Colorado Gig Workers Say They’re Shortchanged By New Unemployment System

Mark Levy is the drummer for Circles Around The Sun. (Courtesy Scarlet Bucket)

The new federal unemployment law was going to save Mark Levy.

The 34-year-old drummer’s livelihood evaporated in a matter of days in the pandemic. His band’s upcoming West Coast tour was canceled, along with every other opportunity for him to make money as a musician.

He had assumed he’d be on his own. Self-employed people historically haven’t been covered by unemployment benefits. But then came the CARES Act; the law passed hastily by Congress in March to extend temporary unemployment payments to gig workers, independent contractors and others.

“It was amazing, totally amazing, like a ray of light,” recalled Levy, whose band is called Circles Around The Sun. “I am going to be able to continue to live.”

Well, not exactly.

Levy and others like him are caught in a bizarre legal trap. About 27,000 people applying to the new, federally-funded program in Colorado have been rejected due to wrinkles in their employment situation. That's about half the number that have filed applications.

Usually, the problem is that they have collected multiple types of income — which is common for independent workers. The result is that they're punted back to the regular unemployment system, where their unemployment benefits are calculated on just a fraction of their income. Many have received significantly lower payouts than they expected.

“The amount of money I’ll be leaving on the table is about $5,000," Levy explained. That’s based on the benefits he could have collected over the coming months if he were allowed to report his full earnings.

Others have fared even worse: They've been left waiting with nothing, or they’ve been batted between different systems and even different states.

State officials have blamed much of the situation on the wording of the federal law. But some independent workers say they've received confusing and conflicting information, and they want the state to reexamine their cases.

The rules, explained

Levy discovered the problem when, after weeks of waiting, the state labor department opened applications for the emergency unemployment program on April 20. He was promptly rejected. An error message urged him to apply for regular unemployment instead — a glitch, he assumed.

It turned out that Levy had performed a handful of wedding gigs through a booking company in 2019. The company filed a W-2 tax form on his behalf.

“I didn’t even know it,” Levy said. 

But the state knew. The new tax system is coded so that many people with a W-2 on file must apply under the “regular” unemployment system.

The reason is complicated but important. 

The new, federally funded unemployment program is called Pandemic Unemployment Assistance. It’s supposed to cover independent workers like Levy. But, under the law, PUA is only available for people who don’t qualify for regular unemployment. 

So, when Colorado’s unemployment software sees that someone applying for PUA has earned at least $2,500 in recent W-2 earnings, it asks them to apply for regular unemployment instead. In an unhappy twist of fate, Levy had earned exactly that much.

As instructed, he applied for the regular unemployment program.  

He was soon accepted. His benefit: $46 a week from the state, plus the $600 federal supplement. It was something, but it was far less than he would have earned from the new PUA program. If his $40,000 in other income were counted, he would collect hundreds more each week.

“It’s insulting,” Levy said. “I made exactly $2,500 (in W-2 wages.) If I made $2,499.99 I would be rejected from the traditional unemployment insurance program.”

That one-cent difference means that he’s only collecting about 60 percent of his normal wages from unemployment. The PUA program would have replaced practically all of his wages.

“This is just purely us trying to be a part of the regular playing field. Me, and people just like me, are getting totally left in the dust,” Levy said.

Cher Roybal Haavind, deputy director for the Colorado Department of Labor and Employment, said the state is just following federal instructions.

“There is no confusion on behalf of the U.S. Department of Labor how we should be treating these W-2/1099 wages. They are very specific that for any W-2 wages earned, those benefits must be exhausted,” she said.

While Levy’s case is unusual, an attorney confirmed that he technically could qualify for regular unemployment, meaning the state handled his case correctly. Levy says is being shut out by the federal law itself.

Others, though, say that the state labor department has mishandled their situations or provided conflicting information. Levy has gathered about 85 people in a Facebook group dedicated to this exact problem, with reports of similar situations across the country.

Stuck in the wrong category?

Colorado’s labor department has been approving unemployment requests en masse in order to speed up the process. But some workers believe that, as a result, they’re being wrongfully approved for regular unemployment, preventing them from getting full PUA benefits.

Sixty-four-year-old Sherri Knutson of Boulder quit her job at a hospital before the coronavirus outbreak. She wanted to make driving for Uber her main moneymaker.

When she applied for PUA, the state system spotted her old W-2 and forced her to apply for regular unemployment. She did. And, to her dismay, she was accepted. She’s convinced that’s incorrect.

