Home Business ManagementEmployment Law Can PPP Loans Affect Unemployment Insurance Benefits?

Can PPP Loans Affect Unemployment Insurance Benefits?

by Timesheets.com
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This article was published on May 19, 2020. New information may be available regarding PPP loans and UI benefit packages. Visit the Small Business Administration for more information. For more information about the First Draw and Second Draw of PPP loans, visit this article.

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.

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.

Want to learn more about First Draw and Second Draw PPP loans? Read our article now.

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CA Wright May 26, 2020 - 5:42 am

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; https://law-arts.org/unemployment-benefits-and-paycheck-protection-program-loans-faq

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 May 26, 2020 - 3:36 pm

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.

Elizabeth G May 26, 2020 - 5:27 pm

i’m the gm of a restaurant in ga. We received ppp, and of course offered jobs back to all employees. i understand refusal to work jeopardizes their UI. what happens with the PPP and partial unemployment? If they’re not working the hours or making the tips/wages they did before we shut down. I’ve been filing unemployment on their behalf since we shut down mid-march. we received PPP 05/11. Do i continue to file, but report their wages to show partial unemployment? i’m fairly certain GA changed some qualifications after gov deal re-opened the state, to where the employee can make up to $299, the state kick in $1, and then the employee is still eligible for the federal $600, but does this include employees of businesses that received PPP?

Lindsay Sommers June 4, 2020 - 7:38 am

Hi Elizabeth, thanks for asking. Regarding your question about filing for IU benefits, you’ll actually want to speak with GA’s unemployment office directly about your situation. Actually, it looks like GA has a chat service on their UI website; you should give that a try: https://dol.georgia.gov/contact-us

KC Johnson May 27, 2020 - 8:32 pm

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 May 28, 2020 - 3:06 pm

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.

Patricia Reed June 3, 2020 - 3:30 am

I filed and received PUA benefits , then later received a check from employer , who had filed for and received a ppp loan. Do I have to pay back the unemployment funds ?

Lindsay Sommers June 4, 2020 - 7:50 am

Hi Patricia; that’s a question that you would have to ask your state’s unemployment office directly. Depending on your specific situation, they may or may not ask you to pay part of your benefits (or all of your benefits) back.

Maria June 12, 2020 - 11:39 am

My daughter was collecting unemployment under the PUA because of two reason her job was ordered to close and she qualified for PUA cause she didn’t have enough work history . So since then her job received the ppp loan and told her to go off of unemployment because they are going to pay her so she went off she then received her check which is less hour then she would have if she worked she is losing 5 hours a week now .. the place of work is still not opened yet .. so what should see do should she go back on unemployment cause she isn’t being paid her full 15 hours a week and is only getting 10 hours a week .. any help what I can do cause I can’t get threw on the phone to unemployment . Thank you

Lindsay Sommers June 18, 2020 - 2:39 pm

Hi Maria, typically an employee can’t earn UI benefits if their employer has a PPP loan, however, you never really know until you actually report that to the state’s UI office. Your daughter can technically apply for UI benefits and must report her new earnings; however, there’s a chance that she might not qualify for a benefit package. Ultimately, that’s going to be up to your state’s UI office. Does your UI office have an email or live chat service you can use? They’re really the best people to talk to about this. I understand that it’s pretty tough getting through to anyone right now.

D Lombardo June 3, 2020 - 8:49 am

My husband and his partner are independent contractors as an LLC. They received a PPP loan for 10 weeks of payroll draws to cover through mid May but their work has still not returned. Can they now file for unemployment since the 10 week coverage of the PPP has expired?

Lindsay Sommers June 4, 2020 - 8:39 am

They should be able to apply for unemployment at any time. Since they received a PPP loan, they might not meet eligibility requirements the first time around, but you never know! Things seem to be slowing down slightly in the unemployment world, so I would actually suggest trying to speak with your state’s unemployment office directly to see if you can get an answer from them. They’re the folks who review every case and determine eligibility, so they’re the people who would give you the best answer. ALso, you may want to look into quarterly eligibility requirements– most states outline that on their unemployment office websites.

Jenny Smith June 6, 2020 - 11:46 am

I was temporarily laid off from my job due to Covid. I was told I would still be listed as an employee, but would not receive any further pay until I was able to come back to work. I applied for unemployment and was approved. I have received 2 payments from unemployment, but out of the blue, the company I am still listed with sent me a paycheck for 15 hours. I did not work these hours, and they gave me no reason or indication what the pay was for. What should I do? I normally work 21 hours a week. I’m not sure why they gave me a paycheck when they told me I would not be receiving any further pay.

Lindsay Sommers June 17, 2020 - 11:55 am

Hi Jenny. It’s interesting that your employer would give you payments when you weren’t working– perhaps they received a PPP loan? You will want to speak with your employer to get insight as to why you received that payment. Additionally, you’ll have to report that with your UI office so they know that your income increased during that period.

