US President Joe Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021 (ARPA, the Act) on March 11, 2021. ARPA follows from weeks of negotiations in Congress and attempts to facilitate the country’s recovery from the impact of the COVID-19 pandemic.
Included in the Act are several provisions that impact workplaces small and large. Employers should be mindful of the employment-specific changes put into effect by ARPA and accordingly update their policies and practices to comply with these changes. A summary of the major employment-specific provisions follows below.
VOLUNTARY PAID LEAVE PROGRAMS
Under the previously passed Families First Coronavirus Response Act (FFCRA), companies with fewer than 500 employees were required to provide paid leave under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Act to employees who were unable to come to work for a number of COVID-19 related reasons. FFCRA provided employers a refundable tax credit, which would offset for employers the costs of providing the paid leaves.
The requirement to provide paid leave expired for employers with fewer than 500 employees at the end of last year. But employers could still voluntarily choose to provide FFCRA paid sick or paid family leave to employees and receive refundable tax credits for costs related to providing the leave through March 31, 2021.
With the passage of the American Rescue Plan Act of 2021, employers should note the following additions and changes:
- Refundable Tax Credits Available through September 30, 2021: Employers who choose to voluntarily provide FFCRA paid sick or paid family leave may now receive refundable tax credits through September 30, 2021.
- Additional Covered Reasons for Providing Paid Sick Leave: ARPA also expands on the list of six reasons for paid sick leave covered under the FFCRA and now allows employers to provide leave to employees for three additional reasons: (1) obtaining a COVID-19 immunization; (2) recovering from an injury, disability, illness or condition related to the immunization or (3) seeking or awaiting the result of a COVID-19 test or diagnosis when the employee has either been exposed to COVID-19 or the employer has requested the test or diagnosis. Previously under the FFCRA, qualifying reasons for providing paid sick time were limited to if the employee is unable to work (or telework) because the employee: (1) is subject to a federal, state or local quarantine or isolation related to COVID-19; (2) has been advised by a healthcare provider to self-quarantine; (3) is experiencing COVID-19 symptoms and seeking a diagnosis; (4) is caring for an individual who is subject to quarantine or is self-quarantining; (5) is caring for a child whose school or place of care is closed (or child care provider is unavailable) because of COVID-19 or (6) is experiencing any other substantially similar condition specified by the US Secretary of Health and Human Services.
- Additional Covered Reasons for Providing Paid Family Leave: The scope of reasons for providing emergency family leave is now expanded. Originally, tax credits were available to employers for providing paid family leave only if the employee was unable to work (or telework) to care for a child whose school or place of care was closed or unavailable because of the public health emergency. Now, employers can claim tax credits for providing family leave which arises from any of the six qualifying reasons provided for in the FFCRA and the additional three reasons added under ARPA(noted above).
- Duration of Paid Sick and Family Leave for Receiving Tax Credits: ARPA allows employers to receive the tax credit for providing up to 10 days of paid sick leave beginning on April 1, 2021, even if the employer previously took a tax credit for providing paid sick leave to an employee for a covered reason before April 1, 2021. In addition, employers can receive a tax credit for providing up to 12 weeks of paid family leave.
- Amount of Tax Credits Available for Paid Sick Leave: Employers providing voluntary paid sick leave receive a tax credit, up to a cap of $511 a day, at the employee’s regular rate of pay if the employee is on leave because of coronavirus quarantine, self-quarantine or has symptoms. ARPA now includes the additional covered reasons (discussed above) for receiving tax credits at the employee’s regular rate of pay. For any other paid sick leave reason, the amount of tax credit available to an employer is calculated at two-thirds the employee’s regular rate of pay and capped at $200 a day.
- Amount of Tax Credits Available for Paid Family Leave: Employers providing paid family leave receive a tax credit, up to a cap of $200 a day, at two-thirds the employee’s regular rate of pay for leave which is due to any of the covered reasons for providing paid family leave. ARPA also removes the two-week waiting period (during which the leave was unpaid) for taking paid emergency family leave. The Act also increases the cap on the aggregate paid leave from $10,000 to $12,000, meaning employers can now take an additional $2,000 in tax credits per employee for providing qualifying leave.
- Addition of Non-Discrimination Rules: Employers who are voluntarily providing leave and receiving tax credits must also follow the new non-discrimination rule. The anti-discrimination rule makes the tax credit available only to those employers who provide leave to all employees without discriminating against certain categories of workers. Specifically, the tax credit is not available to those employers who discriminate (1) in favor of highly compensated employees, (2) full-time employees or (3) on the basis of the employment tenure of the employee.
