There are two programs in the CARES Act intended to assist independent contractors respond to the economic conditions caused by COVID-19. These programs include a loan and grant program under the Small Business Administration and expanded unemployment provisions.
Small Business Administration
Paycheck Protection Program – The CARES Act creates a new loan program, the Paycheck Protection Program (PPP) within the Small Business Act (SBA) to encourage businesses to retain their employees and to help pay for certain other operating expenses. This program provides loans, with significant loan forgiveness (effectively a grant), intended to keep employees on the payroll, and businesses in operation, for eight weeks. It now allows independent contractors to remain in business.
Who Qualifies, How Much Can be Borrowed, and how Can the Loan be Used: Independent contractors are eligible to obtain the PPP forgivable loans to cover their lost income. The loan amount would be for lost income or payroll costs up to $100,000 for an individual prorated during the covered period. Mortgage interest, utilities, and rent can also be funded under this loan. An independent contractor can also use this loan to continue to employ his or her employees. The amount of the loan is 2.5 times the average monthly payroll costs calculated over the prior year.
Loan Forgiveness: Once a loan is obtained, if the proceeds are spent on payroll, mortgage interest, rent, or utilities over the next eight weeks the amount expended for these purposes will be forgiven, effectively turning that portion of the loan into a grant. Seventy-five percent of the monies expended must be for payroll, or in the case of an independent contractor, for lost income. The balance of the loan, if any, must be paid back over two years at 1% interest. There is no requirement that the business be operational or any employees actually be engaged in work for the purposes of this program. The program is intended to keep employees on the payroll, or have independent contractors paid, and avoid being unemployed.
Applications: Applications must be made to an approved local bank. The network of banks eligible to process loans is being greatly expanded and you should check with your local bank to see if it is participating. As a practical matter, you should first apply to the bank in which you do business and then try others as necessary. Applications for independent contractors will be accepted beginning April 10, 2020. While applications can be made up until June 30, 2020, the monies funding this program are limited so it is being disbursed on a first-come-first-serve basis. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
Unemployment benefits have been increased, expanded to persons who normally would not qualify, and extended. Benefits will now be available to the self-employed, including independent contractors, who otherwise were ineligible to collect.
Who Benefits: Independent contractors, the self-employed, and sole proprietors who normally would not be able to collect unemployment benefits will now be temporarily eligible for these benefits to the same extent as others who would normally qualify. In addition, the benefits have been significantly enhanced.
Basis for Claim: A person would need to certify that they are no longer employed because they are ill, must take care of a child whose school or day care is closed, or are generally not able to work because of COVID-19.
Application Process: Applicants should apply for unemployment benefits through the New Jersey Department of Labor’s website in the same manner as any other applicant. Under the current process, the application may be initially denied and then a subsequent process will take place which will allow independent contractors the ability to produce evidence of their status and income. It is likely that an independent contractor may be asked for two years of tax returns, copies of 1099s, or other relevant documentation. https://myunemployment.nj.gov/
Benefit Amounts: Significantly, benefits have been increased by $600 per week and extended for up to 13 additional weeks for a total of 39 weeks. Benefits may be applied retroactively to January 27, 2020 although the increased payment is only retroactive to April 1, 2020 and will expire on July 31, 2020.
Potential Delay in Benefits: Because this is a new expansion of the program dependent on federal spending, there may be a delay from application to when the first payments are made. In addition, New Jersey also does not currently provide unemployment insurance benefits for the first week of unemployment while the federal program does under the CARES Act.
For additional resources see the following:
Small Business Administration – https://www.sba.gov/
New Jersey Department of Labor – https://www.nj.gov/labor/
New Jersey Business & Industry Association – https://njbia.org/coronavirus/
New Jersey Business Action Center –https://faq.business.nj.gov/en/collections/2198378-information-for-nj-businesses-on-the-coronavirus-outbreak