Employers: Here's what you need to know about the American Rescue Plan
The American Rescue Plan Act of 2021 (ARPA), which was signed into law on March 11, 2021, includes a $1.9 trillion economic stimulus intended for speeding up the U.S. recession recovery caused by the COVID-19 pandemic. The law will affect small and mid-sized businesses in a variety of ways, but in particular, by building further upon the Families First Coronavirus Response Act (FFCRA) and the CARES Act, both passed a year ago in March 2020, and the Consolidated Appropriations Act (CAA), passed on December 27, 2020.
Following is a list of important changes and deadline extensions for the laws affecting your small or mid-sized business, as well as a list of actions you will need to take immediately to remain in compliance.
Families First Coronavirus Response Act Updates
The FFCRA will remain a voluntary plan in 2021. Mandatory paid leave has not been reinstated with the passing of the ARPA, except for federal workers, who are eligible for 15 weeks of paid COVID-19-related leave for themselves and for the care of their family members.
Employers are still able to collect tax credits if they voluntarily offer paid emergency family and medical leave or paid emergency sick leave through September 30, 2021. This is a second deadline extension. The first was provided by the CAA when it extended the deadline to March 31, 2021. Employers who voluntarily provide paid sick and family medical leave to employees may only receive the tax credits if they provide leave uniformly to all of their employees.
COVID-19 Vaccinations Qualify for Paid Leave
Employees are allowed to receive paid time off in the form of paid sick leave or family leave if they need it for:
- Vaccination appointments
- Complications that arise after they receive the vaccine if the complications and side effects are suspected to have been caused by the vaccination
The Limit on Paid-Leave Hours Resets at Participating Organizations
The 80-hour-per-employee limit for emergency paid sick leave—and the additional 10-week-per-employee limit for emergency family and medical leave—resets on April 1, 2021. Employees who work for employers who have chosen to remain in the program are able to restart the clock depending on the type of leave they need.
According to the FFCRA, “employees taking leave are entitled to pay at two-thirds of their regular rate or two-thirds of the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period).”
- Create new payroll codes for accurate record-keeping and to accurately track the new paid-leave hours following the April 1 reset of emergency paid sick leave and emergency paid family and medical leave. (This step isn’t necessary if your payroll system has a different method of tracking these limits, such as by date.)
- Address the tax-credit cap change and update any forms and records.
- Incorporate the new rules into existing leave-administration processes.
- Apply all rules and decisions equally and fairly to all applicable employees.
Employee Retention Tax Credit Updates
Since its incorporation in the CARES Act, the federal employee retention tax credit (ERTC) has served to provide eligible employers with tax benefits when they’ve paid for employees’ qualified wages and certain health plan expenses.
In December 2020, the CAA’s Economic Aid Act extended the deadline to take advantage of the ERTC to July 1, 2021. ARPA, in turn, extends it even further—to the end of 2021. There are different rules for the treatment of wages that eligible employers:
- Paid from March 12, 2020, through December 31, 2020
- Pay in the first half of 2021
- Pay in the second half of 2021
Following the passing of the Economic Aid Act, employers are now able to receive a Paycheck Protection Plan (PPP) loan and claim ERTC benefits. Keep in mind there are mechanisms in place to prevent the same wages from being used for both PPP loan forgiveness and the ERTC to prevent organizations from “double-dipping.” Since the passing of the Economic Aid Act, group health plan expenses are considered qualified wages for the ERTC, retroactively, even if no other wages are paid to the employee.
Eligibility for the ERTC depends on the following:
- An employer’s size
- The impact of the pandemic on an employee’s ability to provide services
- The suspension of operations because of government mandates or reductions in quarterly gross receipts
- New! “Recovery start-up businesses”—those that started carrying on a trade or business after February 15, 2020, and that have annual gross receipts of $1 million or less—may now participate in the ERTC as well, thanks to the ARPA
- Employers with PPP money that are also seeking the ERTC should delicately balance the application of funds to both economic-assistance programs to maximize their benefit without double-dipping.
- The PPP allows for non-payroll costs of up to 40% of the PPP loan amount. So long as the minimum qualification is met—by applying 60% of PPP funds toward payroll costs—then any additional payroll costs that remain may apply toward the ERTC tax credits, up to the $10,000 limit per employee per quarter. For example, under the PPP, employees who earn high cash compensation are capped at the $100,000 annualized rate. That means the amount that goes over the capped amount may be eligible toward tax credits under the ERTC.
- Seek advice from a financial analyst or CPA to make the most of these programs.
Continuation of Benefits Reconciliation Act Updates
The ARPA’s mission has been to help those Americans hardest hit by the pandemic and resulting recession. So, it’s no surprise that the bill includes a COBRA subsidy that provides employees and their dependents with free medical insurance if they lost theirs on or after November 1, 2019, because of an involuntary termination of employment or reduction in hours. The beneficiary’s income at the time they lost insurance coverage benefits does not matter as there is no income cap for the subsidy.
When Will the Free COBRA Subsidy Expire?
This subsidy is 100% free and tax-free for up to six months—through September 30, 2021—and is available as a “second chance” election for employees who did not initially elect COBRA or who let their COBRA coverage lapse. The COBRA subsidy does not extend COBRA coverage—it will still expire 18 months after coverage was lost, even if that is in the middle of the subsidy period.
