The American Rescue Plan Act: What Employers Need to Know

With President Biden signing the American Rescue Plan (ARP) Act into law on March 11, Congress extended significant relief for employers and employees alike. As with previous COVID-relief measures passed over the last year, these provisions are available for a limited time only, so businesses are encouraged to act quickly to ensure they understand the relief available and take full advantage of available provisions in the law.

Paylocity immediately activated product features within our platform, and we continue to review how to support our clients with timely and smooth implementations and updates that enable you to easily take advantage of the bill’s key provisions.

Read on for key items included in this bill impacting employees and employers:

FFCRA Paid Sick and Paid Family Leave Tax Credits

Let’s start with what isn’t changing. The mandate has not been reinstated, so employers are not required to offer any sick or family leave time from the Families First Coronavirus Response Act (FFCRA) to their employees during 2021. However, employers may continue to offer this emergency sick and family leave until September 30, 2021. Employers may also reset the leave balances for sick leave beginning on April 1. The ARP also expands approved reasons for employees to use this leave time; for both sick and family leave time, employees may use this time to be vaccinated for COVID-19 or to recover from a COVID-19 vaccination.

Additionally, family leave uses have been expanded to mirror sick leave uses, meaning that employees can now use the 12 weeks of family leave for quarantine or self-isolation or care of a family member in quarantine or self-isolation. This is a significant expansion, as previously the family leave time could only be used to care for a son or daughter whose school or place of care was closed due to COVID-19. Lastly, all 12 weeks of emergency family leave are now eligible for pay and the corresponding tax credit, up from 10 weeks under the original terms of FFCRA.

Employee Retention Credit

The Employee Retention Credit (ERC) has been extended through the end of 2021 under the expanded framework created by the Consolidated Appropriations Act of 2021 (CAA). For the remainder of the year, employers with 500 or fewer employees can take the ERC for any wages paid during a period where business operations were partially or fully suspended due to a COVID-19 governmental order or during which the business had a significant decline in gross receipts. A credit of 70% may be taken against the first $10,000 in wages per employee, per quarter, through December 31, 2021. The ARP also creates a $50,000 per quarter limit on the ERC for periods after June 30, 2021, for certain employers established after February 15, 2020, with average annual gross receipts under $1 million.

COBRA Subsidy Credits

The ARP provides a 100% subsidy for employee COBRA premiums between April 1 and September 30 for any employees who were not voluntarily separated from employment. This credit is allowed against employee Medicare tax and may be claimed on the quarterly 941 filing.

Modifications to the Paycheck Protection Program

The Paycheck Protection Program (PPP), established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, has been infused with additional funding under the ARP, and eligibility has been extended to include covered nonprofit entities like 501(c)(3)s where certain conditions are met. Employers can’t apply more than one type of relief to the same wages; for example, if a PPP loan is taken and forgiven, you can’t use that funding to pay COBRA premiums and then take the COBRA premium subsidy. Employers with PPP loans should be cautious of this and ensure careful planning for their use of PPP funds so they can still take advantage of the available tax credits.

Expanded Unemployment Benefits

Federal supplemental unemployment benefits of an additional $300 per week over and above the state benefits have been extended through September 6, 2021, and the first $10,200 in unemployment paid in 2020 is exempt from federal income tax. This extension increases the total time an individual may be eligible for unemployment benefits to 74 weeks, up from 50.

Small Businesses Grants

Impacted businesses in certain industries, including the restaurant industry, may be eligible to receive Small Business Administration (SBA) grants. These grants will be calculated based on pandemic-related revenue loss, are limited to $5,000,000 per location or $10,000,000 per entity, and may be reduced by PPP forgiveness already granted or other federal relief already received.

Paylocity encourages employers to review their options and consult their legal or tax advisors to best understand what types of relief may be available to their organizations.

For more information on how Paylocity can help your organization navigate COVID-19, please visit our COVID resources page.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.