The state Department of Labor opposes a bill to extend state unemployment benefits to self-employed and contract workers in Maine, saying it would conflict with federal law and could cost Maine employers hundreds of millions of dollars in new taxes.

But the sponsor, Sen. Chip Curry, D-Belfast, says the proposal is a first step in an attempt to modernize the state’s unemployment insurance system and provide a safety net for tens of thousands of workers not usually eligible for jobless benefits.

“Given our workforce and how demographics are changing, we have to engage in this,” Curry said in an interview. “I think we need to be doing everything we can on it. I don’t have any misconceptions that this is a quick fix to anything.”

State unemployment insurance is available to people who have lost their jobs working for an employer that paid taxes into the state’s unemployment trust fund. That leaves out the self-employed, independent contractors and so-called gig workers, who do not pay into the system.

The near-collapse of the United States economy during the height of the COVID-19 crisis last spring exposed deep vulnerabilities for those workers, who were left without pay or financial support as Maine and other states went into lockdown to control the spread of the virus.

A federally funded, temporary unemployment aid program called Pandemic Unemployment Assistance was enacted last year to cover those ineligible for state jobless benefits. But that will expire in mid-March unless Congress passes a relief package such as President Biden’s $1.9 trillion proposal that would extend it through August. More than 109,000 initial claims have been filed in Maine under the federal program since April, although not all claims were filed by self-employed or contract workers.

Instead of relying on federal help, Curry wants the state to set up its own insurance system to cover tens of thousands of Mainers who are ineligible to receive state unemployment benefits. His bill, L.D. 425, directs the state labor department to set up a new system for the types of workers currently receiving federal funding.

The emergency federal jobless aid program’s “absolute necessity has underscored the need for a long-term solution to unemployment insurance for the self-employed and independent contractors,” Curry said in testimony on his bill before the Legislature’s Committee on Labor and Housing on Wednesday.

Roughly 10 percent of Maine’s workforce is self-employed, higher than the national average of 6 percent, Curry said. The issue is likely to become worse as more jobs become classified as independent contract work.

“Our unemployment system, designed in 1935, leaves out some of the most vulnerable members of our communities who participate in the gig economy,” Curry said. “This includes workers who have been at the margins of our traditional jobs economy: caretakers, small farmers, retirees, senior citizens and people with disabilities.”

While the state labor department said it supports the bill’s intent, it argued that the measure is unworkable as written. The unemployment insurance program is administered jointly by the state and federal governments, and U.S. law prohibits states from paying benefits to self-employed individuals or independent contractors, Laura Boyett, director of the Maine Bureau of Unemployment Compensation, said in written testimony.

If Maine were to spend federal funds to set up its own program – or use any money from the state unemployment trust fund – it would conflict with federal law, Boyett said. That means the state could lose funding to administer unemployment benefits and risk losing a federal credit that lowers its unemployment tax. Losing the credit could increase taxes on employers by $213 million a year, she said.

“The past year of the pandemic has highlighted the impact that a severe economic downturn has on self-employed, gig economy jobs and business owners in a way that even the Great Recession did not do,” Boyett said. “Change is needed, but unless Congress acts to permanently change federal laws, states that want to do this cannot leverage the economies of scale provided by the existing state unemployment program infrastructure to deliver these services.”

Maine received $12 million in federal funds a year before the pandemic to administer the unemployment program, about two-thirds of the program’s cost, labor department Communications Director Jessica Picard said.

The state could set up an independent program for self-employed and contract workers, but it would require new legislation for eligibility, an appeals process, a separate computer system, staffing and trust fund, as well as its own funding mechanism, Picard said.

Still, Curry’s proposal is supported by other Democratic lawmakers and the Professional Logging Contractors of Maine.

Opponents include the National Direct Selling Association, Amway, and the Avon and Shaklee corporations, whose salespeople are independent contractors. It would be difficult to calculate employer contributions to the program with their business models, those companies said.

The same argument was made by Curtis Picard, CEO of the Retail Association of Maine.

“While the pandemic certainly caused disruption throughout the economy, and not every self-employed person was able to take advantage of federal pandemic resources, that does not mean that a whole new, expensive program should be created,” Picard said in testimony. “We believe the unemployment system should be reserved for the traditional employer-employee relationship.”


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