Locke Lord QuickStudy: Pandemic Unemployment Benefits Extended Yet Again for ‎Employees and ‎Independent Contractors

March 23, 2021
President Biden signed into law the American Rescue Plan Act of 2021 on March 11, 2021. The bill (H.R. ‎‎1319) includes the “Crisis Support for Unemployed Workers Act of 2020” (here called “CARES Act III”), ‎providing for yet another extension of the CARES Act unemployment provisions – this time from March 14, ‎‎2021 until September 6, 2021. In this QuickStudy, we explore the relevant changes to existing pandemic ‎unemployment law and other amendments that affect employees and employers as well as independent ‎contractors.‎

A Comparison of CARES Act III to CARES Act I and II
CARES Act I of late March 2020 provided new and expanded unemployment protections to two groups of ‎workers: (1) those who were generally eligible for state unemployment benefits; and (2) those who are not ‎typically eligible for state unemployment benefits, including self-employed individuals such as independent ‎contractors and gig workers as well as those who, but for reasons arising out of COVID-19, were fully or ‎partially unemployed.‎

The first group includes traditional employees generally eligible for state unemployment benefits. In addition ‎to and following exhaustion of any state unemployment benefits, under CARES Act I, those employees were ‎eligible for Pandemic Emergency Unemployment Compensation (“PEUC”), which effectively extended state ‎unemployment benefits for an additional 13 weeks (for a total of 39 weeks).‎

The second group encompasses workers who do not otherwise qualify for unemployment, such as employees ‎who have not met length of service requirements, as well as self-employed individuals. Under CARES Act I, ‎those workers were entitled to receive Pandemic Unemployment Assistance (“PUA”) equal to the weekly ‎unemployment benefits authorized under their state’s laws for those otherwise eligible. PUA recipients were ‎eligible to receive benefits for up to 39 weeks. ‎

As a benefit to both groups of workers, CARES ACT I increased the weekly benefit amount for regular ‎unemployment caused by COVID-19, PEUC benefits, and PUA benefits by an additional $600 per week. ‎This supplement was payable through July 31, 2020. ‎

CARES Act II, enacted on December 27, 2020, as part of the Consolidated Appropriations Act of 2021, ‎extended PUA and PEUC benefits for up to 50 weeks until March 14, 2021. CARES Act II, however, halved ‎the weekly supplemental amount to $300 per week. ‎

CARES Act III maintains the existing PUA and PEUC benefits and extends them to up to 79 weeks total, until ‎September 6, 2021. Finally, CARES Act III further extends the supplemental $300 per week enhancement for ‎all individuals receiving unemployment benefits, which now expires on September 6, 2021.‎

Current recipients need not apply for extended PUA or PEUC benefits
It does not appear that employees and independent contractors need to apply again for PUA or PEUC benefits ‎if already receiving those benefits. Rather, it appears PUA and PEUC benefits under CARES Act III will ‎simply be tacked onto existing benefits received under CARES Act I and II. For those who have never ‎received, or are yet to receive, PUA or PEUC benefits, an application for benefits under the new stimulus bill ‎will be required.‎

What else does the new stimulus bill provide to employees and independent contractors?‎
The new stimulus bill includes a new and valuable provision that addresses the impact of taxes on past PUA ‎benefits. CARES ACT III provides that the first $10,200 in unemployment insurance benefits received in ‎‎2020 will be tax-free to individuals earning less than $150,000. For married couples, each spouse can ‎exclude up to $10,200 in benefits, for a total tax-free benefit of up to $20,400, subject to an earnings cap.‎
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CARES Act III also continues a provision included in CARES Act II: unemployed or underemployed ‎independent contractors who have an income mix from self-employment and W-2 wages still are eligible for ‎PUA. Under CARES Act I, any such worker was typically eligible only for state-issued benefits based upon ‎their W-2 wages. CARES Act II and III, though, provide for an additional weekly benefit of $100 if a worker ‎earned at least $5,000 in self-employment income. The $100 weekly payment availability will continue until ‎September 6, 2021.‎

