On March 11th, the President signed the American Rescue Plan Act (ARP) into law. The new law includes a wide range of provisions touching on nearly every aspect of the economy. Some proposed provisions, such as increasing the federal minimum wage were eliminated from the final package, but several important employment provisions remain.
Extension of Unemployment Benefits
Under the ARP, the current $300 additional unemployment benefit remains in effect through September 6, 2021. Initially this benefit was set to increase to $400 per week, but ultimately the $300 level was maintained. The maximum number of weeks for federal Pandemic Emergency Unemployment Assistance was also increased from 50 to 79 weeks (unemployment benefits are typically capped at 26 weeks).
While the enhanced unemployment benefits have doubtless aided many individuals in hard hit industries, it has also created challenges for employers of low wage workers. The severity of this problem varies greatly from state-to-state, depending upon factors such as standard state unemployment benefits and typical wages. For example, in California, the statewide minimum wage is $14 an hour and a full-time worker at that rate would earn about $560 per week. If they were unemployed, they would likely qualify for a state weekly benefit of about $278 per week. With the addition of the $300 federal weekly benefit, they would receive $578 per week or $18 more than they received from full time employment. Of course, many areas of California have higher minimum wages, but even at higher rates of pay the percentage of wage replacement may be sufficient to discourage work. A person who earned $20 per hour working full time would only see a net income reduction of $103 per week on unemployment. With possible savings on childcare and commuting costs as well as special tax treatment of unemployment benefits considered, work may be less attractive this summer.
Similar issues arise in other states. Arizona has a lower minimum wage of $12.15 per hour and a lower maximum benefit of $240. An employee who works 30 hours per week at the minimum wage would make $365 per week, they would likely qualify for a state weekly unemployment benefit of about $190. With the addition of the $300 federal weekly benefit, they would receive $490 per week or about 26% more than they earned working.
An additional factor weighing on “back-to-work” assessments for low wage workers are the impact of economic stimulus payments and modifications to the child tax credit. While these programs are not related to workforce participation, they could certainly blunt the financial impact of extended unemployment.
Employers should monitor unemployment programs in their state to make sure work remains attractive to lower wage workers. Emphasizing benefits, advancement opportunities, bonus programs and other perks of employment may help overcome return to work reluctance.
The Families First Coronavirus Response Act (FFCRA) introduced government funded paid leave programs for individuals impacted by COVID-19. While the mandate to offer leave ended on December 31, 2020, the tax credits for leave were extended until the end of March.
Under the ARP, the credits are further extended to September 30th. The act also added two new reasons an employee may utilize the leave: vaccine appointments and complications due to receiving the vaccine. Significantly, the amount of leave available will also reset on March 31st, providing employees with an additional 80 hours of sick leave and 10 weeks for paid family leave.
Leave is no longer mandated, but if employers choose to leverage the tax credits, leave must be provided in a non-discriminatory manner. We expect further guidance from the DOL in coming weeks.
The ARP includes a 100% federal subsidy for COBRA continuation coverage. Funding to employers will be in the form of a refundable tax credit and is available through September 30th. Furthermore, the act includes a new election period for individuals who previously waived COBRA or elected COBRA but lost coverage due to non-payment. There are numerous logistical challenges facing employers under this provision and we are anxiously awaiting guidance from the DOL.
We plan to hold a webinar on these and other employment related provisions under the ARP in the coming weeks. We do not have a date yet but will announce one when the relevant agencies have issued preliminary guidance.
About the Authors. This update was prepared by HR Pros, LLC, a national HR consulting firm that helps companies reduce operational and employment related risks. Contact Christopher Brown (firstname.lastname@example.org) or Philip Roach (email@example.com) for more information.
The information provided in this update is not, is not intended to be, and shall not be construed to be, the provision of tax or legal advice, nor does it necessarily reflect the opinions of HR Pros, LLC or our clients. The content is intended as a general overview of the subject matter covered. HR Pros, LLC is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on tax or legal questions.
© 2021 HR Pros, LLC. All Rights Reserved.