If an employee or family member who is receiving the COBRA subsidy becomes eligible for other group health coverage or Medicare, they will no longer be eligible for the subsidy. It is the individual’s responsibility to notify their employer if he or she is no longer eligible.
If an Employee Rejected COBRA Once, Can They Get COBRA Now?
Employees and family members who lost coverage after November 1, 2019, but who either did not elect COBRA or let their COBRA lapse, will have until 60 days after receipt of the notice to elect COBRA now, following the release of the free subsidy. Any election for these participants would be prospective only—not retroactive to the date their coverage was lost.
As the employer, it will be up to you, the insurer, or the multiemployer-plan sponsor to offset the cost of the COBRA subsidy by claiming a payroll tax credit against Medicare taxes.
“The COBRA subsidy is one of the most significant changes impacting employers in the American Rescue Plan,” says Brett Brown, Director of Benefits Administration for G&A Partners. “Many participants consider COBRA ‘expensive’ as they pick up any portion of the premium that was previously covered by their employer. As the new subsidy covers 100% of the premium, we anticipate many that are eligible to take advantage of this benefit.”
Steps you can take to remain in compliance include:
- Determine which employees/dependents meet the eligibility requirements.
- Send a notice to each of these employees (and their covered family members) within 60 days after April 1, 2021—no later than May 31, 2021. (The Department of Labor is expected to issue model notices by mid-April.)
- Confirm that COBRA administration will be sending out the new required notices.
- Develop a documented process for claiming applicable tax credits.
- Be prepared for an influx of employees to elect COBRA for the subsidy period, which can potentially lead to a higher number of claims.
Updates to Unemployment Insurance Benefits
The ARPA has extended the unemployment insurance (UI) benefit of $300 per week through September 6, 2021. It also increases the total number of weeks that unemployed individuals may draw UI benefits—from 50 to 79 weeks. The CAA had previously set the new rate of $300 (down from $600 in the CARES Act) and extended eligibility through March 14, 2021.
The ARPA also offers a tax-relief benefit for the first $10,200 in UI payments to unemployed workers in households that earn up to $150,000 a year. Individuals who have already submitted their tax returns this year and who paid taxes on their jobless benefits can file an amended tax return to claim a refund for that money.
Increased Limit on Employer-Provided Dependent Care Assistance
For those employers who provide employees with dependent care assistance programs (DCAPs) that allow employees to put aside pre-tax, salary-reduction contributions through a Code Section 125 cafeteria plan, the ARPA has increased the allowable limit to $10,500 or $5,250 for married employees filing separately in 2021. The limit is normally $5,000 ($2,500 for married employees filing separately), and this particular facet of the new law is currently under consideration for permanent change.
DCAPs are held in the employer’s general account until they are needed to reimburse the employee for qualified childcare and other dependent-care expenses incurred during the year.
According to the ARPA Fact Sheet, the increased benefit limits are not mandatory—organizations have the option to choose whether to include them. Keep in mind that their adoption may necessitate plan amendments. For those that do choose to incorporate the higher limits in their plan, ARPA allows the amendment to be adopted as late as the last day of the plan year, with retroactive effect, as long as the plan is operated during the year in a manner consistent with the terms of the amendment.
If employers choose to include the new benefit limits in their plans, they should ensure employees participating in DCAP are made aware of the increased limits as soon as possible so that they can spread their increased salary reductions over as many pay periods as possible.
Additional ARPA measures important to employers
The ARPA included several more provisions of note that are not outlined above, such as:
- The upper-income limit required for premium-tax-credit eligibility in the Affordable Care Act (ACA) exchanges has been temporarily eliminated. It is currently set at 400% of the federal poverty level for 2021 and 2022. The ARPA also allows for an increase in the amount of the premium tax credits by decreasing the amount an individual must contribute to the cost of coverage.
- Eligibility guidelines for the Paycheck Protection Program have been expanded to allow for more nonprofit entities to participate.
- A direct subsidy of $28.6 billion has been set aside for restaurants. The Small Business Administration will administer this subsidy, which includes $5 billion for restaurants that have gross revenue of less than $500,000.
- The interest owed on outstanding loans to states in order to pay unemployment compensation has been waived.
2021 Motto: Adapt, Move Forward, Repeat
There will likely be more legislation passed throughout 2021 and 2022 as more Americans get vaccinated, more organizations begin to rebuild what was lost during the recession, and unemployed workers begin to find new opportunities for income.
According to Lisa Bauer, Manager of HR Compliance Services for G&A Partners, employers will need to remain agile to continue to survive and thrive.
“As we recover from the economic effects of the pandemic, employers have to balance the needs of their employees with their operational needs,” Bauer said. “My advice is that if you take care of your people in ways that matter, especially during a crisis, you will build loyalty. Then, when those employees return to work, they’ll take care of your business.”
G&A Partners, one of the nation’s leading professional employer organizations (PEO), is ideally suited to help your business thrive in any economy. Let our experts keep you compliant with state and federal regulations and take the HR, payroll, and benefits administrative burden off your shoulders so you can focus on growing your business. To learn more, schedule a consultation with one of our knowledgeable business advisors.