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Unemployment Issues for Gig Workers in the COVID-19 Environment

Last updated: May 24, 2021
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  • Some gig workers are getting less in unemployment benefits than regular workers
  • Some are getting no unemployment benefits – yet.
  • State unemployment offices are woefully behind in getting up to speed with the Pandemic Unemployment Assistance (PUA) law, and many drivers, freelancers and other gig workers have not yet gotten paid. Or they’re just now starting to get paid. Some have gone 2-3 months with no income.
  • Some gig workers who worked a gig and a traditional job as a W2 employee may be receiving just a fraction of what they would have received had they only been a gig worker (independent contractor).
  • Two prominent rulings a year ago by New York’s Department of Labor that deemed gig workers to be employees but it’s not helping rideshare drivers get benefits any sooner.

Gig workers are suffering from a panoply of problems as a result of the COVID-19 pandemic brought about by their unique status as independent contractors rather than traditional employees.

When cities across the nation began to lock down in mid-March to slow the spread of the COVID-19 coronavirus, gig workers, especially rideshare drivers, were literally put out of work overnight. Their business was decimated within a 24-hour period.

That’s because their main sources of business were shut down. Even though Uber and Lyft drivers were designated as essential workers in much of the country and were therefore allowed to keep working, there was simply no business for them.

Drivers rely mainly on three sources of business: the morning and afternoon commutes to and from work, restaurant, bar and entertainment business in the evenings as well as airport trips.

Even if only one of these had been shut down it would have been devastating to their ability to earn a living. But in this case, all three were shut down at the same time – and with virtually no advanced notice to drivers so they had no time to prepare for it.

Ridester conducted a survey of drivers the week after the lockdowns began, in mid-March, and found that most drivers had lost 80 percent or more of their business in less than a week.

Alternative Forms of Work

To make matters worse, there were very few places rideshare drivers could turn to for relief. The only realistic alternatives for most of them were delivery gigs, such as delivering food from restaurants to people’s homes or package-delivery gigs with Amazon.

But the food delivery gigs were immediately swamped with so many new driver applicants that there was not enough business to go around to keep them all busy. And the Amazon package-delivery gig works best for drivers young enough and strong enough to lift and carry heavy packages. Even UPS personal vehicle drivers felt the hit.

A majority of Uber and Lyft drivers, however, are over 50 years old, so this would not be a good fit for many of them.

That left only one place most drivers could realistically turn to: the unemployment compensation office.

Pandemic Unemployment Assistance

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27.

It expanded states’ ability to provide unemployment insurance for many workers impacted by the COVID-19 pandemic, including workers who are not ordinally eligible for unemployment benefits. Without this, rideshare drivers and other gig workers would have no hope of receiving any aid through the unemployment system.

But with it, they are entitled to the same unemployment compensation that traditional employees receive, plus the same additional $600 a week that traditional employees are receiving from the federal government. This bill puts independent contractors on the same footing as traditional employees.

But there have been numerous problems in getting this aid to independent contractors that have not affected traditional employees. These problems have resulted in much-delayed payments, with it taking up to several months for workers to receive and in many cases these independent contractors are receiving lower payments than their employee counterparts.

Gig Workers Experiencing Huge Delays in Getting Financial Assistance

Since the Pandemic Unemployment Assistance (PUA) program is being administered by state unemployment offices around the country, rideshare drivers and other gig workers apply for it through their state’s unemployment office website.

And this is where the problems begin. State unemployment offices have to incorporate all these changes into their website functionality. But making such massive changes to what are already very complex websites, can’t be done overnight. It can take and has taken weeks and months to implement these new policies into functioning websites.

And that’s the rub. When gig workers, independent contractors and the self-employed went to apply for the unemployment compensation they were suddenly entitled to, the states’ websites weren’t ready.

State unemployment websites are pre-programmed to handle unemployment claims in a manner that automates some of the processes. For instance, if a claimant answers a question in a way that disqualifies him or her from receiving unemployment compensation, the website is programmed to stop them from proceeding.

Many states resorted to a make-do system where they instructed independent contractors to answer questions in such a way that the website would accept them and allow them to proceed but in a way that was untruthful and not always accommodated by the websites.