BR June 7, 2020 - 6:37 am

My husband and I have a small LLC. We are not employees but take profits occasionally through the year. The large percentage of these profits are attributed to me, though my husband does the work. I am also employed by 5 different employers part time and 2 others as a 1099. This is my major income. I have never been able to reach the UI office. I filed unemployment in Texas and have received payments. Though the amount from the state was about 1/3 of my usual income from these other jobs before the additional $600. . Since I haven’t done any work for the LLC since all this started I didn’t think about reporting the invoice payments received by the business as income. Should I have?
Also, we applied for the PPP loan and received it for this business, Will I need to pay back the UI?

Lindsay Sommers June 18, 2020 - 2:33 pm

Hi, there. Unfortunately this is definitely a question only the UI office in Texas would be able to answer since they’re the people who review and approve UI benefit packages. You can try calling them here: 800-939-6631, and it looks like they have chat assistance on this webpage on the right-hand corner: https://www.twc.texas.gov/jobseekers/unemployment-benefits-services/. I wish I could be more help, however, they’re the only ones who an give you a solid answer regarding what you need to do.

jack June 9, 2020 - 6:22 pm

I received UI from my W2 work which I have been getting since March. I was recently approved for a PPP loan for my 1099 work. Both are important sources of income for me and both are 100% gone right now. Can I take the PPP loan and still get UI?

Lindsay Sommers June 17, 2020 - 11:56 am

Since you received a PPP loan, you will most likely not qualify for UI; however, that’s ultimately up to your state’s UI rules. I suggest that you speak with your local state’s unemployment insurance office.

R Williams June 14, 2020 - 3:04 pm

We are a church, just got a PPP loan on to pay our employee’s. One the employee’s has a business, not related to their employment with the church. The employee has filed for unemployment. Can we use the PPP loan to pay for service rendered to us, which is non related?

For example, the business is a coffee shop, for use a receptionist.


Lindsay Sommers June 22, 2020 - 5:46 pm

The SBA has certain rules about what types of payments count for loan forgiveness. I suggest that you speak with a SBA expert. You can find more contact information here: https://www.sba.gov/local-assistance

Mark Pesner June 16, 2020 - 4:58 am

My PPP loan was not approved until May 27. Am I right in thinking my loan is based on the original rules of the PPP program?
I applied for unemployment in April and just received my first check today for the period ending April 18. Question 1. Is this considered double dipping given the time frames? 2) How much time do I have to rehire my employees and meet the 75% criteria – is it possible that I only have until June 30?

Lindsay Sommers June 24, 2020 - 3:02 pm

This is a question that you would want to ask an SBA representative direclty so you can get the best answer. They have a help page where they can connect you with someone locally to assist you with your questions. You can find that info here: https://www.sba.gov/local-assistance

Adaml Lubin June 17, 2020 - 1:48 am

Thank you very much for sharing such an effective post on Insurance Benefits.

Lindsay Sommers June 18, 2020 - 3:22 pm

We’re glad you found it helpful! Thank you.

mike joe June 20, 2020 - 10:53 am

if some one receive unemployment benefits and now apply for self employed ppp loan and approved, is it okay to receive ppp loan, based on the new law of spending ppp loan guideline changed from eight weeks to 14 weeks by paying himself on the later day prior to the end of the 24 weeks.

Gary Adams July 2, 2020 - 12:11 pm

I am the director at a non-profit Christian camp in Ohio. We have received and are using the PPP for payroll and utilities, but may need to close our doors for 4-6 weeks in August to save this place… and to not pay for salaries for 9 employees. They all might be furloughed, so my questions are this:
1. Can we start using the PPP when our employees come back? (we would NOT use these funds for salaries in August – but only for medical insurance premiums then), and would LIKE TO UTILIZE the PUA – Pandemic Unemployment Assistance for their salaries in August.
2. Are we allowed to use BOTH to help out (obliviously not at the same time)?
3. Are their any penalties in doing this?

Lindsay Sommers July 2, 2020 - 6:34 pm

Hi Gary. Those are all great questions, however the SBA (small business administration) are the people you want to ask. They have a assistance in over 68 locations, including virtual assistance. I recommend that you try to reach them here: https://www.sba.gov/local-assistance. Sorry I can’t help further!

Barbara Ness July 13, 2020 - 1:31 pm

I am a NY state resident and am receiving UI and PAU.
I was just approved for the PPP loan.
When I file for weekly UI benefits – there is absolutely no question regarding any loans – so how would I know if I have to stop claiming UI/PAU when I receive PPP?
Since PAU expires July 30 – can I postpone paing myself salary from PPP loan till Aug. 1?
This is all so confusing…..

Lindsay Sommers July 16, 2020 - 5:11 pm

It is all very confusing– I agree! In order to know if you have to stop claiming UI, you’ll need to speak with the NY UI office and ask them how to report your loan or when you need to report the loan.

Maria July 18, 2020 - 3:45 pm

Hello I’m in The same situation. Can you continue to take PUA and UI benefits if you don’t pay yourself until July 30th?

