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American Rescue Plan and employee-related issues

By Larry Morgan, MAIR, SPHR, SHRM-SCP, GPHR

On March 11, 2021, the American Rescue Plan Act (ARPA) of 2021 was signed into law creating a $1.9 trillion stimulus package to address continuing needs related to the COVID-19 pandemic.
 
Here are critical changes for employers to be aware of:
  • Emergency paid sick leave (EPSL).
  • Emergency paid family leave.
  • Expansion of unemployment benefits.
  • COBRA subsidy and notification to employees.
  • Section 125 temporary expansion of dependent care.
 

Emergency paid sick leave

The emergency paid sick leave and emergency paid family leave plans initially expired Dec. 31, 2020. Employers with fewer than 500 employees may extend provisions of the Families First Coronavirus Response Act (FFCRA) on a voluntary basis through Sept. 30, 2021.  Employers are not required to offer this. If you do extend these benefits to employees, here are some guidelines (note expansion of the FFCRA in item Nos. 4,5,6):
  1. The employee being subject to a government quarantine or isolation order.
  2. The employee being advised by a health care professional to self-quarantine.
  3. The employee experiencing COVID-19 symptoms and seeking a medical diagnosis.
  4. A covered employee is absent from work because the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19, provided that the employee has been exposed to COVID-19 or the employer has requested that the employee obtain such test or diagnosis.
  5. An employee is obtaining immunization related to COVID-19.
  6. An employee is recovering from any injury, disability, illness or condition related to an immunization for COVID-19.
  7. The employee caring for an individual who is subject to a government quarantine or isolation order, or who has been advised to self-quarantine by a health care professional. 
  8. The employee caring for a son or daughter whose school or place of care has been closed or whose childcare provider is unavailable.
Under the FFCRA, the maximum number of available EPSL hours was 80 hours. A lower threshold applied for part-time employees. A covered employer was required to pay 100% of the employee’s daily wages for reasons 1-6 up to $511 per day and 2/3 of the daily wage for reasons 7-8, up to a maximum of $200 per day.

Emergency paid family leave

The FFCRA also provided up to 12 weeks of emergency paid family and medical leave (EPFL) for employees who were unable to work or telework due to:
  1. A need to care for a son or daughter under the age of 18, due to a school or place of care being closed due to a public health emergency.
  2. The childcare provider of a son or daughter under the age of 18 not being available due to a public health emergency.
  3. For employee payments under these programs.
Note that the first two weeks are now considered as paid, and the amount of pay remains at 2/3 of the employee normal wage to a maximum of $200 per day. The total amount of pay under FMLA has increased to $12,000. This is available to employers under 500 employees and is also voluntary.
 
Note also that employers may not simultaneously receive dual credits (double dip) for EPSL and EPFS during same time period.

Tax credits for EPSL and EPFL

Employers may claim tax credits for the payments provided under the ARPA programs as provided April 1, 2021 to September 30, 2021.  Credits may be claimed on a quarterly basis against the employers share of the Medicare taxes owed by the employer.  A refund may be claimed if the amount of the credit exceed the employer Medicare taxes due in a calendar quarter.  The employer is also permitted to take an advance against the tax credit when making employment tax deposits.

Unemployment insurance benefits

The ARPA extends pandemic-related unemployment insurance benefits through Sept. 6, 2021 at $300 per week including those who have refused work due to health and safety concerns.   
  1. The benefits are extended to a maximum of 79 weeks. 
  2. The initial $10,200 in unemployment benefits will not be subject to federal taxation provided the taxpayers adjusted gross income was less than $150,000 in 2020. 
  3. These benefits are in addition to an employer’s state unemployment rates.

COBRA subsidy

ARPA created a new six-month COBRA subsidy, April 1 through Sept. 30, 2021, for all employers, regardless of size. This will create some additional administrative challenges.  For the period April 1 through Sept. 30, 2021, persons receiving COBRA health insurance coverage due to involuntary termination will not pay premiums. Some key issues:
  1. The subsidy applies to COVID and non-COVID related COBRA issues.   
  2. It is not available for voluntary terminations or gross misconduct terminations.
  3. Employers will be reimbursed for COBRA subsidy payments through a tax credit.
  4. This will not extend the 18-month total COBRA period for terminated employees.
  5. Employers will have to notify past employees, even if they elected not to take COBRA of a new opportunity to elect COBRA coverage.
  6. The former employee would not have to make up COBRA contributions up to April 1, 2021. Note that prior claims would not be covered if premiums were not paid.
  7. Employers must notify past involuntarily terminated employees in writing who did not elect COBRA or elected COBRA and subsequently dropped it but have time remaining on the 18-month COBRA period of the subsidy. 
  8. The U.S. Department of Labor has model COBRA subsidy notification letter.
  9. Former employees already covered or offered coverage under another employer plan, parental plan or Medicare are not eligible for the new election or the subsidy.
  10. The subsidy will end if the former employee becomes eligible under another employer or Medicare plan.

Section 125 flexible spending account

  1. ARPA also provides for a one-year increase to the dependent care FSA limit. For calendar year 2021, the dependent care FSA limit increases to $10,500 ($5,250 for married individuals filing separately). ARPA automatically sunsets the increased dependent care FSA limit at the end of 2021 back to $5,000. Therefore, absent additional congressional action, the dependent care FSA limit will revert to $5,000 effective Jan. 1, 2022. Please note that employers may have issues passing the FSA dependent care discrimination testing based on participation and contribution levels. 
  2. The FSA health care pre-tax employee contribution remains at $2,750 in salary reductions for 2021.  Because health care FSA contribution limits are set on an individual basis, each spouse in the household may contribute up to the new FSA limit in the 2021 plan year. For example, a husband and wife who have their own health FSAs can both make salary reductions of up to $2,750 per year, subject to any lower employer limits. The maximum carryover amount remains $550 for 2021.

Employer tip

Be sure to proactively inform employees if the employer will be extending the voluntary programs. Employers may select one or all of the voluntary programs such as only allowing paid time off for COVID vaccination.
 
We expect additional guidance including model notice forms for the COBRA subsidy to be forthcoming from the Department of Labor and the IRS. Employers should continue to monitor these issues for clarification and technical corrections.
 
In the meantime, contact the MNCPA HR Hotline at 952-885- 5539 or hrhotline@mncpa.org with questions.