For instance, in New Jersey, claimants were told to answer the question “Are you currently looking for work?” with a Yes, even if they hadn’t really looked for work because they expected their old job to come back when the pandemic restrictions were lifted.

That seemed like a workable solution, until the next question which asked claimants to detail what companies they had contacted in their search for work. For most independent contractors, this was an unanswerable question. They were told to say, yes, they had looked for work in the past week even if they hadn’t, but the website was programmed so that they couldn’t proceed if they didn’t also provide detailed information about their non-existent search for work.

Some rideshare drivers and gig workers in New Jersey, like many other states, had to wait more than two months before the state finally resolved most of these problems. During that time they received no payments at all.

Some Independent Contractors are Getting Far Less than Employees

Another problem plaguing America’s independent contractors and gig workers is that many of them are receiving far less than they would have received had they been employees and never been involved in gig work.

A lot of gig workers work more than one job. They may have a part-time job where they are a traditional W-2 employee.  But they may earn the bulk of their income from gig work.

Since unemployment payments are calculated based on a worker’s W-2 income, they are getting paid less than they should because their W-2 income is a fraction of their total income.

If a gig worker who also works a part-time job as a traditional employees goes into the state website to file for unemployment they will ask whether or not they have W-2 income. If the worker answers yes, no further questions will be asked to ascertain whether or they they also have self-employed income because before the CARES act became law, states didn’t pay unemployment on self-employed income.

The state would then take whatever amount the employee earned in W-2 income and calculate the unemployment compensation based solely on that income.

If a worker made, say, $200 a week in W-2 income and $500 a week in self-employed income, the state would calculate their unemployment compensation based on just the $200 in weekly earnings, rather than the $700 that the worker actually earned. This would result in a much lower weekly compensation figure.

The Unprepared State of New York

New York’s State Department of Labor, in two prominent rulings more than a year ago, declared that gig workers should be treated as W-2 employees and entitled to all the benefits traditional employees have.

However, they never got around to forcing gig companies, like Uber and Lyft, to start paying into the state unemployment insurance system or even providing the necessary data on worker earnings that unemployment offices need in order to calculate benefits.

Because of that oversight, New York gig workers are now being forced to wait far longer than other employees to get their unemployment insurance benefits.

New York drivers, according to a lawsuit recently filed against the state, must wait months to receive the standard unemployment benefits, if they receive them at all. For the typical New York worker, the wait is only two to three weeks.

Zubin Soleimany, a lawyer for a taxi workers group said, “It’s been a catastrophe for these guys”, referring to New York’s rideshare drivers.

Unemployment – The Only Viable Alternative for Rideshare Drivers – but Plagued with Problems

COVID-19 has brought into clear view the necessity of re-classifying Uber and Lyft drivers, as well as other gig workers, as employees rather than independent contractors.

States such as New York and California have fought a long battle against Uber and Lyft (and other gig companies) to have their workers re-classified for the exact reasons, the COVID-19 pandemic has made so clear are necessary: the protection of these millions of workers in times of unemployment.

Uber and Lyft drivers, as well as most other gig workers, have for the most part been legally classified as independent contractors, rather than employees. And as independent contractors, they are afforded none of the governmental protections that are available to traditional employees – like unemployment insurance.

In the past this wasn’t as big of a deal as it is today because before the rise of the gig economy, far fewer people worked as independent contractors. And those who did, generally did so in professions that pay much better than the jobs in the new gig economy pay.

But with the rise of Uber, Lyft, Instacart, DoorDash and a whole slew of companies that assign work to low-paid independent contractors through smartphone apps, millions of Americans have joined the ranks of independent contractors. But they have done so at a much lower rate of pay than traditional independent contractors.

This new generation of independent contractors earns on average something close to minimum wage in most states and that puts them at greater risk of financial disaster when, for any reason, they are unable to work. And now, we are seeing exactly that happen.

Unemployment was the only realistic alternative for rideshare drivers who were in desperate need of financial help. And make no mistake, most of them were. They already suffered from chronic low pay and it could hardly be expected that they would have much savings to tie them over for more than a few days up to a couple of weeks.

But unemployment was technically not available to them because they were independent contractors not employees and unemployment compensation has traditionally been reserved only for W-2 employees.

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