On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other important provisions, the CARES Act dramatically expands the availability of unemployment insurance (UI) benefits to workers impacted by COVID-19 who otherwise would not normally receive such benefits, including independent contractors and other so-called gig workers. The law (1) expands the definition of workers eligible to receive benefits, (2) increases the amount of available benefits, and (3) extends the time during which benefits may be collected.
Who is eligible?
Ordinarily, workers such as those who are self-employed, independent contractors, or gig workers do not qualify for unemployment insurance.
The CARES Act creates “Pandemic Unemployment Assistance” to provide unemployment benefits to certain workers otherwise ineligible for unemployment benefits. The CARES Act permits an individual who is self-employed, an independent contractor, or a gig worker to receive unemployment benefits if the individual self-certifies that he or she is able and available to work within the meaning of applicable state law and is “unemployed, partially unemployed or unable or unavailable to work” because of one or more of the following COVID-19–related reasons:
- He or she is diagnosed with COVID-19
- He or she has symptoms of COVID-19 and is in the process of seeking a medical diagnosis
- A household member has been diagnosed with COVID-19
- He or she is providing care to a household member with COVID-19
- A child or other person in the household for which the individual is the primary caregiver is unable to attend school or daycare due to COVID-19
- The individual is unable to reach work due to a quarantine
- The individual is unable to attend work because a healthcare professional advised him or her to self-quarantine
- The individual is scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of COVID-19
- The individual is the sole wage earner in his or her household due to death of the head of household as a direct result of COVID-19
- The individual was required to quit his or her job as a direct result of COVID-19
- The individual’s place of employment closed as a direct result of COVID-19
- The individual is self-employed, is seeking part-time employment, and does not have sufficient work history or otherwise would not qualify for unemployment benefits under another state unemployment program
The CARES Act does not does not define what it means to be “required to quit his or her job as a direct result of COVID-19.” The U.S. Department of Labor (DOL) is likewise ambiguous and refers simply to “leav[ing] employment due to a risk of exposure or infection ….” We anticipate that the analysis will be guided by a reasonableness standard.
Many states are implementing new programs to facilitate the expansion of benefits to contractors. For example, California has instituted its own Pandemic Unemployment Assistance (PUA) program, which is modeled on similar programs that were started in the wake of last year’s California wildfires to serve those unemployed Californians who would not normally be eligible for UI benefits, including the self-employed.
Additionally, the CARES Act incentivizes states to adopt “short-time compensation programs” that provide pro rata unemployment benefits to workers who have experienced reductions in hours as a result of the COVID-19 outbreak. Eligibility requirements for this pro rata unemployment benefit vary by state.
How are available benefits calculated?
Unemployed workers are typically entitled to an amount of unemployment benefits calculated as a percentage of the workers’ prior compensation. (These calculations vary by state.) Under the CARES Act, unemployed workers will continue to be eligible for such state-specific benefits plus an additional $600 per week for each week of unemployment.
It is presently unclear what documentation independent contractors will be required to submit to evidence their prior compensation for purposes of calculating benefit amounts. Unlike W-2 employees, contractors will not be able to provide paystubs evidencing their quarterly earnings
Forthcoming DOL guidance is expected regarding proper calculation of benefits for gig workers, and the documents necessary to support those calculations.
How long are benefits available?
Typically, state unemployment benefits expire after 26 weeks. The CARES Act extends this benefit period by 50 percent, permitting unemployed workers to collect benefits for up to 39 weeks.
However, the $600 additional weekly benefit is currently only available to workers unemployed during the eighteen-week period spanning March 30, 2020, to July 31, 2020.
How much will this cost companies that utilize independent contractors?
The CARES Act does not expressly address the extent to which the cost of these increased unemployment benefits will be passed along to the companies that utilize independent contractors or self-employed gig workers.
Presently, we anticipate that the increase in unemployment insurance claims in each state will likely result in an increase in unemployment insurance contribution rates. Employers may want to consult with tax advisors to assess the CARES Act’s potential impact on these rates.