Employees have many legal rights that independent contractors do not have, and under normal circumstances, only employees can get unemployment benefits. Ignoring legal boundaries, the COVID-19 pandemic decimated the incomes of both employees and independent contractors. To ease some of the financial strain caused by the outbreak, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among many other provisions, the CARES Act allows certain independent contractors affected by COVID-19 to collect unemployment.
Who Is an Independent Contractor?
When you work to earn money, in the eyes of the law you’re either an employee or an independent contractor, also known as a freelancer, gig worker, “IC,” or 1099 worker. An employer has more control and direction over an employee than an IC. For example, employers typically require employees to work at certain times and locations. In contrast, independent contractors can usually set their own hours, and instead of being paid for a day’s work, they might receive payment per assignment. Common examples of independent contractors include real estate agents, tattoo artists, accountants, and others who own their own business.
Employees have certain rights that independent contractors do not have, such as workers’ compensation insurance coverage and, in some states, the right to sick leave. Employers withhold income tax from employees’ paychecks, pay a portion of employment taxes, and submit tax payments to the government. On the other hand, independent contractors are fully responsible for taxes, meaning they pay 100% of the employment tax and must submit their own tax payments. At the end of the tax year, employees receive W-2s from their employers, while independent contractors receive 1099s.
Unemployment Benefits under the CARES Act
Prior to the CARES Act, unemployment benefits were available only to employees. The Act requires states to expand unemployment to provide Pandemic Unemployment Assistance (PUA) to self-employed individuals. Understand that being laid off does not mean that you are self-employed. On the contrary, if you worked for someone as an employee and you lost your job, you must pursue regular unemployment benefits and will not be eligible for PUA.
Similarly, it is not uncommon for a freelancer to also have a part-time job. However, if you worked as both an independent contractor and an employee and lost your employment, you must pursue regular unemployment. For instance, if you worked for one company as an employee and also freelanced on the side, and your employer let you go, you are not eligible for PUA even if you also lost your freelance work.
In addition, to be eligible for PUA, you must be unable to work because of the COVID-19 outbreak. This includes coverage for those who are:
- Diagnosed with COVID-19
- Seeking treatment for COVID-19 symptoms
- Caring for or in a household with someone with COVID-19
- Taking care of children unable to attend school or childcare due to the virus
- Unable to work due to quarantine mandated by the government or healthcare professional, and
- Otherwise unable to perform work due to COVID-19, which may occur if the government deems your business non-essential.
How Much Will I Receive in Unemployment?
The amount of unemployment benefits that independent contractors can receive will depend on their income prior to the outbreak, and the laws in the state. Typically, the states calculate the amount by looking at a base period, such as the prior 12 months, to determine the average weekly income.
For some, this means the amount you receive might be lower than what you would receive under PUA, such as where you only worked part-time for an employer. The state will base your unemployment benefits only on your part-time work, and not your freelance work, as your employment would make you ineligible for PUA.
Each state has a maximum amount that independent contractors can receive, which might be lower than your prior income. The CARES Act increased the weekly income for all unemployment recipients, for an additional $600 per week. For example, if you would have received $450/week under the prior calculation, you can now receive $1,050/week. However, this additional compensation will apply only to unemployment paid through July 31, 2020.
How Long Does Unemployment Last?
Before the CARES Act, the government limited unemployment to 26 weeks. The Act extended the period of time for an additional 13 weeks, for a total of 39 weeks. However, this extension applies only to unemployment periods that end on or before December 31, 2020. If your benefits extend past 2020, the state might limit your unemployment to 26 weeks.
How to Apply for Unemployment
Although the CARES Act is a federal statute, individual states manage their unemployment programs. Check with your state’s unemployment website for the application and more information. Some states might have a different application process for independent contractors. Understand that because unemployment for freelancers is a new requirement, some states are struggling to update their systems and procedures. And because states are seeing a huge increase in applicants since the outbreak, processing times for applications might be long.
Be prepared for the application process by having your financial records available to demonstrate your loss of income, such as tax returns, invoices, bookkeeping records, and bank records. Each state will have its own requirements for documentation. If you do not have records, your state might allow you to make an “attestation” about your income, which is a written statement signed under the penalty of perjury.
