Beyond Paid Leave – The Other Employment-Related Provisions of the American Rescue Plan Act

By Alexander Castelli - Shawe Rosenthal LLP

March 16, 2021

In addition to expanding and extending the tax credits that employers may opt to receive under the Families First Coronavirus Response Act for voluntarily providing paid COVID-19-related leave through September 30, 2021, the American Rescue Plan Act of 2021 (ARPA) contains several other important employment-related provisions: (1) an extension and expansion of the Paycheck Protection Program, with the creation of a new restaurant grant program; (2) continuation of enhanced unemployment insurance benefits; (3) a new COBRA premium subsidy; and (4) extension and expansion of the employee retention tax credit.

Extension and Expansion of the Paycheck Protection Program

The ARPA allocates an additional $7.25 billion for the Paycheck Protection Program (PPP), which provides loans to small businesses to help keep their workforce employed during the COVID-19 pandemic. The ARPA also expands eligibility for the PPP to additional nonprofits and certain digital news services. The ARPA does not extend the PPP’s current application period, which is scheduled to close on March 31, 2021.

The ARPA also allocates $28.6 billion for a new grant program for certain restaurants that experienced lower gross receipts in 2020 than those in 2019.  Applicants will be eligible to receive a grant of up to $10 million. Eligible entities include restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, and licensed facilities or premises of beverage alcohol producers where the public may taste, sample, or purchase products, or other similar places of business in which the public or patrons assemble for the primary purpose of being served food or drink.

Applicants do not qualify for the grant if they (1) own or operate more than 20 locations, regardless of whether those locations do business under the same or multiple names as of March 13, 2020, or (2) are publicly traded.

An eligible entity applying for a grant is required to make a good faith certification that the uncertainty of current economic conditions makes necessary the grant request to support ongoing operations of the eligible entity.

An eligible entity that receives a grant may use the grant funds for expenses incurred as a direct result of, or during, the COVID-19 pandemic, including payroll costs, mortgage or rent payments, utilities, maintenance expenses, supplies, food and beverage expenses, certain supplier costs, operational expenses, and paid sick leave. Grant funds must be spent by December 31, 2021 or returned.

Continuation of Enhanced Unemployment Insurance Benefits

The ARPA extends three federal unemployment insurance programs through September 6, 2021.  First, the ARPA extends the federal supplemental unemployment insurance benefit of $300 per week. Second, the ARPA extends Pandemic Unemployment Assistance, which provides benefits to individuals who are self-employed, seeking part-time employment, or who otherwise do not qualify for regular state unemployment benefits. Finally, the ARPA extends Pandemic Emergency Unemployment Compensation, which provides benefits to individuals who have exhausted their state unemployment insurance benefits.

COBRA Premium Subsidies

The ARPA provides a 100% subsidy for COBRA continuation coverage premiums from April 1, 2021 through September 30, 2021 for individuals who lost group health plan coverage due to an involuntary termination of employment or involuntary reduction in hours, and elect COBRA during the subsidy period. The subsidy period begins April 1, 2021 and ends September 30, 2021.  It is important to note that the subsidy period does not expand an individual’s COBRA coverage period.

Individuals who become eligible for COBRA during the subsidy period must be provided additional information about the subsidy with their COBRA election notice. The notice must describe the individual’s right to a subsidy, any conditions on that right, the forms necessary for establishing eligibility for the subsidy, and contact information for the plan administrator or other person who can provide additional information about the subsidy. Moreover, the notice must describe the individual’s obligation to notify the plan when the individual becomes eligible for an employer group health plan or Medicare.

In addition, the ARPA provides a second opportunity for COBRA election for employees who lost group health plan coverage because of an involuntary termination or reduction in hours after November 1, 2019, but did not elect COBRA or let their COBRA lapse. These individuals must receive a new COBRA election notice from the plan administrator, which must include a description of the availability to elect COBRA and contain the same information as the notice described above. These individuals will have 60 days after receipt of the notice to elect COBRA.

The ARPA requires the U.S. Department of Labor to issue model notices in April. The subsidy period terminates earlier if the individual becomes eligible for certain other group health plan coverage or Medicare. Employers will receive a credit for the COBRA premium subsidy through a refundable payroll tax credit against the employer’s quarterly taxes.

Extension and Expansion of the Employee Retention Tax Credit

As we previously discussed, the stimulus bill passed by Congress on December 27, 2020 expanded the employee retention tax credit available to employers who have experienced a decline in gross receipts under the Coronavirus Aid Relief and Economic Security (CARES) Act. Previously, the CARES Act prohibited an employer from claiming the employee retention tax credit if it received a PPP loan. Under ARPA, employers are now permitted to receive a PPP loan and the employee retention tax credit retroactive to the effective date of the CARES Act (for wages paid after March 12, 2020). However, the credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven. For example, an employer who had PPP forgiveness from April 2020 to September 2020 may claim the credit for September 2020 to December 2020, plus the first two quarters of 2021 (assuming that the employer qualifies either through a significant decline in gross receipts or full/partial suspension of operation of trade or business). The ARPA also extends the employee retention tax credit through December 31, 2021.

Additionally, the ARPA expands eligibility for the credit to new startups that were established by February 15, 2020 and that have annual gross receipts of $1 million or less, and to severely distressed employers whose gross receipts are less than 10% of what they were in the same calendar quarter for 2019. The credit is capped at $50,000 per calendar quarter for startups.

This is obviously a fast-moving and ever-changing situation, and we will continue to post updates on any significant developments.