Why California says it overpaid some workers’ unemployment aid and wants the money back

Nancy Travis, 71, couldn’t risk driving for Uber and Lyft during the coronavirus pandemic.

So, she applied for Pandemic Unemployment Assistance, a federal unemployment insurance program for self-employed, independent contractors and gig workers like her.

But after more than half a year of receiving the aid — $267 a week — Travis may have to pay back $4,000 to the state’s Employment Development Department, which runs the program in California.

Absent actions from the state or Congress, thousands like Travis in California may be on the hook to pay back parts of their unemployment aid because of how they reported their income to the state. At least 920,000 people got a letter from the EDD asking to verify their income, the department said in a statement.

Some federal legislators have proposed a bill to address the issue, but it’s far from certain whether such bill will pass. In the e-mail statement, EDD said there isn’t much it can do on its own, because of the language of the federal coronavirus relief bill that established PUA.

Meanwhile, workers like Travis are restless.

“That’s a disaster for much of the contractors,” said Travis, of Richmond. “Those are the new rules we didn’t know.”

Gross v. Net income

There are two different ways to report one’s income: Gross and net. Gross income is how much one makes in total, while net income is how much one makes after deducting for expenses.

For an Uber driver, for instance, expenses include paying for gas, parking as well as car maintenance. Those expenses can reach tens of thousands of dollars for a driver working full-time and racking up tens of thousands of miles a year.

Other self-employed workers also have their own expenses, from mileage to phone bills.

Regular unemployment insurance pays people based on their gross income before unemployment. PUA pays people based on their net income.

But that difference was not clearly communicated in many cases, leading many applying for PUA to report just their gross income to the state. So, when the EDD started asking people to verify their net income, many were caught off guard.

“PUA was set up for contractors in a hurry with the goal of getting money out the door very quickly during this historic emergency,” said Michele Evermore, a policy analyst at the National Employment Law Project. “Doing that was the right thing to do, but it also means there will be mistakes that will be flagged later in the process.”

AB 5 comes into play

Lilly Walters, 64 living in Orange County, had two jobs: booking speaking engagements for baseball players and painting faces at parties and other events.

Both of her jobs dried up during the pandemic, leading her to apply for PUA. She reported her gross income: $48,000.

A few weeks ago, Walters then got a letter from the EDD asking her to verify her net income, which she said was about $23,000. She estimates she could be on the hook to repay $13,000 of her unemployment aid to the EDD.

“The problem is that we’ve been shut down. We have no income. Now, they want us to pay back because they made a mistake,” she said. “Talk about blood out of a turnip.”

The news is another gut punch to Walters. Assembly Bill 5, which regulates who gets to be an independent contractor, had already squeezed her livelihood as clients worried they would have to hire her as an employee, Walters said.

“I’m just one of thousands and thousands who are saying oh my God, oh my God,” she said. “What have you got against people who are entrepreneurs? People who are self-employed?”

Gig worker groups call for action

Evermore said millions of people across the nation could be flagged to repay parts of their unemployment aid.

Some states have already taken proactive approach. Colorado, for instance, wrote off $1.4 million in overpayments the state had made to about 9,000 unemployed residents.

But Evermore noted Colorado is an exception, not the norm. She’s optimistic that the Congress will try to fix this issue as it continues to work on the next round of coronavirus relief.

“I think it’s just a drafting error, and everyone recognizes that,” she said. “I have a strong sense that something will be included” to avoiding penalizing those who reported gross income.

Evermore noted people can also file an appeal, although she said the process will take a long time.

Still, the groups representing gig workers are not waiting. They’re asking California to act, saying under AB 5, those workers should have been classified as employees and receive regular unemployment insurance.

Although Proposition 22 passed in November to redefine gig workers as independent contractors, it is not retroactive, meaning gig workers who filed for regular unemployment insurance could get it.

“We have already sent a letter to EDD, stating that as misclassified employees, NOT ONE DRIVER should be paying the feds back,” Rideshare Drivers United said in a message to drivers. “And that we should be converted to UI immediately.”

Daniel Russell, 42 living in the Inland Empire, said he’s trying to switch over to the regular unemployment insurance. He drove for Uber and Lyft for nearly four years before the pandemic, then applied and got the PUA.

If he can’t switch over to regular unemployment insurance, he may have to pay back thousands of dollars back to the state, he said. He said his net income is usually less than half of his gross income.

“It’s wrong to try to get money from those who don’t have any,” he said. “This isn’t me trying to get away with something.”