On Feb. 27, 2021, the American Rescue Plan Act (ARPA) passed as the latest bill to address the ongoing economic impacts of COVID-19. Most aspects of the law will not directly affect your HR department. However, our HR pros have outlined those that do below. These include the optional extension of sick and family leave, COBRA subsidies, and Employee Retention Credit changes.
Optional Extension of Sick and Family Leaves
Part of ARPA is an extension of the current tax credit scheme for Emergency Paid Sick Leave (EPSL) and Emergency Family and Medical Leave (EFMLA). Back in 2020, the Families First Coronavirus Response Act (FFCRA) required many employers to provide EPSL and EFMLA to employees. However, these leaves became optional when December’s COVID-19 Relief Bill extended them to cover January 1 through March 31, 2021.
The new extension under ARPA takes effect April 1, 2021, and lasts through September 30, 2021. Like the current version, it remains optional. Additionally, tax credits are still available–but only to employers with fewer than 500 employees and up to certain caps.
To receive the tax credit, employers must follow the original provisions of the FFCRA. For example, they can’t deny EPSL or EFMLA to an employee if they’re otherwise eligible. They also can’t terminate an employee for taking EPSL or EFMLA, and must continue their health insurance during these leaves.
Emergency Paid Sick Leave (EPSL) Changes
Here are the key changes to EPSL, in effect from April 1 through September 30, 2021:
- Employees can take EPSL to get the COVID vaccine and to recover from any related side effects.
- Employees can also now take EPSL when seeking or waiting for a COVID-19 diagnosis or test result if they’ve been exposed to COVID-19 or if the employer has asked them to get a diagnosis or test. (Previously, time spent waiting on test results was not necessarily covered, which seemed like an oversight.)
- Employees will be eligible for a new bank of EPSL leave on April 1. This means that if employers voluntarily provide FFCRA after this date, employees who took FFCRA leave before April 1, 2021, may take it again. Full-time employees are entitled to 80 hours while part-time employees are entitled to a prorated amount.
- Employers can’t provide EPSL in a manner that favors highly compensated employees or full-time employees or that discriminates based on how long employees have worked for the employer. (Be aware that any inconsistencies in the granting of leave could potentially lead to a discrimination claim.)
Emergency Family and Medical Leave (EFMLA) Changes
Here are the key changes to EFMLA, in effect from April 1 through September 30, 2021:
- Employees can now use EFMLA for any EPSL reason, in addition to the original childcare reasons. This includes the new EPSL reasons noted in the first two bullet points in the “Emergency Paid Sick Leave (EPSL) Changes” section above.
- The 10-day unpaid waiting period has been eliminated.
- The cap on the reimbursable tax credit for EFMLA has been increased to $12,000 (from $10,000). This applies to all EFMLA taken by an employee, beginning April 1, 2021. Note that this change accounts for the additional 10 days of paid time off. (The daily cap of $200 remains the same.)
- Employees will not be eligible for a new bank of EFMLA leave on April 1.
- Employers can’t provide EFMLA in a manner that favors highly compensated employees or full-time employees or that is based on how long employees have worked for the employer. (Again, be aware that any inconsistencies in the granting of leave could potentially lead to a discrimination claim.)
Reasons for Using EPSL and EFMLA
Beginning April 1, employees can take EPSL or EFMLA for the same set of reasons, which is a useful simplification. The list of acceptable reasons for taking these leaves includes:
- When quarantined or isolated subject to federal, state, or local quarantine or isolation order
- If advised by a health care provider to self-quarantine because of COVID-19
- When the employee is:
- Experiencing symptoms of COVID-19 and seeking a medical diagnosis
- Seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 due to exposure or employer request
- Obtaining a COVID-19 vaccination or recovering from any injury, disability, illness, or condition related to the vaccination
- When caring for another person who is isolating or quarantining on government or doctor’s orders
- When caring for a child whose school or place of care is closed due to COVID-19
Generally, employees and employers will want to exhaust EPSL first due to its higher tax credit, except when used to care for others. We’ve provided a recap of the tax credits for each type of leave below.
