On March 11, 2021, President Biden signed into law The American Rescue Plan Act (ARPA). This legislation includes several notable items for employers, including an extension of tax credits for voluntary COVID related sick leave and emergency family leave as well as premium assistance for COBRA coverage.
Extension of Families First Coronavirus Response Act (FFCRA) Tax Credits
The requirement that covered employers (those with less than 500 employees) ended December 31, 2020 however, the tax credits were extended for employers who voluntarily provided the benefits through March 31, 2021. ARPA extends the tax credit from April 1, 2021 through September 30, 2021 for employers who voluntarily continue to provide the benefits but also changes the following:
1. ARPA also expands the reasons for leave available under both the Emergency Paid Sick Leave (EPSL) and the Emergency Family and Medical Leave (EFML). Leave can now be taken:
- when an employee is obtaining a COVID-19 vaccination;
- when an employee is suffering or recovering from side effects related to the COVID-19 vaccination;
- when an employee is seeking or waiting the results of a COVID-19 test if the employee has either been exposed to COVID-19 or the employer has requested the COVID-19 test;
- and the six reasons for leave originally set forth in the FFCRA.
2. ARPA “resets the clock” with respect to the 10 days of emergency paid sick leave under the FFCRA. In other words, employers may voluntarily provide employees up to 80 hours of EPSL in the period from April 1, 2021 through September 2021, in addition to any EPSL provided earlier, and be eligible for the corresponding tax credit. Any days an employee took before April 1, 2021 will not count toward the cap on the tax credit.
3. ARPA increased the aggregate maximum credit for qualified FFCRA family leave to $12,000 (the maximum credit for FFCRA paid sick leave wages remains unchanged). This means that an employer can claim a total tax credit of up to $12,000 per employee which reflects 2/3 of the employee’s regular pay capped at $200 per day for Emergency Family and Medical Leave.
4. ARPA imposes Non-Discrimination requirement. Employers cannot receive tax credits if paid leave is offered in a manner that favors highly compensated employees, full-time employees, or employees on the basis of tenure. In other words, in order to receive the tax credit, paid leave must be offered to all employees, whether full-time or part-time, hourly or salaried, newly hired or more senior, or highly compensated or receiving minimum wage.
5. ARPA provides for reimbursement to employers subject to a collective bargaining agreement for pension plan and apprenticeship program contributions that are allocable to employee paid sick and expanded family leave. Employers with unionized workforces may be eligible for more credits than they were eligible for previously.
For a limited period, ARPA requires employers to cover 100% of the employee’s cost of continuing group health coverage under COBRA for up to six months if an employee has lost coverage under their employer’s health care. The employer can take a credit against their Medicare payroll taxes to cover the cost of the subsidy. Outlined below is a summary of the requirements:
1. Subside for 100% of the cost of premiums for COBRA continuation coverage for those who are involuntarily terminated or had their hours reduced (does not apply to employees who voluntarily terminate employment).
2. An individual who was eligible but did not elect COBRA during their initial election period or who elected but then discontinued coverage will be able to make an election in a special enrollment period. The special enrollment period will begin April 1, 2021, and end 60 days after the date on which they receive the COBRA notification.
3. COBRA subsidy does not extend eligibility for COBRA continuation coverage. A participant can receive the subsidy only if they would have otherwise been eligible for COBRA coverage.
4. The subsidy is not available to those who are able to enroll in other group health coverage or Medicare. If an individual becomes eligible for other coverage, they are required to notify the plan. Those who fail to do so will be subject to penalty.
5. The Act allows, but does not mandate, employers to permit participants electing COBRA coverage to be able to select a different plan offered by the employer. The new coverage election must have the same or lower premiums and be offered to similarly situated active employees.
To comply with these requirements, employers along with their benefit providers and third-party administrators (TPA) should identify assistance-eligible individuals and provide notice about the new benefit and the special enrollment period. Employers will also have to take steps to claim the tax credit on those former employees who utilize the ARPA COBRA subsidy. Employers must address this issue quickly as ARPA requires notice to potential beneficiaries by May 30, 2021. ARPA also directs the Department of Labor (DOL) to publish model notices within 30 days of the March 11 enactment date.