Employee or Independent Contractor?

CARES Act, Take 2: Pandemic Unemployment Assistance Extended for Independent Contractors 

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From JDSupra, Richard Reibsein discusses the December stimulus bill and its effect on independent contractors. Richard also provides guidance for companies for handling unemployment claims from independent contractors. Richard writes:

On December 27, the President signed the next stimulus bill that Congress passed on December 21.  The legislation extends unemployment assistance not only for employees but also for independent contractors and other self-employed individuals for 11 weeks. The bill (H.R. 133) includes the “Continued Assistance for Unemployed Workers Act of 2020,” which provides for an extension of the CARES Act unemployment provisions from December 31, 2020 until March 14, 2021, including the provisions that had created a new form of benefits for all self-employed individuals: pandemic unemployment assistance (PUA).  As detailed in a prior blog post, the original CARES Act provided PUA benefits for up to $600 a week for as many as 39 weeks, retroactive to January 27, 2020. The new stimulus bill, CARES Act II, halves that amount and limits PUA to $300/week. Those eligible for PUA also will receive an additional $300/week through the end of the extension period, whereas CARES Act I had added $600/week in federal stimulus payments. Finally, the new stimulus bill provides independent contractors with paid sick and paid family leave benefits through March 14, 2021.

Independent contractors to apply for extended PUA benefits

It does not appear that independent contractors need to apply for additional PUA if currently receiving that benefit. Rather, it appears PUA II benefits will simply be tacked onto PUA I benefits. However, for those independent contractors who have never received or are yet to receive PUA benefits, or if their 39 weeks of PUA have ended due to a retroactive commencement of benefits, it is expected that an application for PUA II benefits will be required.

CARES Act II contains a new provision: unemployed or underemployed independent contractors who have an income mix from self-employment and wages paid by an employer are still eligible for PUA.  Under CARES Act I, any such worker was typically eligible only for a state-issued benefit based on their wages.  Under CARES Act II, though, the individual now is eligible for an additional weekly benefit of $100 if he/she earned at least $5,000 a year in self-employment income.  The $100 weekly payment, which would be added to the $300 weekly benefit, also will expire on March 14.

What CARES Act II means for businesses using independent contractors

A number of new applications for PUA by independent contractors are likely to be filed without a designation that the claimant is self-employed, as was often the case under the original CARES Act.  This aspect of CARES II could cause legal challenges for companies to the extent it might create a false record that a contractor is an employee of the company.  Businesses should timely contest such applications to avoid erroneous assessments of unpaid unemployment taxes, which could also prompt audits by their state workforce agency of the classification status of other similar workers treated as independent contractors.

What would be an effective response strategy?  It may include some or all of the following:

  • immediately transmit all claim notices to a single person in the company’s Legal or Human Resources Department;
  • quickly gather the applicable independent contractor agreement;
  • identify the legal test for independent contractor status in the applicable state;
  • secure the necessary information from corporate employees and/or the claimant that supports independent contractor status;
  • draft and submit expeditiously a concise and persuasive response to the notice demonstrating the claimant is not an employee of the company;
  • recognize expressly the independent contractor’s right to PUA benefits as a self-employed individual under the CARES Act if he/she meets the qualifying circumstances where his/her loss of income or self-employed opportunities is due to the Coronavirus.

Often, the initial eligibility determination is made by a claims officer who has limited time to read an entire submission and may be predisposed to finding the claimant is an employee and not an independent contractor. Knowing what statements are most likely to resonate with the initial reviewer at the unemployment agency and how to present those factors in a compelling summary of the response can make the difference between a determination favorable or adverse to the business.

When an initial determination finds the claimant is not an independent contractor but rather an employee, or simply notifies the claimant and the company that the worker is eligible for unemployment benefits, it is imperative to request a hearing and/or file an appeal on a timely basis.  A business may lose the right to challenge a determination that the claimant is an employee if it fails to dispute the finding.  This  may result in a final adverse ruling that all workers classified by the business as independent contractors have been misclassified. Hearings and appeals are typically conducted telephonically, and steps can be taken in advance to strengthen the argument that the contractor has been properly classified under applicable state law.

The Bill also extends the paid leave benefits of FFCRA to independent contractors

Enacted last March, the Families First Coronavirus Response Act (FFCRA) 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.  The law offered such benefits not only to employees but also to “eligible self-employed individuals.”  Such an individual is defined 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).”  The new stimulus bill extends the independent contractor provisions of the FFCRA to the same date that the CARES Act was extended, March 14, 2021. The leave benefit is “payable” by means of a 100% tax credit made available to the self-employed individual on his or her tax return.

Takeaway

Companies that utilize independent contractors are concerned that some state workforce agencies may later use this temporary pandemic relief legislation to create a record of independent contractors working in such states and seek to re-characterize these contractors as employees under unemployment, workers’ compensation, and wage and hour laws.  Companies that have used independent contractors in the past and plan to continue doing so in the future should consider enhancing their compliance with 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 in a customized manner.

Source: CARES Act, Take 2: Pandemic Unemployment Assistance Extended for Independent Contractors | Locke Lord LLP – JDSupra

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