Lindsay Sommers July 21, 2020 - 3:11 pm

Hi Maria. The SBA rules are very complicated– I suggest that you speak with a rep directly. The SBA should have local representatives near you that can help guide you in the right direction https://www.sba.gov/local-assistance

Lisa Hugus July 28, 2020 - 8:45 am

If an employer took the PPP loan..and it ends at the end of july and they’ve decided to lay people off amd cut pay starting August 1st would the employee that has the pay cut then qualify for partial unemployment benefits ?
How would this effect said employer with his PPP loan and unemployment insurance?

Lindsay Sommers July 31, 2020 - 1:03 pm

Hi Lisa, that’s going to be a decision that the only the Unemployment Insurance office in PA can answer. Generally, an employee won’t get UI benefits even if their employers have a PPP loan. But, there may be an exception for some employees in this situation. They actually have a live chat service on their main UI website. I would suggest that you try to talk to someone directly from the PA office https://www.uc.pa.gov/unemployment-benefits/UCGuide/Pages/default.aspx

Dana August 9, 2020 - 12:36 am

Hi Lindsay, I am the Bookeeper (W2 employee for a small business with 5 employees on the payroll). I have 3 children who have not been in school due to COVID which of course has interfered with my work schedule because I need to be home to care for them. I was originally an hourly employee, and my employer offered to borrow against (go in to PTO debt basically). After going in to PTO debt, I suggested I file for unemployment for the reduction in hours. My employer then offered to switch me to a salaried employee instead “as long as I get what needs to be done”. That was fine for a bit but now I am working remotely from home while also caring for 3 children and falling behind / completely overwhelmed. I applied (but have not certified / received payment) but i was indeed approved for UI benefits.. I don’t know what to do but this is not realistic and taking its toll on me. My employer did receive a PPP loan.. will me opening an UI claim make them ineligible for loan forgiveness? Any input is greatly appreciated!

Lindsay Sommers August 13, 2020 - 3:44 pm

Hi Dana, it sounds like you have a lot on your plate! I’m sorry about that. Your employer won’t lose their PPP loan; however, you may or may not lose your UI benefits or you may have to pay back your UI benefits. That being said, you should really speak with your state’s unemployment insurance office about their UI/PPP terms. The rules vary by state, so they’ll be the best people to speak with about this.

Ray Gilroy August 12, 2020 - 5:11 pm

In California, we received a PPP loan and offered all the employees their regular hours and more. However, due to child care and schools closed, we had an employee apply for PUA. She was allowed to work from home, and still was not working her regular hours to ensure she would qualify for PUA. (She applied for it before we received our PPP loan).
Were we suppose to pay her her full check regardless if she worked or not?
Could we be subject to paying back our PPP because this happened?

Eres Tu August 15, 2020 - 4:34 pm

Thanks for all the great info so far. But I’ve yet to see this addressed.
I’m a Sole Propiretor in NYC, and have been able to claim UI/PUA as part of CARES. But as PUA was coming to an end I decided to apply for PPP (to cover my payroll as sole employee) and have been approved for an amount that isn’t nearly enough on which to survive. My question: since the PPP amount is based on 8 weeks but the recent change allowed for it to be spread across 24 weeks, can I break that down to what amounts to 33% of my payroll and continue to claim UI benefits to cover the other 66% that PPP doesn’t cover? Essentiaily, I would still file for UI but claim the PPP funds as “Other Income” that amounts to about 1.66 days/week of pay. Hoepfully the PUA is reinstated and paid out retroactively, so I’m hoping to stay certified on UI since the process to get approved initially took so long (nearly 2 months in my case after being denied initially).

timesheets_blog August 19, 2020 - 7:01 pm

Honestly this is a question best directed to an accountant who has properly looked into this issue. We normally refrain from offering professional advice. Although other readers may be able to help you on our forum at the KingMaker Society. You should consider asking there if you don’t have access to an HR professional.

Jenn13 September 6, 2020 - 6:12 am

Similar boat as you on this. Were you able to get an answer? I cannot seem to get a hold of a human in my state. ugh!

Kunous KWan August 16, 2020 - 5:38 pm

I am a self employed worker who got approved for PPP loan; and although I also got approved for CA unemployment benefit, because I cannot take both PPP and UI, I did not certify any week on unemployment.
PPP has forgiveness for up to 8 weeks of lost income… so after the 8 weeks period, can I continue to claim unemployment? I got my PPP loan approved on mid April, the forgiveness amount is about half of the total loan according to the original math from the program. so the 8-weeks exhausted in mid June…. can I claim unemployment from mid June?

Lindsay Sommers August 18, 2020 - 3:09 pm

Hi Kunous, I suggest that you speak with the CA unemployment office directly because they’re the people who actually created the form and the rules. According to the CA UI website, contacting them online through your portal is the quickest way to get a hold of them. Here’s more info: https://edd.ca.gov/unemployment/UI_Online.htm

timesheets_blog September 8, 2020 - 10:54 am

This conversation has been very popular, so we moved it to the Kingmaker Society. To join the discussion, please visit this page:
Can PPP Loans Affect Unemployment Insurance Benefits?

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