The Covid-19 pandemic has exposed the vulnerability of a huge swath of the global workforce: the gig economy. Many countries have established safety nets to help ease the worst of the effects.
Some governments have provided a safety net for independent contractors but there are complications in providing state support for those who traditionally sit outside the social security system. There are also concerns about the unintended consequences for the employment status of those individuals who try to access available assistance.
Here is what the UK and US have been doing.
The UK Response
Since May 13, self-employed independent contractors in the UK whose business has been adversely affected by coronavirus are able to access the Self Employment Income Support Scheme. However, this scheme does not allow independent contractors who operate through a limited company, to claim the 80% of average monthly trading profits, capped at £7,500.
Instead, a UK contractor with a personal service company (a “PSC contractor”) will have to rely on the Coronavirus Job Retention Scheme as a PAYE (Pay As You Earn tax) employee or the Coronavirus Business Interruption Loan Scheme as a small business.
The former scheme will not be of much assistance for the contractor who pays him or herself the national minimum wage with the balance in dividends, as the scheme will only provide 80% of the minimum wage — approximately £260 per week. The latter scheme, Coronavirus Business Interruption Loan Scheme, may provide temporary financial assistance but unlike the Coronavirus Job Retention Scheme involves a great deal more scrutiny of the business by a lender. This level of audit may be uncomfortable for some contractors.
Those PSC contractors working for the public sector, and classified as being “inside IR35” may, paradoxically, be better off than those contractors who have fought so hard to assert their independence. Contractors who are deemed employees, according to the off-payroll working rules (IR35) might be eligible for the Coronavirus Job Retention Scheme. The contractor may benefit from a furlough payment of 80% of the monthly contract value, up to a maximum of £2,500.
The US Response
In the US, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) provides businesses of different sizes, including independent contractors, with opportunities for relief.
The Paycheck Protection Program provides loans for small businesses, including gig workers, to obtain fast relief from payroll and other business costs. ICs can apply for up to 2.5 times their monthly “payroll” expenses — which includes their average “salary” and health insurance premiums. For a sole proprietor (i.e., an IC who is self-employed and not a partner in a partnership or a member of an LLC that files tax returns), the loan amount will be determined by their net income, if any, after taking into account all business expenses, for 2019. However, net income may be zero or a negative amount, in which case the contractor will not be eligible for a PPP loan, no matter how much they earned in the previous year.
The CARES Act also temporarily expands unemployment benefits to certain “covered individuals” through Dec. 31, 2020. The Pandemic Unemployment Assistance program should enable independent contractors and other gig workers to obtain unemployment benefits to which they would not normally be entitled. If they experience “a significant diminution of work as a direct result of Covid-19,” gig workers can collect benefits under this program.
While federally funded, the Pandemic Unemployment Assistance program is administered by the states. Due to the emergency passage of the CARES Act, many states have not been able to adapt their application processes in time before they began to receive claims. As a result, ICs have been filing claims for unemployment compensation in some states on forms designed for W-2 employees. Either state unemployment offices have not yet updated their claim forms to add a box for “self-employed individuals” or have decided not to consider claims by such ICs until their claims as employees have been denied. For example, Illinois is telling ICs and gig workers to apply for regular unemployment benefits, let the system deny them and then re-apply under this new assistance program.
As pointed out in a recent post by Locke Lord, state unemployment agencies are sending notices to companies engaging ICs regarding claims for unemployment compensation as if they were employees. The article warns this might lead to a finding that the claimant is an employee who is entitled to unemployment compensation, opening up a misclassification action against the company that engaged their services.
The delay in receiving payments under this Pandemic Unemployment Assistance program is proving hard for many but for those who fall between the cracks in insecure jobs and with variable income, the dilemma can mean contagion from the virus or starvation without work.
One of the outcomes of this pandemic is a need for governments and employers to reconsider how all workers are treated. The nature of and need for flexible work will not change but the lack of security in such work demands that all workers are given support in the event of a crisis.