The previously enacted Coronavirus Aid, Relief and Economic Security (CARES) Act created three major unemployment insurance programs: Pandemic Emergency Unemployment Compensation (PEUC), Pandemic Unemployment Assistance (PUA) and Federal Pandemic Unemployment Compensation (FPUC). The Consolidated Appropriations Act of 2021 created a fourth program – the Mixed Earner Unemployment Compensation (MEUC). ARPA makes important changes to each of these programs:
- Pandemic Emergency Unemployment Compensation: The PEUC program provides additional assistance to those individuals who have exhausted their state law unemployment benefits. Under the CARES Act, the benefits provided eligible individuals up to 13 weeks of benefits and was set to expire on December 31, 2020. The Consolidated Appropriations Act extended benefits to up to 24 weeks and through March 14, 2021. ARPA extends benefits up to 53 weeks and through September 6, 2021.
- Pandemic Unemployment Assistance: The PUA program provides assistance to those unemployed individuals who are not eligible for regular or unemployment insurance, such as business owners, self-employed workers, independent contractors, individuals who do not have sufficient work history and those individuals who may not be covered by the regular unemployment compensation or are not covered by the unemployment compensation programs under state laws. Originally, the PUA program provided up to 39 weeks of unemployment benefits and was set to expire under the CARES Act on December 31, 2020. The program was then extended under the Consolidated Appropriations Act to provide up to 50 weeks of unemployment benefits through March 14, 2021. Now, ARPA provides up to 79 weeks of unemployment benefits (and up to 86 weeks for individuals in states with high levels of unemployment) and is extended through September 6, 2021.
- Federal Pandemic Unemployment Compensation: The FPUC program initially provided $600 per week as a supplement to the benefits provided by the state. The program under the CARES Act was set to expire on July 31, 2020, and was later extended by the Consolidated Appropriations Act through March 14, 2021, at a reduced $300 in benefits per week. ARPA extends the $300 in supplemental benefits through September 6, 2021.
- Mixed Earner Unemployment Compensation: The MEUC program targets freelancers and gig economy workers and provides financial assistance to those individuals who receive at least $5,000 in self-employment income, who are not receiving benefits under the PUA and who are eligible to receive at least one dollar in state unemployment benefits during the time period covered by the program. The MEUC program provided an additional $100 in supplemental benefits to eligible individuals. The MEUC program is extended through September 6, 2021, under ARPA.
In addition to the unemployment benefit changes outlined above, ARPA also provides a waiver of federal taxes on the first $10,200 in unemployment benefits received in 2020 for those individuals who earn less than $150,000.
Short-Time Compensation (STC) programs allow employers to reduce workers’ hours instead of laying off workers, and workers whose hours are reduced become eligible for prorated unemployed benefits. Under the CARES Act, states can receive 100% reimbursement from the federal government for unemployment benefits paid out under STC programs. Participation in STC programs are an alternative to layoffs for employers who are facing a reduction in the amount of work available. Before implementing a STC program, employers must submit a plan for approval to the appropriate state workforce agency. ARPA extends the 100% reimbursement to states for unemployment benefits paid under STC programs through September 6, 2021, and thereby encourages states to adopt this program.
EMPLOYEE RETENTION CREDIT
The Employee Retention Credit was introduced under the CARES Act (and later updated and expanded under the Consolidated Appropriations Act) to help those employers who were experiencing financial distress or business closure because of COVID-19. It is a payroll tax credit, which provides a refundable tax credit to eligible employers based on the amount of qualified wages they paid to certain employees. The tax credit is designed to encourage employers to keep their employees on the payroll. Under the CARES Act, the tax credit was capped at $5,000 per employee for 2020. The Consolidated Appropriations Act expanded the credit to those payments of qualified wages, which were made between January 1, 2021, through June 30, 2021, and increased the maximum available credit to $7,000 per employee per quarter.
ARPA now extends this tax credit for two additional quarters through the end of 2021. In addition to the extension, the Act also expands its applicability to certain employers. Before ARPA was signed into law, employers whose operations were fully or partially suspended because of government orders or those employers who experienced a significant decline in their gross receipts because of the pandemic were eligible for a tax credit. The Act now expands the eligibility to include a (1) recovery startup business (employers who began business after February 15, 2020, have gross annual receipts of up to $1 million and are otherwise ineligible under the eligibility test) and (2) severely financially distressed employers (companies with gross receipt reductions of more than 90% as compared to the same quarter in 2019).
Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage allows employees to continue to remain covered under their employer’s health insurance for up to 18 months after coverage is lost because of a reduction in work hours or the employee’s involuntary termination of employment. Prior to ARPA, workers and dependents assumed full responsibility for payment of premiums. ARPA now provides up to six months of 100% subsidized COBRA coverage to those who are eligible for COBRA because of an involuntary termination from employment or a reduction in work hours. The premium subsidy will last from April 1, 2021, through September 30, 2021, and sponsors of group health plans will be subject to new notice requirements. Employers will receive reimbursements for the subsidy through a payroll tax credit.