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. Here’s a 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 the 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 Insurance 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 ESD seeking 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!? Hold up, yo…what da hell!”, or some sanitized or NSFW variation thereof. 😊

My response is to rest easy on this i.e. be not “afeared.” The reason is that independent contractors have been told that they may be entitled to unemployment benefits and many have started to submit applications. Employment Security Department (ESD), however, has not modified its unemployment application forms to apply to independent contractors, and as a result, independent contractors are filing claims using the employee form. Hence, they’re 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 applications should include a change in the terminology.

So for those of you who have received correspondence based on the employee application, I recommend simple response to the correspondence by specifying that the worker is a contractor and has not been separated from employment. I further recommend making clear that you are not opposing the claim and understand that contractors are entitled to apply for independent contractor benefits under the federal Pandemic Unemployment Insurance program. This helps to get on the record that the worker is an independent contractor, while making clear that you’re not trying to oppose their claim for benefits.

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

phone: (206) 569-4920 | email: info@mercerlawpllc.com