Our Independent Contractors are Filing for Unemployment! What Should We Do?

We’ve been getting a lot of calls from business owners asking about the proper response to their independent contractors filing for unemployment benefits. As many of you know, independent contractors filing for unemployment benefits has always been a compliance red flag and an audit trigger, and so businesses are wondering how best to deal with the unemployment claim letters they are receiving. Below is a quick summary of our thoughts on the issue.

The first response I’d recommend is to recognize that contractors are hurting financially. Like many you, they’ve seen their sources of revenue decrease dramatically with no idea about when things will return to normal. Many may have spouses/partners who have similarly lost income, thus adding to the sense of fear and financial insecurity the contractor is feeling. For many of these contractors, filing for unemployment (even if they know they might be denied) is often a last resort to try to bring in funds to keep the lights on and food on the table. So, yes, I recommend empathy as a first response.

The second response I’d recommend is to understand that contractors actually do absolutely and completely qualify to apply for unemployment benefits. Under the CARES Act, the federal government both expanded unemployment benefits to employees, and extended the benefits to apply to independent contractors. Thus while independent contractors are not normally eligible for benefits, the federal “Pandemic Unemployment Assistance” program now expressly allows and provides funding for those claims. Bottomline, contractors now have an unemployment benefit designed for them, and they should be encouraged to apply.

As many independent contractors are applying for benefits, many of you are now receiving letters from the Washington State Employment Security Department (ESD) seeking your responses to the unemployment claims. In the claims, independent contractors are identifying you as their “employers” and are providing “separation dates” to ESD. In receiving these responses, many of you are understandably thinking: “Employer!! What???”. My response is to rest easy on this, i.e., be not “afeared.” The reason is that independent contractors are learning that may be entitled to unemployment benefits and many have started to submit applications. ESD, however, has not modified its unemployment application forms to specifically apply to independent contractors, and as a result, independent contractors are filing claims using the employee form. Hence, the contractors are forced to identify you as their employer, and to identify the last time they worked as their separation date. ESD anticipates that its systems and applications will be updated to handle independent contractor applications by mid April (next week), so new application forms should soon include a change in the terminology.

So for those of you who have received correspondence from ESD based on the employee application and employment terminology, I recommend responding by simply specifying that the worker is an independent contractor and that she/he has not been separated from employment. I further recommend making clear that you are not opposing the claim and that you understand that contractors are entitled to apply for independent contractor benefits under the federal Pandemic Unemployment Assistance program. This helps to get on the record that the worker is an independent contractor, while ensuring that you’re not standing in the way of contractors’ efforts to secure much-needed benefits.

Trust this helps you to think through your response. As always, please feel free to reach out to us as you need.

2 thoughts on “Our Independent Contractors are Filing for Unemployment! What Should We Do?

  • Nigel
    Thank you for your small business help
    Q. What benefits or grants if any including unemployment would be avlb to a sole proprietor
    Businesses and could you derect us to the right site etc
    Again Thank you for your help 🙂

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