An alternative for California app workers: withdraw your unemployment application and apply directly for federal aid

The Upshot: App workers have a choice between pursuing state unemployment and federal aid for the self-employed and, generally speaking, should select the one that will provide the most money. It may take longer to receive  unemployment benefits from the State of California than it will to receive aid for the self-employed from the federal government.  Importantly, don't apply simultaneously for both state unemployment and federal pandemic aid to replace the same lost income.

Yesterday we reported on the delays that California freelancers and independent contractors are experiencing in receiving Pandemic Unemployment Assistance (PUA).  With our next two articles, we explore whether there is anything that app workers, freelancers, independent contractors, and the self-employed can do in light of this knowledge to help them receive their benefits faster.

This article is for app workers who are wondering about their best individual course of action in light of the ongoing war for their classification status and the resulting delay.  Uber and Lyft drivers, along with any app workers who were compensated as an independent contractor (1099), are independent contractors in the eyes of the federal Coronavirus stimulus packages. For some app workers, it may make more sense to withdraw your state unemployment application and pursue federal aid options for the self-employed.
 
Before we proceed, we respectfully reiterate that the content on The People v. AB5 is for informational purposes only. It is not legal advice and no attorney-client relationship is created. You must make the decision that is best for your individual situation, the details of which we do not know.


What aid is available from the federal government?

The federal CARES Act makes two types of financial assistance available to independent contractors: an Economic Injury Disaster Loan (EIDL) and funds through the Paycheck Protection Program (PPP). Both of these programs are designed to replace "payroll" for small businesses. What's remarkable about these initiatives is that if you are any type of self-employed person, freelancer, or independent contractor, "payroll" is defined to include money that you are not making because you lost your contract work due to the pandemic.

If you are an app worker who was paid via 1099 and was generating income prior to February 15, 2020, you are entitled to pursue these funds. You were paid as an independent contractor, and as far as these stimulus programs are concerned, you are a self-employed person who is entitled to assistance. (Please note that we are avoiding the question of whether it should be the case that app workers are considered self-employed. We are simply reporting about the way things are under the new stimulus packages, which we believe is the way to provide the most assistance to workers.)


The details

The following analysis assumes that you are an app worker who is looking for as much free money from the PPP and EIDL programs as possible. Since freelancers and app workers alike generally need grants, not loans, this article focuses on "forgivable loans," which effectively operate like grants if you follow the terms of forgiveness of the loan. For the purpose of making an apples-to-apples comparison to state unemployment benefits, the calculations in this article assume that you want the maximum amount of forgivable loans (i.e., grants) as possible, and no regular non-forgivable loans whatsoever.

As an app worker, in the eyes of the EIDL program, you are self-employed person with no employees and you are therefore entitled to a $1,000 forgivable EIDL loan. The loan is forgiven if you use the money for "payroll" purposes, which includes to replace independent contract and freelance income lost due to COVID-19, as discussed above. As long as you use the $1,000 for this purpose only, the loan does not have to be paid back at any time, and it therefore becomes a grant of free money. Some applicants online have begun to report that they have received their $1,000 check, but these reports are sporadic, and it does not seem that there is any widespread EIDL distribution yet.

PPP offers potentially higher sums. To illustrate, we'll assume that you, the applicant, have lost all your prior contract work due to COVID-19. First, add up all the contract income you made over the past 12 months that you lost as a result of COVID-19. If that amount exceeds $100,000, you get a forgivable loan in the amount of $20,832.50 to cover the next two and a half months of lost work. If the amount is lower than $100,000, multiply your total contract income by .208325, and that's the minimum size of the forgivable loan that's available to you through PPP. It's meant to cover the next two and a half months of lost income, or about 20.8% of the year.

If you are still making some but not all of your contract income as a result of COVID-19, you will work with your banker to adjust your PPP loan downward to reflect this fact.

You should also note that potentially more PPP money is available, and forgivable, to cover certain non-payroll costs (up to an additional 33% on top of the number you calculated for yourself above). There also may be forgivable funds available to cover health insurance. Those numbers are beyond the scope of this article but your banker can provide you with details.


