What Employers Need To Know About The American Rescue Plan Act

By Swerdlow Florence Sanchez Swerdlow & Wimmer

March 24, 2021

The American Rescue Plan Act of 2021 (“ARPA”), which President Biden signed into law on March 11, 2021, extends and expands the payroll tax credits for certain COVID-related leaves that employers can voluntarily provide pursuant to the federal Family First Coronavirus Response Act (“FFCRA”). ARPA also provides a tax-free, 100% subsidy of premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for employees who have lost health insurance due to involuntary termination or a reduction in hours (and their eligible family members) from April 1, 2021, through September 30, 2021. This e-alert provides a summary of these provisions and their significance for employers.

Extension & Expansion Of Tax Credits For COVID-Related Leaves.

At the onset of the pandemic in March 2020, the FFCRA required employers with fewer than 500 employees (with limited exceptions) to provide 10 days of emergency paid sick leave (E-PSL) and up to 10 weeks of emergency family and medical leave (E-FMLA) to employees under certain COVID-related circumstances. The FFCRA permitted covered employers to claim tax credits to cover the costs of the required paid leaves, subject to per diem and total caps. The FFCRA’s requirement to provide these forms of paid leave expired on December 31, 2020.

On December 27, 2020, the federal Consolidated Appropriation Act, 2021 (“CAA”) extended the availability of the payroll tax credits through March 31, 2021, for employers who voluntarily provided leave to employees whose leave entitlements had not been exhausted by December 31, 2020.

Like the CAA, ARPA does not require employers to provide leave pursuant to the FFCRA. Instead, the federal legislation further extends eligibility for E-PSL and E-FMLA leave through September 30, 2021, with an accompanying tax credit for employers who voluntarily choose to provide such leave. Under ARPA, the tax credit continues to apply to employers with fewer than 500 employees.

E-PSL Expansion.

Additionally, ARPA expands the reasons for taking E-PSL to include time that:
•    An employee is seeking or awaiting the results of a test for or a diagnosis of COVID-19;
•    An employee is obtaining the COVID-19 vaccine; and
•    An employee is recovering from any injury, illness, or condition related to immunization.

ARPA provides for a new “bucket” (allotment) of up to 10 days (80 hours) of qualifying E-PSL available for tax credits between April 1 and September 30, 2021. Thus, employers may choose to voluntarily provide employees up to 10 days of E-PSL during this time period even if an employee previously exhausted his or her E-PSL prior to April 1, 2021, and the employer had previously claimed the corresponding tax credit.

E-FMLA Expansion.

Originally, E-FMLA was only available under the FFCRA for an employee who was unable to work or telework due to a bona fide need for leave to care for a child whose school or child care provider was closed or unavailable for reasons related to COVID-19. Under ARPA, E-FMLA can now be taken for all of the reasons that an employee is entitled to take E-PSL, including time that:
•    An employee is subject to quarantine or isolation order;
•    An employee is advised by a health care provider to quarantine;
•    An employee is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
•    An employee is caring for someone subject to a COVID-19 quarantine or advised to quarantine;
•    An employee is seeking or awaiting the results of a test for or a diagnosis of COVID-19;
•    An employee is obtaining the COVID-19 vaccine;
•    An employee is recovering from any injury or condition related to immunization;
•    An employee is caring for a son/daughter whose school/care provider is closed or unavailable due to COVID-19; or
•    An employee is experiencing any other substantially similar condition specified by the Secretary of the Department of Health and Human Services.

Tax Credits.

For E-PSL, the tax credit an employer can receive is based on an employee’s regular rate of pay, up to a cap of $511 a day, if the leave is needed because of the employee’s own symptoms, quarantine, isolation, or for one of the new reasons related to immunization or testing. If the E-PSL is for any other reason, the amount of tax credit an employer can receive is limited to 2/3 the employee’s regular rate of pay and capped at $200 a day.
For E-FMLA, the available tax credit per employee is still limited to 2/3 the employee’s regular rate of pay up to a maximum of $200 per day for all reasons for leave, including the new leave reasons related to immunization or testing and reasons that qualify for the $511 per-day-cap when the wages are paid under the E-PSL provisions. The total cap for E-FMLA has been increased from $10,000 to $12,000, and ARPA eliminates the FFCRA’s requirement that the first 10 days of E-FMLA be unpaid.

Non-Discrimination & Non-Retaliation.

ARPA disqualifies employers from receiving the tax credit if they fail to comply with the law’s anti-retaliation provisions or if they treat highly compensated employees, full-time employees or tenured employees more favorably in providing paid leave.

Next Steps For Employers.

Given the available tax credits, eligible employers should consider whether to continue or implement E-PSL and E-FMLA. In doing so, employers should review state and local paid leave requirements. Of note, the California Division of Occupational Safety and Health (Cal/OSHA) requires employers to exclude employees from the workplace when they are subject to a COVID-19 isolation order or have been exposed to COVID-19. If the positive test or exposure to COVID is work-related, Cal/OSHA requires the employer to continue the excluded employee’s pay and benefits until the employee satisfies the return to work criteria. Thus, employers in California may find it advantageous to avail themselves of the federal tax credits under ARPA to cover or offset this California requirement.

Subsidies For COBRA Premiums.

For employees eligible for COBRA coverage, ARPA provides a tax-free, 100% subsidy of COBRA premiums for employees (and their eligible family members) who have lost health insurance due to involuntary termination or a reduction in hours for up to six months from April 1, 2021, through September 30, 2021. During this six-month “Subsidy Period,” COVID premiums for such assistance eligible individuals (“AEIs”) will generally be paid by the federal government to employers or plan administrators through credits against Medicare taxes.

The subsidy extends to those who may have declined or ended their COBRA coverage provided they are still within their coverage period. Such individuals can make a COBRA election (starting April 1, 2021) without needing to elect and pay retroactive to the date coverage was lost or discontinued. ARPA requires that, within 60 days of April 1, 2021, plan administrators provide COBRA election notices with information about the subsidy to all AEIs who previously failed to elect COBRA, discontinued COBRA coverage, or have yet to elect COBRA coverage but still remain eligible to do so within 60 days of April 1, 2021. Plan administrators must also provide notices of the subsidy to all AEIs who become entitled to elect COBRA during the Subsidy Period, as well as notices alerting individuals that the Subsidy Period is ending. The U.S. Department of Labor is tasked with drafting model notices and is expected to release such notices in the coming weeks.

Contact your SFSS&W attorney if you have any questions related to the American Rescue Plan Act of 2021 or any other issues related to COVID-19’s effects on the workplace.