Friday, March 27, 2020

Does $2 Trillion Coronavirus Stimulus Package Include Unemployment Benefits for Self-Employed Small Business Owners, Independent Contractors and Gig Workers?

States (Still) Developing Special Application for Self-Employed, Independent Contractors and Gig Workers Pursuant to Federal Coronavirus Stimulus Bill as of March 31, 2020

We will continue to provide updates as we keep a close eye on this situation.

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Can I Get Unemployment if I am Self-Employed and my Business is Shut Down Due to Coronavirus (COVID 19) Under New Stimulus Package Passed on March 25, 2020?

To be clear, there is no one that truly knows this answer for sure right now, for a variety of reasons.

UPDATE: Summary of Families First Coronavirus Bill Requiring Paid Leave to Certain Employees  

The Administration of Unemployment Benefits is Done by States, not the Federal Government

What is known is that for most employees in America, the administration of Unemployment Compensation takes place at the state level, in accordance with state laws, and without interference or influence from the federal government.  The Stimulus Bill is not going to change that, I do not believe.

Traditionally, and Uniformly, Self-Employed Business Owners Cannot Get Unemployment Benefits Either During Seasonal Shut Downs or Complete Failure of the Business

There are reasons for this, most have them having to do with avoiding any incentive for struggling small businesses to "give up," and providing "disincentive" to small business owners who decide to purposefully allow their business to tank so they can pursue new or better opportunities.

Many self-employed business owners do not pay themselves W-2 wages or, even if they do, such wages reflect only a part of their actual income (the balance being through distributions of one kind or the other).

John A. Gallagher has been handling business disputes and employment-related matters in Pennsylvania since 1991.  Call him today for a free consultation at 610-647-5027 or e-Mail him at
How Are My Unemployment Compensation Benefits Calculated?

Hence, as discussed below, even if such owners are entitled to unemployment benefits, since such benefits are calculated based upon one's "reported wages," it will be very difficult for the Department of Labor to accurately calculate one's weekly benefit rate.

It is Well Established, Historically, that Independent Contractors are Viewed as Self-Employed" and are Therefore not Eligible for Unemployment Benefits if They Lose Employment

As for independent contractors (i.e. 1099 workers), the rule has always been that they are deemed to essentially be "self-employed," and are therefore ineligible for unemployment if separated from employment through no fault of their own.

There are  two types of 1099 workers, if you will.  The first own a business, work for many different people clients (think: contractor, lawyer, electrician, painter, psychologist, etc.), but do not pay themselves W-2 wages.  Such persons truly are "self-employed" under the standard definition.

If you are Misclassified as an Independent Contractor and Laid Off,
You are Entitled to Unemployment Benefits - Coronavirus or Not

However, there is a larger contingent of 1099 workers - they do work only for one company, and are not paid W-2 wages (often because the company does not want them "on the payroll.")  Many such persons, I dare say hundreds of thousands at any given time, are what we refer to as "misclassified."

If You Have Been Misclassified as an Independent Contractor and are Laid Off Due to Coronavirus, You Will be Eligible for Unemployment Benefits

Click Here to look at the legal test for whether you are truly an employee who has been misclassified as an Independent Contractor.  Coronavirus or not, I have helped many misclassified "independent contractors" win Unemployment benefits by proving that they are in fact "true employees" under the law.

Gig Workers Historically Deemed Self-Employed and Ineligible for Unemployment Compensation Benefits

Gig workers, such as lounge lizards, comedians and acoustic artists frequenting your local pub, are without question almost always "self-employed.  Many of the are paid in cash, and I would expect that most do not pay themselves any W-2 wages.

Does the Coronavirus Stimulus Package Give Unemployment Compensation Benefits to Self-Employer Business Owners, Independent Contractors and Gig Workers Such as Musicians, Motivational Speakers and Comedians?

