On March 21, Congress passed the CARES Act to help Americans get through the COVID-19 pandemic. The bill provided financial relief for small businesses and sent stimulus checks up to $1200 to individual Americans. But it also included a provision that expanded unemployment benefits to a group of American workers who’ve never had access to unemployment: freelancers. Sole proprietors or contract workers have been working without a social safety net, since, well, … forever.
“A person who’s self-employed, now for the first time in history, can get unemployment since unemployment was passed in 1935,” says John Tirpak, the executive director of the Unemployment Law Project, a nonprofit legal services office based in Washington state. “Never before has a self-employed person been eligible.”
First things first: What is the CARES Act?
The CARES Act adds an extra $600 to the regular weekly unemployment payout determined by each state. And its pandemic program allows freelancers to claim just like their full-time counterparts.
“Unemployment is a state process,” says Peter Rahbar, an employment lawyer based in New York City who works with individuals and companies. “Every state has different rules. There have been calls for federal unemployment because the state rules are so outdated. As part of the CARES act, there was a federal, Pandemic Unemployment Assistance program created, which takes the state structure and then puts some federal funds on top of it. And not just funds, but rules.”
The CARES rules are straightforward: the loss of work must come as a result of the COVID-19 crisis. Examples include the loss of a job because the business closed; loss of income because of illness or caring for someone who was sick; and inability to go to work because of the stay-at-home order. Some freelancers, such as artists and musicians who are unable to perform or had events canceled, are eligible for unemployment they never would have been able to apply for before.
The process varies depending on where you are located: In Washington state, for instance, the self-employed must first apply for “regular” unemployment. They will be denied because they don’t have any W2 claims from traditional employers, but then they will be allowed to apply for the pandemic unemployment. The state requires some proof of income as a contractor or self-employed individual: tax forms, 1099s, profit and loss statements are all acceptable. (Here’s a checklist for you to use.)
Unfortunately, even if they do absolutely everything right, there’s a wall that many people will still hit: system overload.
“The system’s just flooded to begin with. It’s not designed for the capacity that it’s currently operating at,” Rahbar says. “You’re hearing a lot of stories about people getting denied when they shouldn’t be. But then you have all these new rules that were put out with so little guidance that I don’t think the states really know how to administer it properly.”
As a result, says Tirpak, “Many are either being denied or are stuck in purgatory. We’ve received thousands of calls in the last few weeks over simple access issue problems,” he says. “During normal periods of unemployment, we get calls from people asking for advice about whether they qualify or not, or certain problems with their employer.” Usually, he says, the problem is a blocker such as access to a computer or a language barrier, which is the most-frequent problem.
Complicating matters is the fact that these different state systems are built on outdated technology. Says Rahbar: “In New Jersey, they were seeking programmers for some language that was used in the 80s, COBOL. It’s so outdated that they are having trouble finding people who know it.”
What if you get a short-term gig or a one-off job?
This is where the system hasn’t been updated to meet modern workforce needs and doesn’t accommodate the unusual working conditions of the gig economy. Under normal unemployment, it is possible to receive partial benefits. If an employee is laid off from a job, and collecting unemployment, but then gets a part-time job, they have to report the number of hours and money made each week. If they make more than the benefit amount, they wouldn’t collect that week. If they make less than the benefit, the change would be calculated and they’d still receive some money.
The rules are set at the state level and can become frustratingly byzantine. In New York, a person receiving the highest weekly amount of $500 plus the additional CARES amount ($600) can lose their benefits if they work more than four days a week; even just an hour of work counts as a day.
“For the federal piece, there’s no guidance on that. The states are just taking their own rules and applying it to the situation,” says Rahbar.
In Washington, a one-off paycheck can present a problem, because the rules of freelancing are often different than regular part-time work with an employer.
Tirpak illustrates the problem with a hypothetical artist who worked 50 hours on a painting, but doesn’t yet have a value attached to it, nor is it yet sold. “So the question is: ‘Did you work?’ says Tirpak. “And then: ‘How much money did you earn?’ — whether you were paid this week or not?’ And how do you answer those questions?,” he says.
Many freelancers make the mistake of overreporting. A freelancer should take a $1000 check and deduct business expenses, such as those found in a Schedule C form for the IRS — a portion of rent for a home office, a percentage of utilities, and other business expenses. It is, at best, a guesstimate. And it might cost you a week of unemployment.
“So that’s why it’s hard for some people who mistakenly would say, ‘Well, I made $1,000 this week,’ when in fact, if you looked at all their expenses for that month or those weeks that really maybe they only made $200,” Tirpak explains.
What is your recourse if you are stiffed by an employer?
There’s no such thing as furlough for freelancers. Instead, companies may try to skip out on payment altogether if they are facing difficulties during COVID-19.
“I have a number of clients who aren’t getting paid, and they’ve done the work,” Rahbar says. “New York City even has a law to protect freelancers in that situation, and companies don’t care because the New York courts are closed. And I think they’re just taking advantage of that.”
Rahbar recently advised a contractor who worked in the fashion industry and had a contract with a client who tried to “fire” her from the contract, which was a violation. While she got two weeks of pay, the company ended up going out of business shortly after. “I know that’s a difficult position for the individual, because, of course, there’s this fear that if you question it, they’ll just cancel your contract and say, well forget it. But in some contracts that’s not allowable.”
Could unemployment affect any of your other state or federal benefits?
Be aware that other benefits, such as Medicare, Medicaid, and food stamps may be affected by getting unemployment, as it’s considered “reportable income” and there’s an income threshold that’s different in each state. “Those issues have come up,” Tirpak says. “We’ve had some questions about whether additional income from unemployment would basically kick a family off of benefits.”
The unemployment hotlines are busy day and night. How to get through?
If at first, you don’t succeed, call, call, call, and call again. Get up at 6:55 am and call and call until you reach a human. Email. Send faxes. Send an actual letter. Reach out to organizations such as the Unemployment Law Project.
And, when all else fails, says Tirpak, contact your state senator or state representative. “That has helped some people get access. People have been stuck in that purgatory because there may be some glitch or some issue that is blocking their application from even going through. We have advised people to request hearings when that’s appropriate.” Sometimes, just a hearing request can get a letter in front of the right person, who can resolve the issue.
Keep trying that 800 number, Tirpak says. “While it seems to be always busy, the reason it’s busy is that some people are being helped.”