CARES Act III also continues to provide employers with tax credits in an amount equal to 100 percent of the ‎qualified paid sick and paid family leave benefits they provide from April 1, 2021 through September 30, ‎‎2021. The employer mandate to provide such leave under the Families First Coronavirus Response Act ‎‎(FFCRA) expired on December 30, 2020; however, employers may still voluntarily provide qualifying paid ‎sick and family leave. CARES Act III maintains the application of these tax credits at 100% for independent ‎contractors who would otherwise be entitled to the paid sick or family leave if he or she were an employee. ‎Like the employer tax credit, the self-employed tax credit extends to September 30, 2021. For employees who ‎have already taken FFCRA paid sick or emergency family medical leave, CARES Act III provides those ‎individuals with a new bank of paid sick and family leave to draw from, as long as their employers agree to ‎offer it. Independent contractors are eligible for additional paid sick and family leave for which they can take ‎a tax credit. ‎

Additionally, CARES Act III expands the qualifying reasons for an employee to be eligible for FFCRA ‎emergency paid sick leave. It now includes leave to (1) obtain a COVID-19 vaccine; (2) recover from an ‎injury, disability, illness, or condition related to receiving the COVID-19 vaccine; or (3) seek or await the ‎results of a COVID-19 test or diagnosis after potential exposure. In addition, paid emergency family leave is ‎no longer limited to those instances in which an employee is unable to work in order to care for a child whose ‎school or place of care is closed. Paid emergency family leave now includes all qualifying reasons for ‎emergency paid sick leave as well as the three new reasons noted above. More guidance on these issues is ‎expected from the Department of Labor.‎

Finally, CARES Act III provides federal subsidies for those individuals who have lost their jobs and are ‎eligible for continuing health benefits under COBRA. Under CARES Act III, an eligible individual may ‎remain on his or her former employer’s health plan free of charge from April 1 through September 30, 2021, ‎so long as the eligible individual is still within COBRA’s 18-month period. Notably, this legislation applies ‎retroactively so that an employee who was recently terminated but declined COBRA coverage at that time ‎‎(often due to cost) may apply for subsidized coverage within 60 days from the date he/she received notice ‎from his or her former employer.‎

What CARES Act III means for businesses ‎
The unemployment benefits for employees payable under CARES Act III are not “chargeable” to employers, ‎although unemployment benefits to workers who have become unemployed for reasons unrelated to COVID-‎‎19 may affect employer premiums in the future.

The extension of PUA and PEUC benefits may pose certain obstacles for employers as they attempt to retain, ‎hire, or recall employees who may earn enough weekly unemployment benefits to discourage a return to work. ‎Since the enactment of CARES Act I, employers nationwide have seen a rise in employees raising concerns ‎relating to workplace safety and personal medical conditions which affect their ability and willingness to ‎return to the workplace. Employers should continue to document steps they have taken to maintain safe ‎workplace conditions, communicate to their employees safety measures implemented and protocols they are ‎expected to follow, and provide reasonable accommodations required by law or in the mutual best interest of ‎the workers and the company. Although not required by law, employers may choose to encourage workers to ‎provide suggestions for maintaining a safe workplace. This approach may effectively address individual ‎employee concerns and minimize reluctance to return to work and resignations. ‎

Companies using independent contractors should be alert to claim notices they receive for new applications ‎filed during this second extension period by independent contractors claiming to be employees, as was often ‎the case when self-employed individuals applied for unemployment under CARES Act I and II. This ‎development could cause legal challenges for companies to the extent it might create a false record that an ‎independent contractor is an employee of the company. Businesses should timely contest such applications to ‎avoid erroneous assessments of unpaid unemployment taxes, which could also prompt audits by state ‎workforce agencies of the classification status of other similar workers treated as independent contractors. ‎Many businesses have anticipated such filings since the enactment of CARES Act I and have enhanced their ‎compliance with independent contractor laws to minimize the risk of misclassification liability, using a ‎process such as IC Diagnostics™. It is not too late for companies using independent contractors to take steps ‎to maximize their compliance with state and federal laws governing independent contractor status.‎

Note that CARES Act III’s COBRA subsidy provision requires additional notices from employers to ‎employees, including expanded notices to employees who are terminated after enactment of the Act, as well as ‎to recently terminated employees who declined to elect coverage. The Act directs the Department of Labor to ‎issue model notices within 30 days after enactment of CARES Act III. ‎