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Can PPP Loans Affect Unemployment Insurance Benefits?

unemployment insurance support in scrabble letters

The PPP loan is a valuable resource for many business owners, especially for employers who have employees with unemployment insurance. With the new loan, employers will have the ability to pay their employees as they would normally and can avoid paying unemployment taxes. This all sounds great, but PPP loans are confusing to employees, and many wonder whether their employer’s PPP loan will alter their unemployment insurance statuses. Do PPP loans affect employees’ unemployment benefits? Let’s find out.

Where it All Started

As a result of the coronavirus emergency in the United States, the Trump administration signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27th, 2020. The Act provides emergency and health assistance to those affected by the coronavirus’ impacts. Although the CARES Act was incredibly useful to people around the nation, businesses were still suffering. With consumerism at an all-time low, many business owners struggled to stay above the water as profits declined. With the realization that small business owners needed assistance, the U.S. Small Business Administration (SBA) created the Paycheck Protection Program (PPP) loan. 

What is a PPP Loan?

The Paycheck Protection Program loan, effective April 15th, 2020, is a loan designed to provide small businesses with income so employers can pay their employees and keep them on payroll. In fact, employers must use at least 75% of the money earned on payroll. The remainder of the money can cover bills, mortgage, utilities, and other business expenses. The SBA hopes that employers who receive a PPP loan will provide employees with their normal pay and get them back on payroll. This, in result, will mean that fewer employees will have the need for unemployment insurance.

In addition to advantages such as avoiding pay cuts, hour decreases, or termination, the PPP loan also gives employers a chance to get their businesses back to normal. With extra income, small businesses owners can finally have employees on a regular schedule. Employees will achieve their daily work activities and get things up and running, which will benefit the overall business.

Who Can Apply for a PPP Loan?

According to the SBA, almost all business owners and independent contractors in the United States are eligible for a PPP loan if they’re affected by the coronavirus.

You are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meet the applicable SBA employee-based size standards for that industry.

U.S. Small Business Administration

For more information about eligibility requirements, go here.

Can Self-Employed and Contract Workers Get Both PPP Loans and Unemployment?

Unfortunately, the answer is no. Although contractors and self-employed workers are eligible for both PPP loans and UI benefits, they should not receive both . If an employee applies for the PPP program and received an approval notice, they must decline unemployment benefits.

Will Employees Receive Unemployment Benefits if Their Employer Has a PPP Loan?

Employees, in most cases, cannot receive unemployment benefits if their employer has a PPP loan. More specifically, a business owner who offers employees to return to work using PPP loan funds will alter the employee’s qualification. As mentioned above, a PPP loan allows the employer to compensate employees and get them back on payroll. Therefore, the thought is that the employee will not need unemployment insurance because they’re receiving payment. As a result, if an employer has a PPP loan, the employee should not need unemployment benefits.

Employee Retaliation

After obtaining PPP loans, many business owners assume that their employees would love to come back to work to receive their normal paychecks (or partial paychecks) over unemployment benefits. The truth is, most employees would not prefer to go back to work. A majority of employees would rather keep their unemployment status because they’re earning more in their unemployment and PUA benefit package. The New York Times recently stated that most employees are actually making more under unemployment insurance than they did before. So, it’s no surprise that employees would want to keep their unemployment benefits.

If employers obtain a PPP loan and offer employees to come back into work, most employees may become angry and upset. This, again, is because they were probably making more with their unemployment benefits. In summary, employers should prepare themselves for employee agitation.

Can an Employee Refuse to Work for an Employer Under a PPP Loan?

Technically, an employee can refuse to go back to work. However, refusing to accept work may disqualify these individuals from unemployment insurance benefits. Unemployment benefits are given to individuals who are unemployed at no fault of their own, so some states may refuse to give these employees assistance. The U.S. treasury department states:

Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation

U.S. Treasury FAQ

Even though this is the case, employees still refuse a re-hire offer from their employers.

Employer Problems

Any employee who refuses to come back may pose problems for an employer with a PPP loan. The PPP loan contains certain requirements for business owners. If they don’t comply with these rules, they may lose their PPP loan.

