Unemployment Insurance and Corporate Officers

Who is a corporate officer?

A corporate officer is a person who manages the affairs of a corporation as an officer and/or stockholder, director, family member, or close relative of an officer or stockholder.

Are corporate officers eligible for unemployment insurance?

The NYS Unemployment Insurance Law provides that "benefits shall be paid only to a claimant who is totally unemployed." Total unemployment is defined as the total lack of any employment on any day.

Whenever an individual, who is the officer of a corporation, files a claim for benefits, and the corporation is the last employer, an investigation must be performed to establish whether the individual is "unemployed" within the meaning of the UI Law. It must be established whether the claimant can control his or her own employment. The investigation is required regardless of whether the activity as officer of the corporation is the claimant's primary or secondary employment.

An officer of an ongoing corporation may be considered employed for NYS unemployment insurance purposes and may not be eligible for unemployment insurance benefits, even during a period in which, because of a temporary suspension of operations, the person performs no services and receives no remuneration. A temporary suspension of corporate operations may result from a lack of business, seasonal or otherwise, an emergency such as fire or flood, or other reasons.

The courts have upheld the denial of benefits because of lack of total unemployment in cases described by the above rule. The basis for the ineligibility is that, since it rests within the power of corporate officers to fix their salaries and the time for their payment, it must be presumed that the salaries so fixed are intended to constitute compensation on an annual basis. In other words, such claimants are presumed to be employed throughout the year and are not eligible for unemployment insurance benefits.

During all three phases of the life of a corporate enterprise – pre-operational (startup), operational (including temporary suspension of operations), and post-operational (windup) – a corporate officer who performs substantial services or receives remuneration is considered employed, and is not eligible for unemployment insurance benefits. In addition, during the operational phase, in which the corporation may be described as an ongoing corporation, such person is not totally unemployed, even if the person performs no services and receives no remuneration.

Are there any exceptions to this rule?

The only exception to the above rule would be in those cases in which corporate operations have permanently ceased because of the impending dissolution of the corporation. However, even in such cases, a corporate officer is considered employed if the person performs substantial services related to winding up the affairs of the corporation. Similarly, a corporate officer is considered employed if the person performs substantial services related to the formation and commencement of a corporate enterprise.