Can I Get Unemployment If I Am an Independent Contractor?

The coronavirus outbreak and the subsequent CARES Act legislation has recently changed independent contractors ability to claim unemployment benefits. This article has been updated to cover these new developments.

Question:

I was a technical writer for a software company: manuals, instructions, help interview scripts, and similar text. I was employed by the company for several years. Then, a couple of years ago, the company decided to lay off its technical writers and rehire all of us as freelancers. We had to sign an independent contractor agreement, but not much else changed. I still work full time, report my hours each week, and attend staff meetings. I'm in the office one or two days a week, and I put in the rest of my time at home. I don't get benefits, and I have to pay self-employment taxes. The company just laid us all off. Can I obtain unemployment benefits?

Answer:

Unemployment benefits are ordinarily available to employees, but not independent contractors. However, there are two ways you could qualify for unemployment benefits:

Coronavirus Pandemic

Unemployment benefits are designed for employees whose employers pay state and federal unemployment taxes to fund the unemployment system. Ordinarily, when you’re an independent contractor, you can’t collect unemployment if you’re out of work. Neither independent contractors, nor their clients or customers, pay state or federal unemployment taxes.

However, Congress has passed the Coronavirus Aid, Response, and Economic Security Act (CARES Act). As a result of the CARES Act, for the first time ever, independent contractors can be entitled to unemployment benefits. To qualify, you must certify that:

  • you were diagnosed with COVID-19 or experienced symptoms or are seeking a diagnosis
  • a member of your household that has been diagnosed with COVID-19
  • you are providing care to a family member with COVID-19
  • you have primary caregiving responsibility to a child that is unable to attend school due to COVID-19
  • you cannot reach your place of work because of a quarantine or advice of a health care provider to self-quarantine
  • you became a breadwinner after the head of your household has COVID-19
  • you had to quit your work as a result of Coronavirus, or
  • your work location was closed as a direct result of a COVID-19 public health emergency.

The benefits you can receive vary from state to state. However, the CARES Act increased the maximum unemployment benefit by $600 per week through July 31 and extended coverage by an additional 13 weeks, to a maximum of 39 weeks.

If you qualify, you need to apply through your state unemployment office. You can find a link to your state unemployment office at the Unemployment Benefits Finder.

Misclassification as an Independent Contractor

Even if you don't qualify for unemployment benefits under the CARES Act, you could still get them. Based on the information you provided, it sounds like you might have been misclassified as an independent contractor and should have been classified as an employee instead.

Each state's unemployment agency has its own rules for determining whether a worker is an employee or an independent contractor. In general, though, true independent contractors are people who are in business for themselves and have control over the way that they perform their work.

Often, contracting jobs are limited in time and scope. If, for example, you were hired to write one manual or script a set of help interviews, you would more likely be an independent contractor. Independent contractors typically work on a project basis and work for multiple clients at a time, or in succession. Employees, on the other hand, are usually hired on an indefinite basis. Employees are also more likely to work full time, report their hours, participate in staff meetings, and receive supervision and training from the employer.

The fact that you were an employee before you were labeled an "independent contractor" by your company will probably also help. It suggests that your employer reclassified its freelancers to avoid paying taxes, providing benefits, and taking on other costs relating to your work (including, not coincidentally, the cost of unemployment claims). This is a common practice, and it's also illegal.

You should apply for unemployment benefits, claiming that you were really an employee. If your claim is denied, you should appeal. To find out how to appeal an unemployment determination, select your state from the list at Collecting Unemployment Benefits. In your appeal, explain that your employer misclassified you as an independent contractor. Among other things, state that you work only for that employer, that you are required to turn in your hours, that you must attend staff meetings, and that you regularly work at the employer's place of business. You should also mention that you worked for the company as an employee for several years and that your working relationship remained largely the same, even after your employer moved you to independent contractor status. (For a list of the factors that will help you prove you are really an employee, see Independent Contractor or Employee: How Government Agencies Make the Call.)

If you were misclassified, your employer may also have violated wage and hour laws by treating you like an independent contractor rather than an employee. You, and your coworkers in the same boat, may want to talk to an experienced lawyer about unpaid overtime and other legal claims that you may have against your employer.

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