Money is for Nothing and Your Checks for Free!

The uncertain intent of coronavirus relief. Did it target the wrong objective?

Photo by David Schultz on Unsplash

Update: After being told that working with independent contractors does not qualify for the Small Business relief loans, I did my own research and found different information on National Law Review- but I don't have time to rewrite this blog post now:

To determine a small business’s eligibility, the CARES Act would require lenders to determine: (1) whether a business was operational on February 15, 2020, and (2) whether the business had employees for whom it paid salaries and payroll taxes, or paid independent contractors, and (3) whether the business has been substantially impacted by COVID-19. The legislation would also delegate more authority to lenders on eligibility determinations without requiring them to go through all of the usual SBA channels.  National Law Review

In my last post, Economic Complexity Theory in the Time of Coronavirus, I observed that in the age of coronavirus, the ability to mandate that every person shelter in place is an attribute of authoritarian governments, but once all the people are sheltering in place, a grand environment for individualization process arises, served by governments that protect individualism

The current coronavirus relief comes across as an attempt to hold the base for corporate power, with little thought about how the economy can develop as humanity shelters in place.

When the US Congress passed a coronavirus relief act, a struggle took place between the Democrats and Republicans over who would be the dominate benefactors. The Democrats fought to make sure the money went to the workers and even to small businesses and the self employed but an encounter with the way the loans are being distributed reveals that relief is conceived for the framework of large corporations over small businesses and independents, and still seeks to protect the status quo without consideration of the new terms of economic existence, as if this moment were only a freeze frame on a continuous unaltered course.

Shelter in place requires that most employees will be working at home, qualifying as independent contractors by existing law. However when I inquired of the small business administration if our ceramic design business could apply on the basis of creating jobs for independent contractors, I was told that we would not qualify because independent contractors can apply on their own. 

In my presentation, I had altered the intention of that act from merely maintaining the current job level to creating new jobs, but this was not mentioned as a reason for disqualification. It seemed to me that creating new jobs is an even better use of funding, but that did not receive a response.

I have always been told, as a rule of thumb, that anyone working in their own facilities is an independent contractor. By that rule, anyone working from their own home has to apply as independent contractors for the loans:

Another factor to be considered is the connection and regularity of business between the independent contractor and the hiring party. Important factors to be considered are separate advertising, procurement of licensing, maintenance of a place of business, and supplying of tools and equipment by the independent contractor. If the service rendered is to be completed by a certain time, as opposed to an indefinite time period, a finding of an independent contractor status is more likely.

Also, an independent contractor is more likely to be subject to the risk of taking a profit or loss in the work performed. An employee is generally paid on an hourly, salary, or commission basis, whereas an independent contractor is ordinarily paid an agreed amount, or according to an agreed formula, for a given job.

This is also termed as contract labor. definitions US Legal.com

There is more to this definition, which you can read by clicking the link, but in a nutshell, it has to do with who controls whom.

An employer has the right to control an employee. It is important to determine whether the company had the right to direct and control the workers not only as to the results desired, but also as to the details, manner and means by which the results were accomplished. If the company had the right to supervise and control such details of the work performed. and the manner and means by which the results were to be accomplished, an employer-employee relationship would be indicated definitions US Legal.com

Imagine if we apply that to the current situation, in which I am assuming that workers for large corporations, who are now working in their homes are qualified as an employer-employee relationship, and qualify for full pay compensation, other wise the same rules that apply to our small business would apply to large corporations and other small businesses. 

The fact that the act is being called unemployment and people are signing up for unemployment in droves, while the media is reporting that people are working at home adds confusion and complication to any comprehension of what is underway. Suffice it to say that corona relief is said to be full pay unemployment but obviously no one can go out and look for a job as is normally required for unemployment.

If all of those receiving full pay compensation are actually unemployed and no one is working at home, then the economy just stops. 

