Economic stimulus provisions affect employers
Although the American Recovery and Reinvestment Act of 2009 (ARRA) signed into law by President Obama on February 17, 2009 is aimed at revitalizing a staggering economy, it does contain several provisions affecting the workplace that impact the way employers manage payroll and COBRA benefits. These include:
Consolidated Omnibus Budget Reconciliation Act (COBRA) Continuation of Coverage:
Individuals who have been involuntarily separated from employment between September 1, 2008 and December 31, 2009 can elect to pay 35% of COBRA coverage and have it treated as paying the full amount for the first nine months. While the former employer will pay the remaining 65%, it will receive a credit against federal withholding and FICA taxes for the cost of the subsidy. If an employer's claims for the COBRA subsidy payments exceed the amount of wage withholdings or the FICA payroll taxes that the employer reports, the employer is entitled to direct reimbursement by the Treasury for the excess amount.
The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Income and other limitations apply. The subsidy is limited to tax payers and their families whose income is less than $125,000 for individuals or $250,000 for couples.
The law also extends the window of opportunity to qualified individuals and their qualified beneficiaries, who were laid off September 1, 2008 or after and did not elect to have COBRA coverage by giving them 60 days to sign up.
The law allows group health plans to provide a special enrollment right allowing eligible individuals to elect different coverage under the plan when electing COBRA continuation coverage. An individual may elect any health plan option that the former employer offers to any of its employees so long as the premium of the option the individual elects is the same or lower than the individual's premium for the health coverage the individual had when he or she was employed.
COBRA notices must include information on the availability of the premium assistance. Model notices will be available from the Department of Labor. Plan administrators must also alert those who have already elected COBRA and those who are eligible for the discount but have not elected COBRA of their rights under ARRA.
The IRS offers guidance for employers, including an updated Form 941, on its website.
Plan sponsors will bear the brunt of administering this new provision and must be prepared to ensure compliance.
The Act contains unexpected modifications to HIPAA's Privacy and Security Rules. The Act requires business associates to comply directly with many of HIPAA's rules and subjects business associates to HIPAA’s civil and criminal penalties. The Act increases the penalties for various HIPAA violations and dramatically expands other remedial actions (such as increasing federal government audits; granting attorneys fees in some HIPAA lawsuits; and allowing a method for individuals to recover penalties under HIPAA). The changes are significant to all covered entities; covered entities will need to modify their business associate agreements and business associates will be subject to statutory requirements as well as contractual requirements. They will need to consider the documentation necessary to comply with the security changes.
Health Information Technology
The ARRA also includes $19 billion to accelerate the adoption and use of health information technology (IT) by doctors and hospitals. The legislation establishes a process led by the federal government to develop standards by 2010 that allow for the secure nationwide electronic exchange of health information. The law also expands current federal privacy and security protections for health information.
Making Work Pay Credit
The ARRA creates a refundable tax credit of up to $400 per person, $800 per couple during 2009 and 2010. This tax credit is calculated at a rate of 6.2% of earned income, and phases out at a 2% rate for taxpayers with adjusted gross income over $150,000 for couples filing jointly and $75,000 for single filers. Taxpayers will receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns. The employer’s share of FICA, or its 6.2% equivalent remains unchanged.
Excluded from coverage are nonresident aliens, individuals who may be claimed as dependents under Section 151 of the Code, and estates or trusts.
ARRA continues the emergency unemployment compensation program through December 31, 2009, providing up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits. Weekly unemployment benefits are increased by $25 through December 31, 2009. For taxable year 2009, the first $2,400 of unemployment benefits will not be subject to federal taxation. Funding for these extended benefits is through the U.S. Treasury general fund rather than the Federal Unemployment Tax Act (FUTA).
Incentives to Hire Unemployed Veterans and Disconnected Youth
While the work opportunity tax credit (WOTC) is currently available on an elective basis for employers hiring individuals from one or more of nine targeted groups, the ARRA creates two new categories of individuals eligible for the credit: unemployed veterans and disconnected youth who begin work for the employer in 2009 or 2010.
An individual is an “unemployed veteran” if he or she was discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual is a “disconnected youth” if he or she is between ages 16 and 25, has not been regularly employed or attended school in the six months before being hired, and is not “readily employable by reason of lacking a sufficient number of basic skills.” It is intended that a low level of formal education may satisfy this requirement.
The proposal is effective for individuals who begin work for an employer after December 31, 2008.
Trade Adjustment Assistance (TAA)
The ARRA reauthorizes all TAA programs through December 31, 2010 and extends the job assistance to service sectors hit by international trade and to workers who lose their jobs during offshoring moves to any country—not just to nations with which the United States has signed free trade agreements.
Existing law had already provided that employers participating in the Troubled Assets Relief Program (TARP) were subject to certain standards for executive compensation under Section 162(m)(5) of the Code. The Act expands the standards significantly and provides that these standards apply in any period during which an obligation arising from TARP assistance is outstanding. There are strict new pay caps, bonus restrictions and “golden parachute” prohibitions. The Act also requires each TARP recipient to establish a Board Compensation Committee, comprised entirely of independent directors, for the purpose of reviewing employee compensation plans and establishing a company-wide policy regarding excessive or luxury expenditures. Finally, each TARP recipient must submit executive compensation to an annual, non-binding shareholder vote during the period of TARP assistance.
Organizations that receive funds under TARP or certain federal loans are prohibited from obtaining H-1B visas for two years unless they have taken good faith steps to recruit U.S. workers for the job in which the H-1B is sought.