I employ independent contractors – one file for unemployment – how do I handle non-employee?

 

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I employ independent contractors – one file for unemployment – how do I handle non-employee?

I own a small S-corp that does IT work. One of my 1099 subcontractors (he is not incorporated but I send him a 1099 annually) filed for unemployment. My state (PA) sent me a form requesting information, and my S-corp is listed as the “Employer”. I am not sure I should complete the form – I think he will be denied benefits as he is not my “employee”. I believe he will need to apply through the CARES act provision for self-employed persons. Any advice on how I handle this with the state? I will try to help him in the meantime.

***** UPDATE: 5/16/2020 *****

Thanks for those who read my post completely. As I said above, he is NOT my employee – and that it is made clear in the subcontractor agreements I use. **My mistake for using the word “employ” in my post title**. HOLY MOLY – I don’t need a lecture on whether he is an employee vs independent contractor. The verb “employ” means “hire” or “give work” – maybe people new to the gig economy don’t understand this. By that rigid logic, all independent contractors are un”**employed**”.

**My original question** is how to respond with this form my state (PA) sent. I have since learned that he should be applying for the PUA (Pandemic Unemployment Assistance) program. I didn’t want to ignore this form if it is in fact being used by PUA and can help him. There is no reference to “PUA” on the form so I think he applied incorrectly. I understand why the process confuses self-employed folk.

I employ independent contractors – one file for unemployment – how do I handle non-employee?

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40 Replies to “I employ independent contractors – one file for unemployment – how do I handle non-employee?”

  1. You may want to check with the state, but I believer under the CARES act, self-employed people are now permitted to apply for unemployment through the state’s regular unemployment system, even though that is typically not allowed. They may need help verifying his previous income with you to determine his eligibility for benefits.

  2. Well first, stop saying you “employ” independent contractors.

    I’m not a lawyer, but if you agree and say that you are an employer on this form, you may be on the hook for back payroll taxes, etc.

    It sounds like you were NOT in fact his employer, so I would recommend replying back (send a certified letter) saying you were not his employer but that you were a customer who contracted with him for some work to be done. Maybe mention that you have issued him 1099s in past years for contract work he did.

    There is a list out there of things that can decide whether someone is an employee or a contractor… things like do they set their own hours, buy their own equipment, etc. google for it if you’re interested.

  3. You don’t employ a contractor. If you treat a contractor like an employee you’re likely in violation of your states laws. Each contractor should sign a well written legal document with specific language

  4. You respond in the comment section, mark that he was never your employee – write down that he is not your employee, he is a 1099 worker. They will deny his claim for unemployment and then push him into the DUA/PUA relief.

  5. He’s not an employee, as simple as that. There should be a spot to say this person didn’t work for you. Under more details, add that he was an independent contractor.

    The state should have 0 wages on file from you as his employer.

    Just make sure he’s properly classified before going that route since you don’t want a wage dispute.

  6. Before you say he’s not you’re employee, make darn sure he is, in fact, a 1099 contractor by the IRS’s definitions. You don’t want him filing an appeal stating he was actually an employee and then you get asked to explain why you’ve been mis-categorizing people.

  7. Subcontractors aren’t employees. He just had to file for UI and he denied before he could file for PUA and he didn’t know how to fill out the form correctly.

  8. In my state, 1099s have to apply for regular employment and then be denied in order to get access to PUA. Once I was able to do the PUA app, it still asks for “employers” and I had to list every company I worked for as a 1099 with name, phone, address, etc.

    I don’t believe you will hurt his unemployment app by answering honestly that you paid him as a 1099.

  9. I’m in similar situation, you def don’t want to fill that form out. He will get denied regular UA and then he can collect PUA

  10. I think you are correct. I am self employed my self. There is an option for pandemic related unemployement for contractors.

  11. He needs file to a PUA (Pandemic Unemployment Assistance) as a contractor worker. They will deny him unemployment benefits unless he has at least $10k reported on a W-2 and, (in Colorado)the Unemployment website will also dealing with the PUA application and will determine that via the questions asked.

  12. Hi from PA. On the other side of this, I filed to reopen my unemployment from last year with being self employed. He needs to contact the service center in Altoona and let them know he was a 1099 contractor. Then, they will send him a form to complete (mailed mine back yesterday)

    You can call PA Unemployment (good luck) or reply to the same address on the form (probably Altoona service center unless you are in Philadelphia county or Allegheny County) and state that you are not his employer of record. The other guidance is correct that you could be held responsible for misclassified workers.

    He should have filed with himself as the employer and they will base his unemployment on the sum total of his Schedule C. I just went through this myself.

    Hope this helps!

  13. They should have listed themselves. State unemployment systems are setup for employees, which made filing as independent contractors/subcontractors/1099ers an absolute nightmare for most. Many subcontractors were confused by this “Employer” field and listed the company from which they receive a 1099.

    I would fill out the form stating that he is not an employee and as proof of such, attach his most recent 1099

  14. If you don’t respond, they’ll find in his favor by default (edit: at least in my state)

  15. You’re correct. He isn’t doing it the right way. he needs to put his own name where it asks for employer name. fill those fields out with his own information. they will first deny him and then send an email inviting him to apply for the pandemic unemployment assistance which is specifically created for gig workers, self employed, 1099, independent contractors etc. But first he must be denied submitting the regular way. Once he is denied and they send him an invitation email with a link to apply for PUA they will also ask him to email his 1099 and possibly schedule c and whatever other documents.

  16. yes, this is kinda auto, as he will fail or not be allowed reg UI, but will be put in for PUA. i filled this out for my 1099 as they were forced to fill in blanks. I wrote in 1099 in the payment blanks for them BIG with this fouling the system and make a human check the account they may have to call in after the intial denial but most are told to ignore the letter.

    they were all denied reg UI but were all put in and approved for the pandemic unemployment

  17. They are just verifying that he was a contractor with you as a self employed contractor on a 1099

  18. The problem is that the person who filed for unemployment may argue he/she was in fact your employee but was wrongly classified by you as a contractor. I would show the notice to a labor attorney.

  19. I would not ignore the form as your subcontractor is relying on your response and the state is likely to flag you for not responding. UC is going to use this as an opportunity to identify situations where 1099s were issued when the “contractor” was legally and employee. As this can be a costly determination I would advise that you consult an accountant when filing the form. At a minimum, be cautious and think through what they are asking for and do not mistakenly paint the situation that you control the contractor’s job.. making them an employee. Educate yourself and read over the rules before you file anything with the state. I have read subcontractor agreements and questioned people over the actual facts of the job and found that the agreement did not hold up. Be careful is all I am saying.. UC looks at this and they inform the IRS. It can become a true mess.. AND as a tax person I see this as a real opportunity for the states to examine sub contractor relationships. No state wants to see 1099s vs. W-2s they want to classify everyone as an employee if at all possible. That is their goal..

  20. Yes he needed to apply though unemployment’s pandemic assistance specific portal as he wouldn’t qualify for regular unemployment unless he was an employee elsewhere

  21. In my state you have to be denied regular unemployment before the gig program will provide . And since he’s a 1099 and you haven’t paid his unemployment premium to the state i believe it will be denied anyway and then the federal program will kick in.

  22. When you apply for UI in Missouri, when you put in your jobs, it asks if you received a W2 or 1099. You check which one applies to that. My brother had both W2 and 1099s and listed them all and checked appropriate boxes.

  23. Don’t claim independent contractors as employees. Tell the investigator that they are a contractor and not an employee.

    If you’ve botched the relationship you’ll need to earmark savings for taxes and penalties.

    To answer the question of “how do I handle non-employees?” Don’t. That is kind of the point of independent contractors.

  24. Just fill it out as best as you can and make sure that you make it obvious that the contractor was a 1099 and not a W2. The former being that you didn’t have to pay unemployment insurance.

  25. I filed for unemployment, put that I was self employed, and listed my own name as the company but they still contacted my old employer which I left over a year ago.

  26. I work in the independent contractor compliance industry – do NOT file this form. You’d be opening yourself up to misclassification issues. The contractor can file on their own behalf through the CARES act

  27. The only reason you got the form for employment verification is that your contractor put you as his employer instead of starting he’s a independent contractor on his UI application. You can just tell the truth stating that he’s a 1099 contractor or you can do nothing then he will get denied for regular UI and then apply for PUA.

  28. I’m self employed and had to file for unemployment after my business was forced to shut down as it is not considered essential. I had to file a regular UI claim,which in turn had to be rejected before I could apply for the Pandemic Unemployment Insurance. The state sent me as the business a form I had to fill out for me as the individual. Your worker is probably just going through the same steps. Just fill out the form saying he’s a 1099 contractor and don’t worry about it. It’s just hoops he has to jump through to get the self employed unemployment benefits.

  29. If they’re independent then you don’t employ anyone. You subcontract. You might though be misclassifying him and could be on the hook.

  30. Unless he is working for other people, odds are the courts and gov’t just consider this “independent contractor” your employee. The government looks through the names and will look at the actual relationship. Can you tell him when to come, leave, break, do you set the rate he is paid at, or does he, who wrote the contract, the more “signs of control” you have the less likely the gov’t will consider him to be your contractor, they probably just see him as your employee in all actuality.

  31. Hopefully you had him sign an Independent Contractor Agreement, and didn’t put any control or direction over him; otherwise he could be re-classified as an employee and you’ll be liable for unpaid unemployment insurance, taxes, and the like on all “contractors.” Call an employment attorney ASAP.

  32. I’m having this trouble as well. It turns out that when an IC contacted whoever they contact for help filling out this form, the person on the phone advised they use our company name. Mine are true ICs. I denied the claim after calling to clear it up and never hearing back. There was not a place on the form to specify IC, just yes or no, essentially. I’m in Colorado. My attorney advised later that they are indeed going to try to recoup these funds by any means necessary so if you aren’t fully by the books, there could be trouble. If you are following the guidelines, just mark it as no, and mail it back. My checks were indeed not made to the individual, rather to the individual’s company. Edit to add: the individual was very clear that she was an IC.

  33. He has to apply for regular unemployment first, get denied, then apply for the PUA. You cant apply for the pua unless you’ve been determined ineligible for regular unemployment.

    You just need to fill out the form truthfully.

  34. I would need to know a lot more to determine whether you’re at serious risk of misclassification action – although keep in mind you’re always at some degree of risk no matter how careful you are especially if you’re in California or other unfriendly states. You can return the form without filling it out and write something like “He is a contractor – not an employee”. Just don’t fill out the form like you would for an employee

  35. No don’t fill it out regular unemployment sent that. Pua uses his deposit slips as income verification now you don’t have to do nothing for him to get pua.

  36. UI supports self employed now due to stimulus changes… so you should be fine supporting him all the way. But check with an accountant or local counseling to confirm.

  37. You need to return the form and state he was a contractor and not an employee unless you want to be paying for his unemployment benefits.

  38. John from John’s plumbing fixes a toilet for Walmart. Then fixes one at the Texaco station. Then installs a sink at Mcdonalds. John’s phone isn’t ringing right now. He doesn’t have any jobs to do. Which one of those previous customers does he list as his employer to file unemployment?

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