Tax Credit Review
The tax credits available between April 1 and September 30 are the same as under the original FFCRA, except for the increased aggregate cap for EFMLA. Tax credits are available as described below, regardless of how much EPSL or EFMLA an employee used prior to April 1.
- Self-Care: The credit available for EPSL when used for reasons 1, 2, or 3 in the section above is up to 100% of an employee’s regular pay. Tax credits for these reasons have a limit of $511 per day.
- Care for Another: The credit available for EPSL when used for reasons 4 or 5 is up to 2/3 of an employee’s regular rate of pay. Tax credits for these reasons have a limit of $200 per day.
- The credit available for EFMLA for any reason is up to 2/3 of an employee’s regular pay. Tax credits for EFMLA have a limit of $200 per day and a cap of $12,000 per employee.
Employers can also claim a credit for their share of Medicare tax on the employee’s wages and the cost of maintaining the employee’s health insurance (qualified health plan expenses) during their absence.
You can learn more about these credits and how to claim them here.
In addition to EPSL and EMFLA, another important aspect of the law is the creation of COBRA subsidies.
Employees and families enrolled in the employer’s group health plans may lose coverage if the employee’s work hours are reduced or employment is terminated. They can elect to continue coverage under COBRA, but the high premium cost can make it difficult to afford this coverage.
Involuntary Work Reduction or Termination
ARPA provides a 100% COBRA subsidy if the employee’s work reduction or termination was involuntary. The subsidy applies for up to six months of coverage from April 2021 through September 2021 (unless the individual’s maximum COBRA period expires earlier).
For group plans subject to the federal COBRA rules, the employer will be required to pay the COBRA premium but then will be reimbursed through a refundable payroll tax credit.
Small Businesses (1-20 employees)
Employers with fewer than 20 workers are usually exempt from federal COBRA rules. However, their group medical insurance plans may be subject to a state’s mini-COBRA law.
In that case, it appears the subsidy will be administered by the carrier. After the carrier pays the premium, the government will provide a reimbursement.
Administering the Subsidy Provision
Employers will need to work with their group health plan carriers and vendors on how to administer the new subsidy provision. Although it takes effect April 1, 2021, employees who were terminated earlier but are still in their COBRA election window also are included. We expect to see additional federal guidance over the coming weeks, including model notices that plans can tailor for their use.
Note that the COBRA subsidy doesn’t apply during FFCRA leaves because employees are entitled to maintain their health insurance during those leaves on the same terms as though they had continued to work.
Employee Retention Credits (ERC)
Lastly, ARPA made several changes to the existing ERC program. In light of these changes, employers should know that these credits:
- Are not a loan. Instead, ERC is an above-the-line, refundable payroll tax credit for employers who experienced a full or partial suspension of their operations or a significant decline in gross receipts due to COVID-19.
- Offset a business’ federal tax withholdings and are available to all business sizes and industries, even non-profits.
- Allow businesses to claim up to $33,000 per employee.
- Now have even further expanded eligibility requirements, including PPP recipients and start-ups born 2/15/2020 or later.
- Are now available to employers whose gross receipts declined by 20% in 2021 quarters compared to 2019 quarters.
We have already begun helping clients research, calculate, and prepare audit-proof reports for the credits. Here are just a few examples of credits we have found so far:
If you’re interested in learning more about these credits and seeing if you are eligible, let us know here. A member of our team will reach out with a complimentary preliminary assessment to determine your potential credit. After that, you can decide if you would like to work with SDP to claim your credits!
We know this is a lot of information to digest! Hopefully this quick guide will give you a better understanding of the components of the American Rescue Plan Act that are most likely to affect your HR department.
As an additional resource for your business, SDP is hosting a complimentary webinar on Thursday, Mar. 25. During the session, we’ll provide even more information on ARPA and answer any remaining questions you may have. You can register to attend here, or view the session in our On Demand Training Hub at your leisure after it airs.
Need a little extra support? No matter your situation, SDP has layers of HR support that can help. Learn more about our HR Support Services here. And don’t forget to follow us on Facebook, Twitter, and LinkedIn for even more business tips & news!