Feds Adapt to Industry Needs Amid Unemployment Crisis

Showbiz freelancers, gig economy workers force changes to safety-net program

Disneyland Closed Coronavirus
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The entertainment industry is facing what’s shaping up to be its worst unemployment crisis since the Great Depression, as the pandemic hobbles businesses across the globe.

In the U.S., the coronavirus outbreak has forced the federal government to rush through the largest expansion of unemployment insurance in the 85-year history of the program, which was established as part of the Social Security safety net. That’s welcome news for the hundreds of thousands of industry-related workers grappling with a sudden job loss through layoffs and furloughs. 

Disney last week said it would furlough an undisclosed number of employees starting April 19. Those cuts are expected to land hardest on nonunion workers at its theme parks, cruise lines and other resort operations that have already been shuttered for weeks. Exhibition employees across the country have been thrown out of work as theaters closed in response to the need for aggressive social distancing. AMC Theatres last month furloughed some 600 corporate staffers, including CEO Adam Aron.

But the devil is in the details in assessing the extent of the relief that will be made available. Experts say the rushed response by Congress and President Donald Trump to pass the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27 still leaves a host of questions about how state and federal agencies will handle the process of getting payments out.

“This is completely unprecedented,” says Michele Evermore, senior policy analyst with the New York-based National Employment Law Project. “We’ve had to shift policies that weren’t meant to deal with this to deal with this crisis. Unemployment was not designed to replace all income but to create an incentive for people to go look for work.” 

Rachael Kohl, director of the University of Michigan Law School’s Workers’ Rights Clinic, notes that state unemployment benefits have hardly kept up with inflation. In Michigan, for example, the maximum weekly benefit is about $362. Benefits are determined on a sliding-scale basis, but even for a person who makes a six-figure salary, the maximum weekly payment in Michigan would be $362, compared with $800 or so in Massachusetts. 

“After the last recession, there were a lot of rollbacks in eligibility and the length of time that benefits would be paid out,” Kohl says. The enormous influx from the CARES Act was vital because many of the state “trust funds” for unemployment insurance are still depleted from the 2008-2009 recession. Employment experts will be watching closely this month for guidelines from the Labor Department that should help answer many questions raised by the swift passage of the relief effort,” Evermore says.

The expansion of unemployment insurance opens the door to benefits for those who work on a freelance or independent contractor basis — a classification that affects many in Hollywood who work project by project. Generally, freelance and independent contractors don’t qualify for state unemployment benefits because they aren’t considered permanent employees of a firm. 

But the growth of the gig economy, which by definition comprises jobs undertaken by independent contractors, forced Congress to address the needs of those workers by approving a federal Pandemic Unemployment Assistance program that’s expected to “mirror” state benefits. Freelancers will also be able to collect the extra $600-a-week federal benefit that will go to all workers eligible for state or federal unemployment insurance. 

For those applying for unemployment, there’s little difference whether they’ve been put on furlough or were formally laid off. 

The furlough designation indicates that the employer expects to bring those employees back on the payroll at some point. In some cases, furloughs are implemented with a specific return date. Employers in furlough situations often maintain some or all employee health and pension benefits, although there are no specific requirements for them to do so. Disney says it will continue health benefits for furloughed workers. 

Putting employees on furlough does typically have a benefit for employers when it comes to calculating the tax rate that a firm pays to fund the unemployment insurance program.

The higher the number of employees of a given firm that apply for unemployment, the higher the unemployment tax rate assessed by the state for that firm. The rate structure is designed to encourage companies to provide stable employment. Furloughed workers are counted differently in the tax rate calculation process because the expectation is that they will return to the same job.

The tax rates that firms pay for unemployment are usually based on a low single-digit percentage of a firm’s payroll, although only the first $7,000-$10,000 of income for each employee is included in the calculation. The rules and rates vary greatly from state to state, which is another challenge for large companies with operations in multiple states.

 One of the biggest unknowns is how the state agencies that are responsible for disbursing unemployment benefits will handle the surge in applications. More than 10 million people filed jobless claims in the past two weeks — a massive increase from the weekly rate in the low 200,000s that has been the norm since early 2018. 

Not only will states struggle with staffing levels, but they’ll be dealing with new rules to come from the CARES Act at a time when key administrators can’t even gather in the same room to discuss these complex issues. The vast majority of people will be directed to apply online for benefits; that may be a challenge for workers without easy access to computers and online connections.

“It will take a lot of time to get it all settled,” Kohl says. “It’s just too many people applying all at one time and not enough people to respond on the agency level.”