I am assuming that at least some of these workers will continue to work for their corporations. The question is are they legally employees or legally independent contractors? If they are controlling their own work environments and schedules, they are independent contractors. If not, imagine how the corporate control over the home working environment might evolve as weeks extend into months or even longer. Will the corporation dictate what time the children are fed and go to bed? Will the corporation require that the employee work eight hour shifts and be dressed for work- NOT in their pajamas, as it is rumored is the way we bloggers are dressed? As proof will the corporation require that cameras be installed in the home?

Control and self determination are the definitive metrics in determining whether an person working with another business is an independent contractor or an employee.

I doubt most people would grant that much power to corporations over their own home. The longer the worker is confined to his own home the more independent he or she is likely to become. If the worker can earn a living with the corporation, he or she will certainly want to retain that relationship but if being paid and yet having time to spare, over time the worker may develop other sources of income, which might be considered moonlighting. If not for the massive bureaucratic overload, it would be more sensible, and more legally consistent, to qualify those workers as independent contractors, permitted to apply for coronavirus relief, on their own, and not qualified as retained employees by a business.

In excluding from small business loans, those businesses which provide work to independent contractors, it means that fewer jobs are created, but of course this relief is not about creating jobs which squarely qualifies it as a bailout act, and disqualifies it as a stimulus act. 

The question is, why was that choice made by our leaders?

If Andersen Design is funded to hire an independent ceramic slip casting studio to make a mold and a prototype, that means the independent contractor has work that he can do in his own studio.

If we decide to go ahead with marketing the product and we order production on the design he has more work. Whether or not he can hire others depends on social distancing circumstances. A single worker can produce the production we require, especially if producing multiple production molds. It is also possible, as well as preferable, to work with multiple slip casting studios. In fact there are many people who slip cast and make ceramics as a hobby who may already have the equipment needed set up a small production in their own homes.

The reason given for why Andersen Design does not qualify for coronavirus relief funding by hiring the independent contractor is because the independent contractor can apply for a small business loan, but hiring an independent contractor is like hiring a project manager, who may or may not have his own team. Whether the independent contractor does the work himself or hires others, depends on social distancing, and on whether he has work. Andersen Design can abundantly provide work to produce a line of our functional forms using commercial or proprietary (to independent contractor)body and glazes.

The ever popular gentle sandpiper is an Andersen Design classic. The brown slip technique was created by Weston in the mid-century. Another company has produced a commercially available version of our brown slip, which can make it possible to work with independent slip casting studios to produce the sandpiper.

Few people seem to understand the terms of corona relief well. The terms were put together in hurry while the public was standing on the side lines complaining that they couldn’t afford the time to wait for Congress to work the details out properly. However, as I understand it, if the independent contractor has no work, the contractor will be still be qualified to collect unemployment but will not be producing anything. 

 With funding Andersen Design could engage in a project we have long been wanting to do. We would be faced with a challenging market, given the economy, but we did that successfully before in the 1980’s when the market became flooded with products made in low cost overseas labor markets. It is a similar challenge and one that every business faces in this new reality. Its a tough job but someone’s got to do it. Every step of the way we can be providing work for others. The amount of work would depend on our marketing success.

The small business coronavirus loan is forgivable if the employer maintains his staff at the same rate of pay. Andersen Design could do that but if we can be funded to work with independent contractors, we could create a lot more jobs. Further more “shelter in place” demands working as an independent contractor, even if the government tries to fudge it for other employers by bending the pre-existing definitions.

With a the forgivable loan, there would be little risk for us. The money that would fund such a project is being created out of thin air, on a massive scale, and that means ultimately everyone is paying for it through a decrease in the spending power of the dollar. If working relationships with independent contractor is qualified for funding, there are jobs being created, not just that people and corporations are being bailed out.

Since there is so much to-do about the coronavirus relief not being enough, that means people will need to look for jobs to supplement the relief, jobs that can be done in their own space. If another act is passed, Congress should acknowledge that people working in their own space are independent contractors and allow working relationships with independent contractors to qualify for the same relief being granted to others.

Congress might also consider including creating new jobs as a qualification of loan forgiveness.