On Unemployment - A Primer

(wow, as I post this I realize how very much the world has changed since my last post — going out with sled dogs and eating a buffet styled brunch in a crowded taproom seems like a whole different world from where we are now...)

A lot of people I know are filing for unemployment right now. A record 95,000 people applied for MN UI on Monday, and I expect a lot more to. I've had to help clients furlough staff this week, and it has been excruciating.

The state is handling it pretty well, all things considered, and are funneling people towards quick web applications if possible. The governor eliminated the "waiting week" so people can get funding faster. The catastrophic economic effects that this COVID-19 virus is having on this country are unprecedented, and I think it will only get worse before it gets better.

What I've been musing on all week (similar to the thought in this article from Forbes), is the extraordinary — and currently somewhat invisible — effect that this is having on 1099 workers. In the new "gig economy," in which somewhere between 25-35% of American workers are basically self-employed (everyone from housekeepers to performers and other freelance artists to journalists to small business and store owners to Uber drivers), none of these people qualify for unemployment as it currently stands.

When someone works under a 1099 arrangement, it's not an employer/employee relationship. Payroll taxes are not deducted or paid out, and related to this issue, no one pays unemployment tax for the work done (in a standard arrangement, the employer pays into the UI fund based on a percentage of the wages paid to the employee). In short, since no UI tax is paid, the worker in ineligible to receive unemployment assistance.

(It's important to say here that a 1099 arrangement is certainly sometimes the result of an employer trying to get out of associated fringe benefit costs such as UI tax, but certainly not always. In the organizations that I work with or regularly encounter, virtually all of the 1099 work is legitimately and appropriately classified as fee-for-service contracts rather than a traditional employer/employee relationship. And in small, owner-run businesses — such as Gladhill Rhone LLC — the business is exempt from paying in to MN UI or is at least exempt from paying in for the owners; we business owners can pay in, but virtually no one does because how often do you terminate yourself?)

This is currently creating a lot of issues for people filing for unemployment. When the state asks you to list your "employment history for the last 18 months," it is assuming you are listing jobs with a traditional employer/employee relationship. It does not include 1099 work. I've seen people try to input that work, sometimes noting it as 1099 contracts. The problems is, unless something changes quickly and dramatically, this gums up the system. This is how: 1) The state sends confirmations to your terminating employer (and other employers in the last 18 months) saying you have applied for benefits and confirming you worked for them. 2) The employer confirms that employment, or in the case of a 1099 relationship, denies that it was an employment relationship. 3) This holds up benefits payments while the state looks into it, and can even lead to an unemployment hearing.

I'm not saying that 1099 workers don't need some kind of assistance right now. Truth is, they probably need it more than most others. And I'm not saying that there is a lot broken in the system, especially now in the current UI crisis. Maybe there will be a DUA (Disaster Unemployment Assistance) or some other federal act that addresses this. Maybe Minnesota will take the lead in figuring it out. But for now, this is the situation we are in, and it's a hairy one.

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