Everything You Need to Know About Unemployment in the Age of COVID

National unemployment rates are high due to the coronavirus—and even higher for dance businesses. Plus, the pandemic brings a host of new considerations for employers dealing with laid-off or furloughed employees. We broke down the answers to six need-to-know questions.

Man fills in Unemployment benefits application form.
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If you found yourself having to lay off or furlough employees at your dance studio or dancewear store in recent months, you’re not alone.

Though before the pandemic the unemployment rate in the U.S. was at a historic low—3.5% in February 2020—as a result of COVID-19, it has increased significantly: 14.7% in April, 13.3% in May and 11.1% in June. Perhaps unsurprisingly, for dance businesses, the unemployment rate is even higher.

Employees who are terminated or furloughed for any reason other than gross misconduct are eligible for unemployment benefits. But especially now, navigating employment benefits as a business owner isn’t always straightforward.

Here, we answer all your biggest questions about unemployment in the age of COVID—whether you’re looking to rehire furloughed teachers, anticipating more layoffs at your store, or wondering if you’re eligible as a dance “solo-preneur.”

Q: As a business owner, what are my responsibilities for unemployment coverage?

A: You do not pay unemployment benefits directly to employees who you’ve laid off. Instead, you contribute toward benefits through unemployment taxes or, in some states, through reimbursements to the state’s unemployment compensation fund. Federal unemployment tax is a flat amount for each employee who received wages of $1,500 or more in any calendar quarter in the current or prior year.

In addition to paying at the federal level, you also face state unemployment costs. States typically impose unemployment taxes based on your claims experience (how many former employees have made claims for unemployment benefits). However, according to the Tax Foundation, more than half of states have promised not to increase their unemployment taxes because of COVID-19-related claims.

Q: What if I want to rehire furloughed employees but they’re getting more money in unemployment benefits?

A: With the Coronavirus Aid, Relief and Economic Security Act (CARES), which was passed in March, Americans receiving unemployment benefits saw an extra $600 each week—meaning many were making more on unemployment than than they did while working. (Though this benefit ended on July 31, it’s possible Congress will renew it or some version of it.)

It’s up to the states to determine whether a refusal of an offer to work disqualifies an individual from continuing to receive unemployment benefits. (Though typically, the state can use the formal letter of employment you might send to an employee you’re rehiring to refuse them continued unemployment benefits.) This is an evolving area of the law and the rules aren’t fixed yet. Some states, such as Iowa, Oklahoma and Tennessee, have said this is “potentially” grounds for disqualification. But it’s unclear whether employees who feel unsafe returning to work or who are being offered reduced hours or lower pay than before a layoff can rightfully refuse to return to an employer.

Q: I’m a self-employed dancer. Can I collect unemployment benefits?

A: Because of the pandemic, Congress created a special rule to permit self-employed individuals (“1099 workers”)—such as performing artists—who are otherwise ineligible for unemployment benefits to collect money. The Pandemic Unemployment Assistance (PUA) program created by the CARES Act allows self-employed individuals and independent contractors to receive weekly benefits for up to 39 weeks, until the end of 2020.

The amount payable varies by state. For example, in Florida, a self-employed person can receive up to $275 per week. Find more information about this from the U.S. Department of Labor and your state unemployment department.

Q: I’m a dancer and typically earned money through wages (reported on Form W-2) and self-employment (Form 1099-MISC in 2019; Form 1099-NEC in 2020). Can I collect unemployment benefits based on all my income?

A: You can obtain benefits based on your W-2 income, but there is much confusion at the state level about whether you are able to access the PUA program for self-employed individuals. Check with your state unemployment department.

Q: What if an employee quit because of COVID-19?

A: Unemployment compensation usually is only for workers who’ve been terminated or furloughed. But the CARES Act expanded the definition of an eligible employee to include situations related to ceasing work due to an individual’s health and safety or childcare responsibilities (click here for a complete list of acceptable reasons for leaving a job and being eligible for unemployment benefits).

When an individual who previously worked for you makes a claim, you’re notified by the state and can contest the person’s eligibility. (They’ll have to recertify their eligibility every few weeks or so, depending on the state.) If you know that the person doesn’t meet the criteria for eligibility, you may want to contest the claim—if your state isn’t ignoring COVID-19 related claims. This will minimize your taxes going forward.

Q: I’m still working but was notified by my state unemployment agency that I’d made a claim for benefits. What’s going on?

A: There are a lot of fake claims being made using identity theft. The U.S. Department of Labor has issued a fraud alert about scammers phishing for personal information through email. The U.S. Federal Trade Commission (FTC) advises anyone who learns their identity has been stolen and used for this purpose to immediately notify the state unemployment benefits agency. Once you learn you’ve been a victim of identity theft, take steps to report it and begin a recovery plan.

Barbara Weltman, an attorney and small-business expert, is the author of J.K. Lasser’s Small Business Taxes 2020: Your Complete Guide to a Better Bottom Line and publisher of “Idea of the Day” at bigideasforsmallbusiness.com.