If My Employer Goes Out of Business Can I File for Unemployment?

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When your employer folds, you qualify for unemployment insurance benefits.
When your employer folds, you qualify for unemployment insurance benefits. (Image: Jupiterimages/Photos.com/Getty Images)

State unemployment insurance is designed to help people who find themselves without work through no fault of their own. In fact, many states deny benefits to those who are terminated for just cause. On the other hand, layoffs and job loss caused by a folding employer are situations that clearly qualify for unemployment. However, a few factors may affect your benefits.

Claims

As soon as you receive notice from your employer, contact your state unemployment office to file a claim. Most states have waiting periods, so the earlier you apply for benefits, the better. Some states, including California, have online claim applications to make the process more convenient.

Contributions

To receive unemployment benefits, you must first have contributed to state and federal unemployment funds. Employers deduct your legally prescribed unemployment contributions through your paychecks. If you have been employed in your state for more than a year, you are likely entitled to benefits. However, if your last job was as an independent contractor, you will not qualify for unemployment, as the "employer" was really a client.

Relocation

If you have moved to a new state within the past five years, inform your state unemployment department. When calculating benefits, states look at your total contribution to unemployment insurance over the course of your working life. Contributions you made to unemployment in another state can be transferred and applied to your current state. It may take a little longer for your state to process your claim, but the process may yield higher payouts and longer-lasting benefits.

Calculation

States have different methods and formulas for determining unemployment entitlements. However, they all use some form of evaluation of your pay during the past year to two years to determine your official former wage. This is important because benefits payments are based on your previous wage or salary. In California, for example, you must have been paid more than $46,000 per year in the prior calendar year to qualify for the maximum benefit payment of $450 per week for up to 26 weeks. If you had more than one job in the previous two years, inform the state so they can examine your pay history. Most states, including Washington, use the highest earnings to set your official previous wage.

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