How do PPP and EIDL differ from state unemployment options?

State unemployment benefits come from California's unemployment insurance fund. If you've been working for an employer and receiving a paystub and a W-2, your employer has been paying into this fund. When you lose your job, you are entitled to money from that fund, because your employer has been contributing to the fund on your behalf. If you've gone to the California EDD website and filled out an unemployment insurance application, this is the route you've pursued.

Federal EIDL and PPP loans and grants, on the other hand, do not involve the state of California at all. They are funded by the federal government, which generally means that they are funded by income taxes, which are paid by all Americans regardless of worker classification. This observation helps further explain why app workers are entitled to these funds. App workers, like everyone else, have been paying their fair share of income taxes, and our federal leaders have determined that they are entitled to draw from those tax coffers for pandemic assistance.


Making a choice: comparing state unemployment payments to federal assistance for the self-employed

Now that we have described the assistance alternative available to app workers, before we continue we must make clear that app workers should not attempt to pursue both state unemployment benefits and federal PPP/EIDL assistance for the same lost income. This is because doing so would amount to making conflicting representations to different government agencies. It would require you to tell the state of California that Uber is your employer, while simultaneously telling the federal government that you are self-employed. We do not recommend this course of action.

Instead, you should choose between state aid and federal assistance. A primary consideration is which option brings you the most money. The following is a very rough guide to give app workers a starting point for comparison, using the assumption that all of your income has ceased due to COVID-19. Everyone has unique details that may change the calculations in their own situation, so make sure to do your own research before you choose.

First, use the EDD's Unemployment Insurance Benefits Calculator to determine how much regular unemployment insurance you'd be owed weekly for your app work. Input the amounts based on what you were making before the pandemic. (February 15, 2020 is a good date to use for the purpose of rough calculation.) Include any W-2 work you had. Add $600 per week to the final amount to account for Pandemic Unemployment Assistance, which the EDD promises is coming soon and will be retroactive. Multiply this number by 4 and that's your monthly state unemployment benefit.

Now, to compare, take all the freelance and independent contract income you've made in the past 12 months. (Remember, we're assuming all of this income has been lost due to COVID-19.) This includes the money you made from app work , money paid to you under other types of contracts and work arrangements, and money you made as a freelancer from your own income-generating projects (e.g., profit from teaching music lessons or from selling your wares on Etsy). Note that this would not include money you made from Uber if you stopped driving for Uber altogether six months ago, because that money isn't money you lost due to the pandemic; it's money you lost because you quit driving for Uber.

Take this yearly amount and divide it by twelve. That's the monthly amount of assistance you are entitled to under either PPP or EIDL or both together. (Note that if this number is greater than $8,333, then your monthly PPP/EIDL assistance is reduced to $8,333.) Also, if your business has unmet recurring expenses such as rent that will come due during the crisis, you can add up to 33% in additional PPP forgivable-loan money to this monthly amount to cover those expenses. Again, this is something you should talk to your banker about in detail.

Your state unemployment benefits would come as a weekly check, and your PPP/EIDL forgivable loans would come as a single lump-sum check covering 10 weeks, but the above instructions allow you to evaluate your options by comparing the monthly benefit each provides.

To be clear, the above examples assume that you have lost all your contract income as a result of COVID-19. If you are still making some money, your PPP/EIDL assistance will be reduced by that amount, as the purpose of PPP/EIDL is to bring you back to the amount you were making before the pandemic. Similarly, if you are still making some but not all of the money you were making as an app worker, your state unemployment benefits would be correspondingly reduced (see page 17).


Other considerations

In addition to comparing the monthly benefit available under each program, some may want to consider  the length of time that state and federal benefits, respectively, are projected to be available. Regular state benefits have been extended to 39 weeks, and the additional $600 per week of additional PUA for out-of-work employees is currently authorized to last for 13 weeks.

