Surge of 1099 Jobless Filings Poses Risk for Employers
Budget, Tax, & Finance
HR & Employment Law
| April 15, 2020
By: Tom Jones
An expected surge of unemployment insurance applications from independent contractors poses a significant legal threat to employers in Massachusetts and elsewhere.
The federal CARES Act extends pandemic unemployment insurance benefits for the first time to independent contractors whose work has ceased or been substantially reduced by COVID-19.
The problem, according to experts, is that many independent contractors are filing for benefits as if they were employees and the Massachusetts Department of Unemployment Assistance (DUA) has not yet modified its claim forms to allow applicants to identify themselves as self-employed individuals. (The updated forms are expected to be available at the end of April).
“Not responding in an effective manner to an unemployment claim notice about a worker regarded by the company as an (independent contractor) will likely lead to a finding that the claimant is an employee who is entitled to unemployment compensation. Such a finding can create enormous potential legal risks and liabilities for companies that have not been paying unemployment and payroll taxes on the fees paid to individuals treated as (independent contractors),” writes Richard Reibstein on the Independent Contractor Compliance blog.
A finding that an independent contractor is eligible for benefits as an employee may be binding upon a company with other independent contractors and can lead to an audit of its failure to pay unemployment taxes for all workers it has classified as independent contractors.
Reibstein says companies should take six steps to avoid the legal repercussions of independent contractors securing unemployment benefits as employees:
- Immediately identify any government notices of unemployment claims filed by individuals treated as ICs;
- Quickly transmit such notices to a single person in the Legal or Human Resources Department;
- Gather the applicable IC agreement;
- Research the test for IC status under the applicable state law;
- Secure the necessary information from corporate employees and/or the claimant that supports IC status under the applicable legal standards; and
- Draft and submit expeditiously a cogent and persuasive response to the notice, while expressly recognizing the IC’s right to unemployment benefits as a self-employed individual under the CARES Act.
Brad MacDougall, Senior Vice President of Government Affairs at AIM, said 600 state employees are now working to field some 470,000 new claims for jobless benefits that have been filed in the past three weeks.
He said that if an initial determination finds a claimant is an employee rather than an independent contractor, the company should request a hearing or file an appeal on a timely basis. Failure to do so may cause a company to lose the right to challenge the determination and may result in a final adverse determination that all workers classified by the business as independent contractors have been misclassified.
- AIM Employer Hotline at 1.800.470.6277
- Read AIM’s Employers’ Guide to COVID-19
- Free AIM model documents on accrued vacation time and documentation of essential businesses.
- Become an AIM member. View our Membership page.