The Senate passed last night an 883-page Coronavirus stimulus bill, which is expected to be passed by the House and signed into law by the end of this week. It contains unemployment assistance provisions that expand coverage to individuals not ordinarily covered by unemployment insurance laws: self-employed individuals, also known as independent contractors, freelancers, sole proprietors, or gig workers. Under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, such individuals will be entitled to “pandemic unemployment assistance” if they are able and willing to work or telework for pay, but are unable to do so due to a broad range of reasons related to the COVID-19 pandemic. In addition, Congress recently passed and the President signed into law the Families First Coronavirus Response Act, which also covered independent contractors, providing for paid sick and paid family leave to self-employed individuals.
The Federal CARES Act – Unemployment Benefits for Independent Contractors
Unemployment assistance will be available to self-employed individuals under Section 2102 of the CARES Act if the individual certifies that he or she:
- is diagnosed with COVID-19 or experienced symptoms or is seeking a diagnosis,
- has a member of his or her household that has been diagnosed with the illness,
- is providing care to a family member with COVID-19,
- has primary caregiving responsibility to a child that is unable to attend school due to COVID-19,
- cannot reach his or her place of work because of a quarantine or advice of a health care provider to self-quarantine,
- has become a breadwinner after the head of household has died from COVID-19,
- has had to quit his or her work as a result of Coronavirus, or
- has a work location that is closed as a direct result of a COVID-19 public health emergency.
Pandemic unemployment assistance is available not only if such independent contractors are “unemployed” but also if “partially unemployed.” This benefit is not available, though, if and when such self-employed individuals are receiving paid sick leave or other paid leave benefits, including such benefits available to independent contractors under the federal Families First Coronavirus Response Act or a state law providing such paid benefits to self-employed workers.
This financial assistance is available retroactively to January 27, 2020 through December 31, 2020 as long as the individual’s unemployment, partial unemployment, or inability to work caused by COVID-19 continues, up to a maximum of 39 weeks including any weeks when the independent contractor received any other paid benefits under federal or state law.
The Families First Coronavirus Response Act (“FFCRA”) Affords Paid Sick and Family Leave Benefits to Independent Contractors As Well
The FFCRA, enacted on March 18, 2020, provides both paid sick time under the Emergency Paid Sick Time Act and expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act. Congress extended the availability of such benefits not only to employees but also to “eligible self-employed individuals.” Such an individual is defined in Section 7002(b) and 7004(b) of the law as a person who “regularly carries on a trade or business . . . , and would be entitled to receive paid leave . . . if the individual were an employee of an employer (other than himself or herself).”
Paid sick leave is available to independent contractors for up to ten days where unable to work or telework because the individual is subject to a government quarantine or order of isolation related to COVID-19; has been advised by a health care provider to self-quarantine; or is experiencing symptoms of Coronavirus and is seeking medical attention.
The amount of daily sick leave available to an eligible independent contractor for these reasons is the lesser of (a) $511 per day up to a maximum of $5,110 for ten days’ paid sick leave, or (b) 100% of the individual’s average daily self-employment income for the taxable year. If the leave is occasioned by the independent contractor’s need to care for another individual subject to an order of quarantine or isolation or advised to self-quarantine, or to care for his or her child whose school had been closed or whose childcare provider is unavailable due to COVID-19 precautions, then the lesser of (a) $200 per day up to a maximum of $2,000 for ten days’ paid sick leave, or (b) 67% of the average daily self-employment income for the taxable year.
Paid family leave is available to an eligible independent contractor who is unable to work or telework because of a need to care for a family member subject to a government order of quarantine or isolation or advice by a health care provider to self-quarantine, or to care for a son or daughter whose school has been closed or whose childcare provider is unavailable due to COVID-19. The maximum number of days of such paid family leave is 50, and the paid benefit available is the lesser of $200 per day or 67% of the average daily self-employment income for the taxable year.
The average daily self-employment income is defined in the FFCRA as the net earnings for the taxable year from self-employment of the individual divided by 260. The amount payable to the self-employed individual may be taken by the independent contractor as a 100% tax credit.
The FFCRA is effective April 1, 2020.
Significance of These Pandemic Benefits for Independent Contractors
The COVID-19 pandemic has hit hard many independent contractors including a host of gig workers and freelancers. Congress is providing unprecedented relief to a class of workers who have chosen to be their own bosses and, as a result, have excluded themselves from the benefits associated with employment. By so doing, Congress has not only eased the financial stress placed upon a key component of the U.S. economy, including millions of workers not engaged in the gig economy, but recognized the importance of preserving the landscape on which independent contractor relationships are based. The issue of independent contractor misclassification was politically charged prior to this pandemic (and will likely return to that environment once the Coronavirus crisis has ended). Congress avoided the political issues on this subject and maintained an even-handed approach that favored neither those who are defenders nor those who are critics of the prevalence of independent contractors in the U.S.
Some state workforce agencies may at some later point use this temporary pandemic relief legislation to create a record of independent contractors operating in such states and seek to re-characterize such self-employed individuals as employees under an array of state laws such as those related to unemployment, workers’ compensation, and wage and hour. Companies that have used independent contractors in the past and plan to continue doing so in the future should consider enhancing their compliance with virtually all applicable independent contractor laws. Many businesses have already done so by using a process such as IC Diagnostics™, which can serve to minimize exposure to independent contractor misclassification claims by creating sustainable independent contractor relationships.