I am afraid there is not a perfectly clear answer on how it is going to work as of yet, but the answer is definitely YES - at least in some form or fashion. I am basing this answer in part on an excellent article from authored by Kelly Anne Smith and published on March 25, 2020.  This article highlights what I agree are some significant unanswered questions about the Stimulus Bill.

Federal Government Will Provide $600 Per Week Unemployment Subsidy to All Eligible Workers for Up To 4-Months

On its face, the Bill will provide an additional $600 per week of unemployment benefits for up to 4 months to all persons who have qualified under state law for such benefits.  This is going to be federally funded (the federal government has traditionally subsidized state benefit programs over the years, particularly during times of national economic hardship).

In Pennsylvania You Can Get Up to $1,183 a Week In Benefits for up to Four Months
What is the Most I Can Receive Per Week in Unemployment Benefits Under the $2 Trillion Coronaviruus Stimulus Bill?

What will that mean?  Well the maximum benefit rate for Pennsylvania claimants is $583 per week (that maximum rate is for people who earn approximately $57,000 per year or more).  So, it means that the maximum weekly benefit in Pennsylvania will be $1,183 per week.  That is the equivalent of an annual salary of $61,516 a year in salary.

So, if I am reading things right (and bearing mind they told me no math would be involved), eligible employees who earn $61,516  or less in Pennsylvania will be made whole over the first 4-months of unemployment.  That is great news!!!

If You are the Owner of a Small Business That is Completely Shut Down Due to Coronavirus, You May be Eligible for up to $1,183 in Unemployment Benefits in Pennsylvania

At this point, the Stimulus Bill most certainly provides that small business owners will be entitled to unemployment benefits. Let me quote Ms. Smith's Forbes article, which eloquently illustrates the problem:

In an unprecedented move, the stimulus bill expands unemployment protections to gig workers, freelancers and self-employed individuals, who typically don’t qualify for unemployment benefits.

Seth Harris, former Deputy U.S. Secretary of Labor, describes this aspect of the stimulus package as a “gigantic change,” but notes that it could be complicated to execute.
“It will be harder [to calculate] because these workers don’t have a W-2 or an average weekly wage,” Harris says. “These folks have income that varies dramatically from week to week or month to month.”
It’s not clear yet how state benefits will be calculated for these workers; unemployment is traditionally calculated as a percentage of weekly earnings, up to a maximum amount.

How Will Small Business Owners be Able to Prove Their Loss of Income in Order to Qualify for Unemployment Benefits Under the Coronavirus Stimulus Bill?

The way I see things, the Stimulus Bill does not override state eligibility requirements - which have universally prohibited small business owners from collecting unemployment benefits. Now, the Fed can, I suppose, order states to award benefits to such owners (and it appears that it has), but the Bill does not as I understand tell states how to determine such eligibility.

This is an extremely challenging question and, at this point, I do not believe anyone truly "knows" the answer to this question. We will have to wait for guidance from the each states'  Department of Labor on this point.

There are other issues, such as whether the business has to be completely shut down in order to qualify for benefits, or whether partial benefits will be made available to companies that are still operating, but at a dramatically reduced level.

My suggestion is that any small business owners significantly affected by the Coronavirus apply for unemployment benefits without delay - but in doing so be scrupulously honest about your pre-Coronavirus income and the extent to which your business has been impacted by COVID-19.

Apply for Benefits but Do Not Overstate Your Income or Income Loss to Prevent Serious Future Problems

Click Here to read about How and When to Apply for Unemployment Benefits in Pennsylvania.

Why be honest - beyond its own virtue? Well, trust me, in the years to come the Department of Labor will be looking hard at the claims made during this crisis period, and you do NOT want to be in an at-fault overpayment situation in the future (I saw a LOT of that during the recession that began in 2008 - I had cases with substantial overpayment claims up through 2013, as I recall).

So, make the application, be honest and see what happens.

And, please do not hesitate to call me to tell me how the process is going. I can not only perhaps provide some guidance but, also, I can learn how the applications are being treated by the Department of Labor and pass that along to the public via my Blog.

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