“To get unemployment, the ending of (your job) had to be through no fault of your own. But I quit — so I shouldn’t even have been accepted to begin with,” she said.

By her calculation, she would have collected $300 more per week if her full Uber wages were counted.

“It’ll affect me a lot. I had adjusted the way I live and what I had,” she said. “I even bought a second car for Ubering, so now I have two car payments. It seems like they should follow their own guidelines.”

Other applicants have complained that the regular UI application doesn't seem tailored for their cases, despite recent modifications. They have resorted to choosing options that aren't correct in an effort to simply complete the form.

Roybal Haavind said that the state’s focus is getting people approved for unemployment. She empathized with mixed-wage workers but stressed that they’re still getting some benefits through regular unemployment, thanks to the universal $600 supplement, and they make up a relatively small portion of applicants.

“Even if they’re getting $100 a week, just for regular unemployment, at least we can get them the extra $600 (from the federal supplement),” she said. 

Workers who believe they were wrongly categorized can file an appeal, Roybal Haavind said. Alternatively, they will eventually burn through their regular benefits and be allowed to move onto the PUA program. In Mark Levy's case, that would take 18 weeks, he said.

Other independent workers are still stuck in purgatory, unable to secure any benefits at all.

Benefits delayed by military service

It took weeks for Dan McAuliffe, 57, to figure out that his service in the U.S. Army Reserve was blocking his unemployment benefits.

“I’m an attorney, and I primarily used to practice in federal courts,” he said. “If it took me this long to get the fact that this is broken, other people, they wouldn’t even try. They would give up.”

McAuliffe earns about 13 percent of his income as a lieutenant colonel and the rest through his sole proprietorship law office. The Frisco resident first tried the PUA application around April 20, thinking that he was a “perfect” fit because his law work had evaporated.

After days of waiting and hours on the phone, a labor department representative told McAuliffe to instead file for regular unemployment because he had a W-2 from the reserve.

He submitted the regular application — only to get a bewildering phone call from another labor representative.

“Why did you apply for regular unemployment?” he recalled the person asking.

His regular application may have run aground because he's still being paid by the reserve.

But a state representative told him that he wouldn't qualify for PUA either. The state's PUA application page automatically rejects people who indicate they've had recent military service.

“The conclusion was, 'You’re screwed,'” McAullife said.

Roybal Haavind offered to contact McAuliffe directly. Later, McAuliffe learned from state officials that the military prohibition doesn't apply to most reserve members — a fact that wasn't stated on the application page.

He was able to complete his application. But he worried that unclear information would prevent other National Guard and reserve members from getting benefits.

Artists and creatives hit hard

Mikala Lugen, 22, was rejected from PUA in Colorado because she worked a part-time job in Ohio until July 2019.

Today, she’s a music journalist and marketer working in Denver on a freelance basis for the company Live for Live Music. But the state system is telling her to apply back in Ohio, under a job she quit when she graduated college.

“I’m sure there's a lot of people in my position. If you work a supplemental part-time job as a bartender and a server, then it gets all messed up. I just think it’s a weird loophole,” Lugen said.

She’s unsure whether her claim will be accepted there or not. She could be waiting for weeks or months. And even for those who qualify, a low ceiling for unemployment benefits can have surprising consequences.

Musician, producer and model Katey Laurel, 39, makes about 10 percent of her yearly income through W-2 gigs. Under the state’s rules, she qualifies for $110 a week in base unemployment benefits, plus $600 from PUA.

She would appreciate that money — except that she’s been affected by yet another rule.

The state sets a limit on how much people can continue earning from other jobs while collecting unemployment. If your weekly paycheck exceeds your weekly unemployment benefit, then you don’t receive any unemployment money that week.

Like many people in creative industries, Laurel collects small amounts of residual pay from earlier work. It’s often just a little bit more than the $110 she qualifies for through regular unemployment. But that little bit has had a big consequence.

“I’ve been incomeless except for some small royalty streams for six weeks,” she said.

Because her residuals have disqualified her from weekly regular benefits, Laurel also doesn’t get the $600 federal supplement. “[PUA] doesn’t work for people who make small amounts of money in a lot of ways,” Laurel said.

For many workers, Levy said, these confusing and complex equations will have a significant effect. He wants to see federal law changed to ensure independent workers are paid on their full income.

“That would pay my mortgage for two-and-a-half months, three months," he said of the federal benefits he's unable to get.

“It would help immensely. It would be the difference between us getting out of this financially bruised versus financially ruined.”