EIDL and PPP relief, on the other hand, are mathematically designed to provide the self-employed with exactly 10 weeks (2.5 months) of lost income. However, if this crisis continues and after 10 weeks we are still on a general lockdown, it is highly doubtful that the federal government will simply allow the self-employed and small businesses to fly off a financial cliff. What will likely happen is that, if and as the crisis continues, the federal government will pass additional stimulus packages that extend the PUA program, extend additional assistance to EIDL and PPP recipients, and/or provide other ways of receiving relief.

The final consideration is the most practical and immediate one: which option will result in there being a check in your hands faster. We already know that there are delays with both the state and federal processes. Uber drivers who listed Uber as their employer on their state unemployment applications are receiving a notification of a $0 benefit, with no further instructions. And some who have applied for EIDL loans are still waiting for a response. The question for you is which heaving bureaucracy is going to spit out a check with your name on it first.

Our opinion -- and it can only be an opinion, because we can't predict the future -- is that those who apply for EIDL and PPP relief will begin to see benefits a bit faster than those who pursue California state benefits. We say this for three reasons:

1. The mathematical mechanisms for calculating PPP and EIDL relief are simpler than the mechanisms for calculating total or partial state unemployment, and therefore the federal funds will be easier, as a matter of logistics, to distribute.
   
   
2. The PPP program mobilizes America's bankers, providing a significant workforce of specialists to help get PPP money into the hands of the self-employed. State unemployment, on the other hand, is distributed by the EDD. And although the EDD added additional employees to process unemployment applications, by all accounts it continues to be swamped with applications, questions, and appeals from confused self-employed individuals.
   
   
3. California's Employment Development Department (EDD) appears very much involved in the fight for your classification, and if the fight becomes a standoff between the EDD and the app companies, it is anyone's guess how long that standoff could take.

What if I made some money with app work and other money from my own freelance projects?

Well, there's the rub. This, we suspect, is one of the reasons why the EDD's campaign to get all app workers classified as employees during the crisis is turning out to be a logistical nightmare. People who made some money with app work and other money from their own legitimate freelance projects pose a problem for the EDD. The EDD wants to distribute unemployment benefits to you under the assumption that you were an employee of the apps. But those benefits have to be separated out from your legitimate freelance work, because you're not entitled to unemployment benefits for that. How is the EDD to accomplish that task? Your prior tax forms aren't enough, because those likely lump together all your contract income, from both apps and other sources, into one figure.

We don't have an answer to this question and we suspect it's a component of the delay. One solution would be for the apps to give their worker pay records to the EDD, but we suspect the apps will pursue every last legal recourse available to them to resist doing so. That's why we present the option for app workers to bypass the state morass and apply directly for PPP or EIDL from the federal government.

Astute readers may also wonder if they can pursue state unemployment benefits for their lost app work and federal aid for the self-employed for other lost freelance work. Theoretically, the answer to this question should be yes. You would fill out a state unemployment insurance application, listing the apps as your employers, and also listing "self-employed" for your freelance work. You would then apply for PPP and EIDL to replace the freelance income you lost due to COVID-19. Those considering this route should do their math and figure out what leads to the greatest benefit.


How do I apply?

To apply for EIDL, fill out this form now. To apply for PPP, you need to speak to a bank. If you have a pre-existing relationship with a bank or with a particular banker, that is the best place to start. If you don't, the consensus is that you will have better luck contacting a local credit union or smaller bank, compared to trying to work with one of the large banks. If you are interested in a PPP forgivable loan, there is no reason not to call your banker right now.


What if I've already submitted my state unemployment application?

If you've submitted a state unemployment application already and are contemplating changing course and pursuing federal aid for the self-employed, it is possible to cancel your unemployment benefits application with the state in the UI Online portal. Once again, The People v. AB5 does not recommend any particular course of action. In particular, we cannot and do not guarantee, if you do decide to withdraw your state unemployment application and instead pursue federal aid, that you will receive any benefits faster than if you had not withdrawn. We are not responsible for any delays in receipt of assistance or other issues. Instead, we present all of the above information so that you can make the best informed decision for yourself.

If you have more questions, we invite you to ask them in our Facebook group, where we're having an honest and at times difficult discussion about solutions to the worker classification problem that involve protecting the rights of all of California's workers.