Now that President Biden has signed the American Rescue Plan Act (“ARPA”) into law, we’ve had the chance to review the massive legislation. And we’ve discovered some little-known provisions in the law that directly impact employers and employees. Here’s a quick summary of those provisions:
Incentives for Employers to Offer Paid Sick Leave
As we explained in a prior post here, the Family First Coronavirus Response Act (“FFCRA”) required employers with less than 500 employees to provide up to 80 hours of sick leave to employees who missed work due to COVID-related issues. The requirement under the FFCRA to provide this sick leave expired on December 31, 2020. Beginning on January 1, 2021, employers were permitted – but no longer required – to offer this paid sick leave benefit through March 31, 2021. Employers who paid sick leave under the FFCRA to any qualifying employee received a dollar-for-dollar payroll tax credit to offset the cost of providing this benefit.
Now, as a result of ARPA, covered employers may again voluntarily extend paid sick leave benefits to employees who take a qualifying COVID-related leave from April 1, 2021 through September 30, 2021. Employers who elect to participate can provide up to 80 new hours of paid sick leave to an eligible employee and receive an additional dollar-for-dollar tax credit to offset the cost of providing this benefit.
ARPA also expands eligibility for this benefit to any employee who is: (a) subject to a Federal, State, or local quarantine or isolation order related to COVID; (b) subject to the advice of a health care provider to self-quarantine related to COVID; (c) experiencing COVID symptoms and is seeking a medical diagnosis; (d) caring for an individual subject to an order described in (a) or in self-quarantine as described in (b); (e) caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID; (f) obtaining a COVID vaccination; (g) recovering from an injury, disability, illness or condition related to a COVID vaccination; and/or (h) seeking or awaiting the results of a COVID test or diagnosis because either the employee has been exposed to COVID or the employer requested the test or diagnosis.
Fully Subsidized COBRA Premiums
As a result of ARPA, employers are now required to cover 100% of an employee’s COBRA costs for up to 6 months if the employee lost coverage under their employer’s health care plan due to an involuntary termination or reduction in hours. Eligible employees include those who: (a) are already enrolled in COBRA; (b) did not elect COBRA when it initially became available to them; or (c) elected COBRA initially but let the coverage lapse.
This new COBRA subsidy is available for 6 months from April 1, 2021 to September 30, 2021. To be eligible, an employee’s initial COBRA period must end during this 6-month period (or, if COBRA had been elected and/or it did not lapse, it would have ended during this period). For example, assume an employee was terminated on March 5, 2020 and became COBRA-eligible on April 1, 2020. The employee’s 18-month COBRA period would end on September 30, 2021. This employee would not be entitled to any new COBRA subsidy because the end-date is on or after the September 30, 2021 expiration of the subsidy.
Employers who offer group health insurance to their employees will have a new obligation to inform their employees of this new COBRA benefit. Employers who pay an eligible employee’s COBRA benefits under ARPA will be entitled to a dollar-for-dollar payroll tax credit to offset the cost of this benefit.
Increased Subsidies for Affordable Care Act (ACA) Premiums
Under ARPA, an individual earning over 400% of the federal poverty level are now entitled to federal subsidies to help offset the cost of their health insurance purchased through Covered California exchange. ARPA also increases the amount of the subsidies that are available to lower-income individuals who purchase health insurance through the exchange. Individuals who are interested in taking advantage of these new subsidies can either commence their enrollment in a health plan, or select a new health plan, through Covered California anytime during the COVID enrollment period, which extends through May 15, 2021. Under ARPA, these enhanced premium subsidies are in effect for 2021 and 2022 only.
Extension of Federal Unemployment Insurance Benefits
The CARES Act initially provided eligible individuals with up to 13 weeks of traditional unemployment benefits. In December 2020, when Congress passed the Consolidated Appropriations Act (the “Appropriations Act”), these benefits were extended for eligible employees up to 24 weeks, through March 14, 2021. Now, under ARPA, these benefits are extended up to 53 weeks, through September 6, 2021. The amount of the new benefit under ARPA is $300 per week, which is in addition to the amount provided through state unemployment insurance.
Unemployed individuals who were not eligible for traditional unemployment benefits – such as business owners, independent contractors, and sole proprietors – were provided with 39 weeks of unemployment insurance benefits under the CARES Act, through December 31, 2020. In December 2020, when Congressed passed the Appropriations Act, this benefit was extended to 50 weeks, through March 14, 2021. Now, under ARPA, these benefits are extended to either 79 or 86 weeks (depending on the worker’s state of residence), through September 6, 2021.
In addition, under ARPA, “gig employees” who earn at least $5,000 in self-employment income, but who are also eligible for traditional state unemployment benefits because they have another job, will receive an additional $100 per week in unemployment insurance benefits, in addition to the amount provided through state unemployment insurance.
Finally, ARPA waives federal income taxes on the first $10,200 in unemployment benefits received in 2020 by an eligible employee, provided that the employee’s 2020 total earnings were less than $150,000.
Extension of Employee Retention Tax Credit (ERTC)
The CARES Act initially included the ERTC to help employers who were experiencing financial distress or business closure because of COVID. The ERTC provided a payroll tax credit to eligible employers based on the amount of wages they paid to certain employees. Under the CARES Act, the tax credit was capped at $5,000 per employee for 2020. An “eligible employer” was any employer (a) whose operations were fully or partially suspended because of government orders, or (b) who experienced a significant decline in their gross receipts because of the pandemic.
In December 2020, when Congress passed the Appropriations Act, the ERTC was expanded to include payroll tax credits for wages that were paid between January 1, 2021 and June 30, 2021. The Appropriations Act also increased the maximum available credit to $7,000 per employee per quarter. The definition of an “eligible employer” remained the same as under the CARES Act.
ARPA now extends this payroll tax credit through the end of 2021. In addition, ARPA expands the definition of an “eligible employer” to include (1) recovery startup businesses (meaning employers who began operations after February 15, 2020 and have gross annual receipts of up to $1,000,000), and (2) severely financially distressed employers (meaning employers whose gross receipts have dropped by more than 90% compared to 2019).
Stimulus Money for Struggling Restaurants and Foodservice Businesses
ARPA also created a Restaurant Revitalization Fund (“RRF”) that provided $28.6 billion in new funding for the SBA to award to restaurants and other foodservice businesses based on annual gross receipts. To receive a grant under this RRF, the business must certify that “the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the [business].” The business must also certify that it has not received a separate grant under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
An eligible business may receive a grant equal to the amount of its COVID-related revenue loss. This amount is calculated by subtracting the business’ 2020 gross receipts from its 2019 gross receipts. Grants are capped at $10 million per entity or $5 million per physical location, and any grant that is awarded based on estimated receipts that turn out to exceed the grantee’s actual receipts in 2020 will have to be returned. Similarly, if an eligible entity receives a grant under the RRF and fails to use all grant funds or permanently ceases operations, the entity must return all grant funds that were not used for permissible expenses. Finally, grants made under the RRF will be reduced by any Paycheck Protection Program (“PPP”) loan already received by the business.
Under the RRF, eligible expenses include the following: (a) payroll costs; (b) payments of principal or interest on any mortgage obligation; (c) rent payments; (d) utilities; (e) maintenance; (f) supplies, including protective equipment and cleaning materials; (g) food and beverage expenses; (h) covered supplier costs (as defined pursuant to the PPP); (i) operational expenses; (j) paid sick leave; and (k) any other expenses that the SBA determines to be essential.