Impacts of the American Rescue Plan Act on Employers and Extension of FFCRA Tax Credit for COVID-19 Related Paid Leave
President Biden has signed into law the American Rescue Plan Act of 2021 (the ARPA), and it includes several important elements that impact employers. Key impacts include:
- subsidies for certain employer-paid COBRA premiums;
- an increased limit on employer-provided dependent care assistance;
- extensions of the employee retention tax credit and federal unemployment insurance;
- expanded subsidies to reduce Affordable Care Act premiums;
- relief for multi-employer pension plans; and
- a revitalization fund for struggling businesses in the food service industry.
Notably, the ARPA incentivizes employers who continue to provide COVID-19-related paid sick and family leave benefits by extending the Families First Coronavirus Response Act (FFCRA) tax credits through September 30, 2021. The ARPA also broadens the qualifying reasons for the FFCRA tax credit and imposes a new anti-discrimination requirement.
Extension of FFCRA Tax Credit
The ARPA’s extension of the FFCRA tax credit means that employers with less than 500 employees should decide soon whether to provide paid sick and family leave benefits to employees for COVID-19-related absences from work. As we previously reported, the requirement to provide emergency paid sick and family leave under the FFCRA ended on December 31, 2020. As of January 1, 2021, covered employers were permitted to voluntarily extend paid sick and family leave benefits and receive a corresponding payroll tax credit through March 31, 2021. As a result of the ARPA, covered employers may again voluntarily extend paid sick and family leave benefits and receive a tax credit for qualifying leave that is taken between April 1, 2021 and September 30, 2021. The ARPA also broadens the qualifying reasons for the tax credit and, of particular note, imposes a new anti-discrimination requirement regarding the use of paid sick or family leave.
The FFCRA’s original qualifying reasons included leave for an employee who is:
- subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- subject to the advice of a health care provider to self-quarantine related to COVID-19;
- experiencing COVID-19 symptoms and is seeking a medical diagnosis;
- caring for an individual subject to an order described in (i) or in self-quarantine as described in (ii); or
- caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
The ARPA adds the following additional qualifying reasons for an employee who is:
- obtaining a COVID-19 vaccination;
- recovering from an injury, disability, illness or condition related to a COVID-19 vaccination; or
- seeking or awaiting the results of a COVID-19 test or diagnosis because either the employee has been exposed to COVID-19 or the employer requested the test or diagnosis.
The ARPA reloads the allotment of ten days (80 hours) per employee of qualifying paid sick leave. That is, even if an employer has already taken an FFCRA tax credit for paid sick leave paid to an employee before April 1, 2021, the employer may “reset” the employee’s paid sick leave allotment effective April 1, 2021, and seek a tax credit for an additional 80 hours of paid sick leave. The ARPA does not create any new allotment of paid family leave, which remains capped at 12 weeks; however, the qualifying reasons for paid family leave will include any of the eight qualifying reasons noted above. The ARPA also provides that the first two weeks of family leave can be paid, and it increases the maximum amount of FFCRA tax credits for such leave from $10,000 to $12,000 annually per employee.
The ARPA’s extended FFCRA tax credits come with a catch, however, which is that an employer may not discriminate in terms of employee eligibility for paid leave. An employer will not be eligible to receive an FFCRA tax credit if its paid leave program discriminates in favor of certain highly compensated employees (as defined by Section 414(q) of the Internal Revenue Code), full-time employees, or employees on the basis of employment tenure in continuing to provide voluntary FFCRA leave benefits. Thus, employers who already provide paid leave to their employees for any of the above qualifying reasons should confirm that their existing programs conform to the ARPA’s non-discrimination requirement in order to qualify for the FFCRA tax credit after April 1, 2021.
In light of the ARPA’s changes, employers should decide now whether they will provide qualifying paid sick and family leave to employees until September 30, 2021. Employers who discontinued their FFCRA leave programs should remove them from their policy documents. Employers who voluntarily continue their leave programs should notify employees of the new September 30, 2021 expiration date and any other policy changes. While not explicitly addressed in the new law, it would appear that employers who did not voluntarily provide COVID-19-related paid leave benefits in the first quarter of 2021 may now voluntarily provide such benefits through September 30, 2021, and receive a corresponding FFCRA tax credit for qualifying wages.
Finally, employers should be mindful of whether FMLA leave might run concurrently with any paid sick or family leave taken by an employee (e.g., if the employee has a serious health condition arising from COVID-19 or is caring for a family member with a serious health condition arising from COVID-19). In these situations, employers should follow their normal FMLA procedures. Notably, under the expired FFCRA, employers were able to count against an employee’s FMLA allotment any leave to care for a child whose school or place of care was closed or unavailable for reasons related to COVID-19. Because the FFCRA expired in 2020 and the ARPA merely expands a tax credit program for employers, we do not read it as permitting employers to count school/child care leave against an employee’s FMLA allotment.
The Quarles & Brady Employee Benefits team will soon distribute information to help employers prepare for potential impacts of the ARPA on their employee benefit plans.
If you have any questions about the ARPA or related employee leave issues, please contact your local Quarles & Brady attorney or: