The American Rescue Plan Act: How the New Legislation Affects Employers

By Ashley R. McLachlan, Jessica Van Ranken, Elizabeth S. Wylie and Christy D. Joseph

On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) of 2021.¹ Within this $1.9 trillion relief Bill, Congress extended certain previously enacted COVID-19 stimulus package provisions and expanded on previous measures, providing more relief and creating new obligations. Here, we highlight a few key provisions of the Act relevant to employers.

FFCRA Leave Tax Credits

The Families First Coronavirus Response Act (FFCRA), passed in March 2020, mandated that employers with fewer than 500 employees provide certain paid family and sick leave. With this mandate came corresponding tax credits. FFCRA expired on December 31, 2020, and covered employers were no longer required to provide such leave. Because of a second federal stimulus package passed in December 2020, employers were able to continue to receive the FFCRA tax credits if they voluntarily chose to keep providing the paid family and sick leave in the bill. However, these tax credits were scheduled to expire on March 31, 2021.

The ARPA extends these tax credits again, creating the opportunity for employers to receive FFCRA tax credits until September 30, 2021, if they voluntarily provide family and sick leave under the Act. Additionally, the ARPA expands the types of leave that employers can receive tax credits for providing to include: (a) leave for an employee to obtain and wait for the results of a COVID-19 test if they have been exposed to the virus or if their employer has requested that they get tested; (b) leave for an employee to receive the COVID-19 vaccine; or (c) leave for an employee who is recovering from injury, disability, illness, or another condition connected to receiving the COVID-19 vaccine.

Employee Retention Credits

In addition to extending tax credits for FFCRA leave, the ARPA extends the FFCRA-created employee retention credit through December 31, 2021, and opens up the credit to a new category of employers not originally receiving the credit.The employee retention credit allows covered “severely financially distressed” employers to receive a credit for the wages they pay to workers they retained through the pandemic. The ARPA expands the credit to all wages paid, not just those paid to employees who are not providing services. Further, the Act allows more employers to take advantage of this tax credit, including “recovery startup businesses.” These employers started a trade or opened a business after February 15, 2020, and have gross receipts of less than $1 million on average.   

COBRA Premium Subsidy

The ARPA also provides premium assistance for COBRA continuation coverage by providing a 100 percent COBRA premium subsidy for a six-month period. Under the ARPA, certain “assistance eligible individual[s]” are entitled to a complete premium subsidy for COBRA coverage, meaning the premiums for any qualified beneficiary will be treated as paid in full for the period of April 1 to September 30, 2021.

An “assistance eligible individual” is one who was terminated involuntarily and who elects COBRA coverage. This may include employees and covered family members who lost group health insurance due to an involuntary termination or employees who had their hours reduced due to COVID-19. Employees who voluntarily terminate their employment are not eligible for the subsidy. The subsidy terminates if the otherwise qualified individual becomes eligible for other group health plan coverage or Medicare. Employees may be subject to penalties if they fail to notify employers when they become eligible for other health care coverage.

Additionally, under the ARPA, employers are subject to certain notice requirements. Employers must update their COBRA notices to include information about the new subsidy. Additionally, employers must notify all eligible individuals of the new special enrollment period for those who did not elect COBRA, or those who discontinued COBRA coverage. To assist in the notice requirement, the Department of Labor will be providing model notices within 30 days from April 1. Employers must also provide notice if an early termination of the premium subsidy occurs prior to September 30, 2021. Agencies will provide model early termination notices within 45 days of April 1.

Finally, Employers will be able to claim a federal tax credit for the premium subsidy to offset the cost.

Funding for Department of Labor Worker Protection Activities

In addition to the other forms of financial relief, the ARPA allocates $200,000,000 to the Department of Labor to remain available until September 30, 2023. The Wage and Hour Division, the Office of Workers’ Compensation Program, the Office of the Solicitor, the Mine Safety and Health Administration, and the Occupational Safety and Health Administration (OSHA) are to use allocated funds to carry out COVID-19 related worker protection activities.

Notably, OSHA will receive not less than $100,000,000, and at least $5,000,000 of those allocated funds must be used for “enforcement activities related to COVID-19 at high-risk workplaces including, health care, meat and poultry processing facilities, agricultural workplaces and correctional facilities.” Accordingly, employers should continue to refer to OSHA guidelines related to COVID-19 protections in the workplace.

Dependent Care Assistance Plans

The ARPA has increased the contribution limit to DCAPs for 2021 to $10,500 ($5,250 for married employees filing separately.) Employers may amend their plans to incorporate the temporary increase to the contribution limit. Any amendments to an employer’s plan will apply retroactively if the amendment is adopted by the last day of the plan year, and the plan operated consistently with the amendment’s terms.

Butch Lewis Emergency Pension Plan Relief Act of 2021

The ARPA also aims to provide certain struggling pension plans “special financial assistance.” To qualify for the special financial assistance the plans must meet certain requirements showing the plans' critical and declining status. If a plan qualifies, assistance will be provided in a lump sum with no obligation to pay it back.

Other Considerations

The information above provides only a glimpse into the ARPA’s provisions. Consider consulting with legal counsel to understand how the ARPA may impact you or your business and to ensure compliance with its requirements.