Under the terms of the PPP loan, an employer must demonstrate that they’ve maintained or restored their levels of employment. This doesn’t necessarily mean that the employee must keep the same employees, they just have to meet their previous level of employment. Therefore, if an employer hires new workers, her or she will be in compliance with the loan rules.

There are also other protections for employers with employees refusing to work. If the employer creates a written offer out of good-faith to re-hire an employee, and the employee rejects the offer, the employee will be excluded from the forgiveness reduction calculation.

Employers have until June 30th to restore their full-time employment and salary levels.

Preparation for Unemployment and PPP Loans

Employees and employers should evaluate the pros and cons of PPP loans and unemployment benefits. Business owners must decide whether it’s a good decision to file for a PPP loan and potentially lose employees. They also might want to think about potential employee retaliation and negativity. Employees, on the other hand, may want to think about the consequences of refusing to work under an employer who has a PPP loan. Although an employee might get more income through the unemployment program, they may lose it all if they refuse employment. Ultimately, there is no right or wrong answer. The decision to stay employed, obtain a PPP loan, offer re-hire incentives, and other factors are entirely up to the person. Every person’s situation is different, so make the decision that’s best for your future.

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  1. CA Wright
    CA Wright May 26, 2020

    Where is the proof you are basing your statement that a self employed person can not receive PPP & Unemployment? The PPP is a “loan”.

    I have researched extensively for hours and hours of reading of legal gov. website documents and have not found this to be true … yet.?!

    Again, where is the government document that states the PPP “Loan” can not be given and being on Unemployment is not available? I even checked out this legal office’s statement at;

    I do want to know asap, so I can repay my PPP because I found the Unemployment to be a better solution to meet my needs.

    • Lindsay Sommers
      Lindsay Sommers May 26, 2020

      Hi there. Upon my research, I found an interview discussion between the U.S. Chamber of Commerce and the National Small Business Town Hall. There, CPA Sarah Jennings and Michelle Sourie Robinson speak about PPP loans with unemployment and EIN numbers. They say that independent contractors may apply for both unemployment and PPP loans, but they should not have both. You can find the video at the bottom of this article— I recommend skipping to section 1:50. The PPP loan is designed for business owners specifically so they don’t have to use unemployment benefits, and most employees who work under employers with PPP loans actually can lose their benefits. I contacted the U.S. Small Business Administration and other CPAs as well. I will let you know if they provide any further help for your situation. I do recommend that you contact your state’s unemployment office as well to see if your loan affects your unemployment status, to be sure.

  2. KC Johnson
    KC Johnson May 27, 2020

    I’m having an issue, while my employer did get a PPP loan, I was a fulltime employee 40 hours a week , when this hit us hard I was down to 3-6 hours a week and getting unemployment. Now with the loan they promised us we could get our schedules back, now I’m only getting unemployment 18 hours and now not eligible when I do weekly certification with unemployment. So I’m in big trouble now BC I’m not getting my salary like before and NOTHING FROM UNEMPLOYMENT . THERE HAS GOT TO BE SOMETHING IN PLACE THAT CAN HELP AND I KNOW IM NOT THE ONLY ONE IN THIS SITUATION. I DO ACTUALLY WANT TO BE WORKING. When I’m working my regular fulltime schedule I can make the money I need to survive and care for my children. The unemployment money was nice but I can make almost the same actually working. So if you have any help please advise I’m in a bad way now and don’t know what to do.

    • Lindsay Sommers
      Lindsay Sommers May 28, 2020

      I’m sorry you’re in this situation. Unfortunately, PPP loans do affect employee’s UI benefits in most cases. If your state’s unemployment office says that you don’t meet eligibility requirements, there’s likely no action you an take, unless if you want to try to file an appeal with the unemployment office. If you’re worried about your income, I would suggest speaking with your employer and explaining the situation to see if you can come up with a compromise. Or, you can go under unemployment entirely– but that choice is completely yours. You may want to speak with a professional consultant about this matter as well.

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