The American Rescue Plan (ARP) provides $1.9 trillion dollars in economic stimulus for individuals, certain companies, and municipalities. This blog focuses specifically on what the ARP means for employers.
First Coronavirus Response Act (FFCRA)
As of January 1, 2021, employers who were originally covered under the FFCRA (employers with fewer than 500 employees) were no longer required to provide FFCRA emergency paid sick leave (EPSL) and emergency family medical leave (EFMLA) to covered employees. However, employers who voluntarily chose to continue providing those paid leave benefits could obtain tax credits associated in funding such leave. Employers who chose to discontinue paid leave under the FFCRA as of the December 31, 2020 cutoff date, however, meant that employees of that employer either used all of their allowed paid time off under the FFCRA or forfeited any remaining paid time off.
Emergency Paid Sick Leave
The ARP allows employers to voluntarily re-fill the 80 hours (10 days) of paid leave available under the EPSL to employees and also allows the employer to claim tax credits for any additional leave taken within the refreshed allotment period, which started on April 1, 2021 and runs through September 30, 2021. This new allotment of leave allowance applies to employees who had taken some or exhausted all of their original leave entitlement under the FFCRA, meaning that, between April 1, 2021 through September 30, 2021, employers may choose to restart employee eligibility of paid EPSL pay and claim tax credit for those payments. Any unused leave that accrued prior to March 31, 2021, however, does not roll-over and is forfeited as of March 31, 2021.
The ARP allows 3 additional reasons employees can take EPSL (tracking where the United States is battling COVID-19) in addition to the prior 6 reasons:
- To obtain a COVID-19 vaccination;
- To recover from an injury, disability, illness or condition related to the vaccination; and/or
- To seek or wait for the result of a diagnostic test for, or a medical diagnosis of, COVID-19, when the employee had been exposed to COVID-19 or the employer requested the employee get a COVID-19 test or diagnosis.
All of the new reasons an employee can receive EPSL are subject to the higher cap of 100% of salary ($511 per day). The credit is limited to the value of 80 hours of wages, and is in addition to any credit claimed by employers for sick leave taken prior to March 31, 2021.
Emergency Family Medical Leave
The ARP provides an additional tax credit for wages paid as qualified EFMLA taken during the same period and ups the allowed days/weeks off from 10 weeks (50 days) to 12 weeks (120 days), which in turn, increases the total amount of wages eligible for the tax credit.
Under the prior law, EFMLA was only available to employees who need time off to care for a child due to the closure of the child’s school or daycare. The ARP expands EFMLA to include all of the same reasons as EPSL, i.e., to get a COVID-19 vaccine, to recover from an adverse reaction to the vaccine, and to wait for the results of a COVID diagnosis or test after having close contact with a person with COVID-19 or at the employer’s request. The EFMLA’s rate of pay under the ARP remains at two-thirds of the employee’s regular rate of pay, up to $200 per day regardless of the reason for the leave. However, because the number of weeks of paid leave increased under the ARP, the maximum tax credit of $10,000 per employee has been increased accordingly to $12,000.
If an employer chooses to offer these paid leave options, the employer does not have to offer both and can choose to just offer one. Given a lot of uncertainty with offering EFMLA with classic FMLA, an employer may want to consider providing 10 days of EPSL only, and not EFMLA. If an employer does make this election, the employer should immediately notify employees so employees can manage their leave entitlements properly.
The ARP also extends covered employer eligibility to 501(c)(1) governmental organizations.
Pension Plan Contribution Reimbursements
The ARP provides for reimbursement of certain pension plan contributions and apprenticeship programs under a collective bargaining agreement if the contributions are allocable to qualified sick leave wages.
The Department of Labor will be issuing additional guidance in regards to the ARP.
Unemployment – Pandemic Unemployment Assistance (PUA)
The ARP also extends the availability of PUA under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
PUA benefits were originally set to expire on March 14, 2021; however, the ARP extends them through September 6, 2021. This means that qualifying individuals will continue to receive $300 per week in addition to the unemployment funds they are receiving from their state’s system.
There also is an additional $100 available for qualifying “mixed earners” meaning an individual who (1) lost a W-2 job; and (2) earned at least $5,000 in self-employment. This means that mixed earners can receive an additional $400 per week in addition to state unemployment money they receive.
The ARP also extends the length of time individuals may qualify for unemployment benefits to 79 weeks total. Typically, the qualifying period is only 26 weeks, so this is extension is significant.
The ARP also contains a tax exemption that waives federal taxes for the first $10,200 that an individual ($20,400 for a married couple filing jointly) received in unemployment benefits in 2020. This waiver applies for individuals and married couples whose adjusted gross income in 2020 was less than $150,000.
COBRA Subsidies
As we previously discussed in our blog titled “New COBRA Subsidy Available April 1, 2021,” from April 1, 2021 through Sept. 30, 2021 (the Eligibility Period), the ARP will subsidize 100% of an employee’s or COBRA-qualified beneficiary dependent’s premium cost for COBRA continuation coverage that stems from an involuntary change in status, e.g., termination due to a reduction of hours. Effectively, this tables an eligible individual’s obligation to make COBRA premium payments for up to six months. A couple of caveats worth noting are that, to be applicable, the individual must have COBRA eligibility left during the Eligibility Period and must not have other coverage available through a spouse/partner’s employment or the individual’s own new employment during the Eligibility Period.
Under the ARP, an employer or former employee (and their dependents) will be eligible for free COBRA coverage during the Eligibility Period if: (1) the individual becomes eligible for COBRA coverage, meaning the individual was not terminated for gross misconduct; (2) the individual has COBRA coverage; (3) the individual would have been eligible for COBRA coverage but declined it; and (4) the individual is not eligible for other coverage, i.e., through new employment or a spouse/partner’s employment.
Employers will be eligible for a tax credit in the amount of the premium waiver. In application, this means that, for individuals with COBRA coverage, employers will not be collecting premiums during the Eligibility Period. If an employee becomes eligible, the employer must inform the employee that they will not be required to pay the COBRA premiums during the Eligibility Period. And because this applies to employees who might have become eligible prior to April 1, 2021, employers must inform any individual who declined coverage during the 18 months immediately preceding April 1, 2021 that they can elect to change their election for continued coverage by May 31, 2021.
The ARP does not extend COBRA eligibility. Meaning, that, if an employee only has two months of eligibility left as of April 1, 2021, the employee will still only have two months of eligibility left for the subsidy.
The employer, insurer, or multiemployer plan sponsor must pay eligible employees’ COBRA premiums, but may offset the cost by claiming a new federal tax credit against its quarterly Medicare payroll tax liability. The credit is refundable if the subsidy paid exceeds the taxes due.
Employers can expect rules to be set out by the Department of the Treasury related to this credit and new COBRA notification form, but those have not yet been issued by the U.S. Department of Labor.
