On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARP). Among its many provisions, the ARP addresses paid sick and family leave under the Families First Coronavirus Response Act (FFCRA), and payroll tax credits for providing such paid leave.
On December 31, 2020, FFCRA’s paid sick and family leave mandate for covered employers subject to FFCRA’s provisions (less than 500 employees) expired. However, after former President Trump signed the Consolidated Appropriations Act (CAA) into law on December 27, 2020, covered employers have the option to voluntarily offer paid sick and/or paid family leave to eligible employees, and may continue to receive a payroll tax credit for such wages beginning January 1, 2021 through March 31, 2021.
The ARP does not restore FFCRA’s paid sick leave and/or paid family leave mandate; rather, whether to offer such paid leave continues to be voluntary and at the sole discretion of a covered employer, just as it is under the CAA. The ARP does, however, extend the payroll tax credit to covered employers who voluntarily choose to provide paid sick and/or paid family leave under FFCRA to qualified employees from March 31, 2021, to September 30, 2021.
Notably, the ARP also expands the reasons in which a covered employer may voluntarily provide paid sick and/or paid family leave to include leave provided to an employee who is (1) getting the COVID-19 immunization shot; (2) recovering from an injury, disability, illness or condition related to getting the COVID-19 immunization shot; or (3) seeking or awaiting the results of a COVID-19 test or diagnosis because (a) the employee has been exposed to COVID; or (b) the employer requested the test or diagnosis. If offered as paid sick leave, employees are to be paid at their regular rate of pay for the duration of the two-week eligibility period. If offered as paid family leave, employees are to be paid at 2/3 their regular rate of pay for the duration of the 12-week eligibility period.
In addition, the ARP expands the reasons that a covered employer can voluntarily offer paid family leave under the Emergency Family Medical Leave Act (EFMLA) to include all the qualifying reasons under the Emergency Paid Sick Leave Act and still receive the payroll tax credit. The ARP also permits employers to pay employees for the first two weeks of paid family leave under the EFMLA (paid at 2/3 the employee’s regular rate of pay) and collect payroll tax credits for that two-week period, whereas under FFCRA, the first two weeks of paid family leave under the EFMLA were unpaid. This raises the maximum payroll tax credit limit for paid family leave under the EFMLA from $10,000 to $12,000 per employee, still capped at $200 per day, and paid at 2/3 the employee’s regular rate of pay for the 12-week period.
Further, employers may now voluntarily provide an additional 10 days of paid sick leave to employees, even if employees previously exhausted their allotted 10 days of paid sick leave prior to April 1, 2021, and the employer previously took tax credit for that paid leave.
Finally, the ARP mandates non-discrimination when a covered employer voluntarily chooses to provide paid sick and/or paid family leave to qualified employees. The ARP disqualifies an otherwise qualified employer from collecting the payroll tax credits on any paid sick and/or paid family leave wages paid in any calendar quarter if the employer discriminates in favor of (a) highly compensated employees (within the meaning of Section 414(q) of the Internal Revenue Code); (b) full-time employees; or (c) employees on the basis of employment tenure.
The ARP also makes temporary but significant changes to Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) coverage. A short (and high-level) summary of these changes is below:
- The federal government will pay COBRA premiums for employees (and their covered family members) who from April 1, 2021, through September 30, 2021, are/remain eligible for COBRA coverage as a result of losing their group health insurance due to an involuntary termination (other than on account of gross misconduct) or reduction in hours in the prior 18 months (on or after November 1, 2019). This subsidy does not apply to those who voluntarily quit their employment.
- Within 60 days of April 1, 2021, a notice of a special enrollment period must be sent to all eligible participants who (1) have not yet elected COBRA coverage by April 1, 2021; or (2) elected COBRA coverage, but then discontinued it. Eligible participants will have until 60 days after receipt of the notice to elect COBRA.
- The Department of Labor is supposed to issue model notices within 30 days (by May 10).
- Any election for these participants would be prospective only (i.e. April 1, 2021, through September 30, 2021), and not retroactive to the date coverage was lost.
- The ARP subsidy does not extend COBRA coverage. Coverage will still expire 18 months after coverage was lost, even if that is in the middle of the subsidy period.
- So, if an employee lost group health benefits on March 1, 2020, due to an involuntary separation, the employee’s 18 months of eligibility would expire on July 31, 2021, and COBRA premiums would be subsidized for five months, namely April 1, 2021, through July 31, 2021. And, if an employee loses group health benefits on July 1, 2021, subsidized COBRA coverage will be available only for the months of July, August and September 2021, even though the employee’s COBRA eligibility period extends 18 months to August 31, 2022.
- Any employee or family member who is or becomes eligible for other group health coverage or Medicare is not eligible for the subsidy. The individual has the obligation to notify the employer if he or she is not eligible or loses eligibility.
- There is no income cap for the subsidy.