employment. 

Other business structures

To qualify for unemployment as the owner of an LLC, S corporation or partnership, you should have received an employee salary and contributed unemployment tax. (Being paid through distributions or dividends doesn’t count.)

Sole proprietors, self-employed individuals, and independent contractors who don’t pay themselves wages or contribute unemployment taxes are also traditionally not eligible for unemployment benefits.

How to apply for unemployment benefits

As a business owner, you’ll need to complete UI forms for both employees and employers. When an employee files for benefits, you’ll be notified and expected to provide details regarding their separation, including the reason and date.

Every state is different, but you’ll usually need to follow these steps to apply for unemployment benefits yourself:

Step 1: Gather the important information

You’ll need to supply personal and business information to submit your unemployment claim. This can include:

• Your driver's license, address, and Social Security number
• Your Employer Identification Number (EIN)
• Pay stubs from the previous year
• Details about your business structure
• Proof of earnings going back up to 24 months
• A separation notice or other documentation regarding your termination, including the last date you worked
• Information about previous employers
• Most recent business and personal tax returns

Step 2: Contact your state Department of Labor 

Visit your state’s Department of Labor or UI agency website for details on eligibility.

If your business was in a different state than the one you live in now or you worked in more than one state, your current UI agency should be able to provide information on how to file in another state.

Step 3: File your claim

You can usually submit your application through the mail, although submitting through your state’s Department of Labor will be safer and faster.

Make sure you fill out all the needed information and are truthful, or you could risk having your claim rejected. That includes reporting income from other sources, including side hustles.

If you are denied UI, you have the right to appeal.

It can take two to three weeks after you file to get your first benefit check. If you haven’t received the funds by then, call or email your state UI agency.

Step 4: Continue filing as long as you remain unemployed

Depending on what state you live in, you’ll need to recertify every week or every other week that you are still unemployed and actively seeking employment to continue to receive benefits.

An unemployment claim lasts for one year. Even if your benefits run out, you can’t file a new claim until the current one expires.

What kind of unemployment benefits can you expect?

Since UI is overseen at the state level, the amount and duration of benefits vary greatly. For example, residents of Montana are eligible for 28 weeks of UI, while Arkansas, Iowa, and Oklahoma only provide 16 weeks under most circumstances. 

The maximum weekly benefits also vary by state, ranging from $235 in Mississippi to $1,152 in Washington.