In response to the country's continued battle with the COVID-19 pandemic, in late December, Congress passed and the president signed the Consolidated Appropriations Act, 2021 (CAA). The CAA extends the deadlines for various relief programs in the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and its progeny. This development brings some welcome news for both employers and employees.
Extension of Federal Unemployment Benefits
The Pandemic Emergency Unemployment Compensation (PEUC) provision of the CARES Act provides 100 percent federally financed unemployment assistance to those individuals who had otherwise exhausted the benefits they were entitled to under state law. Prior to the CARES Act, many states had capped benefits at 26 weeks. Accordingly, under the CARES Act, workers who had reached their cap for state unemployment benefits could obtain PEUC, additional state benefits funded by the federal government. As enacted, the PEUC provided up to 13 additional weeks of federally funded state benefits to eligible workers through December 31, 2020, for a total of 39 weeks of benefits.
The CAA provides PEUC to workers for an additional 11 weeks (totaling 50 weeks of benefits), through March 14, 2021. Workers seeking PEUC for the first time are ineligible beginning on March 14, 2021; however, those workers receiving PEUC as of March 14, 2021, who have not yet exhausted their entitlements may continue to receive the benefit through April 4, 2021.
Given that the president enacted the CAA subsequent to the date anticipated by its terms, many Americans―mainly those who live in states unprepared to immediately implement PEUC―will receive only 10 weeks of additional benefits, instead of 11. As of the date of this Alert, PEUC does not apply retroactively, so employees should not expect any lump sum unemployment benefits to compensate for delays in enactment of the CAA or rollout of the PEUC.
Pandemic Unemployment Assistance (PUA) under the CARES Act afforded up to 39 weeks of unemployment benefits to those workers generally ineligible for state unemployment (e.g., self-employed, freelance workers, those individuals with insufficient work history to determine benefit eligibility, gig-economy workers and independent contractors) so long as those workers were unemployed or unable to work for specific reasons related to COVID-19, including:
- The worker's own COVID-19 diagnosis;
- The worker has symptoms of COVID-19 and is seeking a diagnosis;
- The worker is quarantined due to COVID-19;
- Someone who lives with the worker has been diagnosed with COVID-19;
- The worker is providing care for someone impacted by COVID-19;
- The worker was scheduled to begin a job, but could not due to COVID-19;
- The worker had to quit a job due to COVID-19;
- The worker's employer closed due to COVID-19; or
- The worker is now the financial provider for a household because of the COVID-19-related death of the head of household.
Individuals unable to satisfy these requirements were generally ineligible for PUA.
PUA benefits were set to expire on December 31, 2020, until the CAA extended the expiry date to March 14, 2021. Under the CAA, as in the case of PEUC recipients, PUA recipients may collect 50 weeks of benefits, up from 39 weeks. Workers receiving benefits as of March 14, 2021, will continue to receive benefits through April 5, 2021, so long as they have not yet exhausted the 50-week maximum benefit period.
Federal Pandemic Unemployment Compensation (FPUC), among the most popular provisions of the CARES Act, afforded American workers a flat amount of $600 per week in unemployment assistance, so long as they met basic unemployment-eligibility requirements under state law. The CAA has extended the expiry date of FPUC through March 14, 2021, but at $300 per week instead of $600. Unemployment recipients are eligible for FPUC during any week in which they receive underlying unemployment benefits (even if only $1); this includes workers who are receiving partial unemployment, or who are part of a workshare program.
Mixed Earner Unemployment Compensation
A prominent feature of the CAA is the Mixed Earner Unemployment Compensation (MEUC) provision, designed to address a flaw in the CARES Act that made millions of gig workers ineligible for PUA, which was seemingly intended for their benefit. Specifically, PUA is available only to those workers otherwise (and historically) ineligible for unemployment insurance. As such, individuals who qualify for unemployment insurance on any other basis are ineligible for PUA.
Mixed earners are workers who account for their annual earnings on both Forms 1099 and W-2. These workers are primarily gig workers, usually singers, musicians, actors, photographers, etc., who make the majority of their annual income from a steady stream of gigs, which they report on Form 1099. These same workers earn a much smaller portion of their income from employment, often short-term or on-the-side, and report these wages on Form W-2.
Though indeed gig workers, mixed earners have been routinely denied PUA on account of their eligibility for benefits based on their W-2 wages, regardless how inconsiderable. For many mixed earners, the benefits they receive based on their W-2 wages alone are often the minimum benefit amount.
In recognition of the unique challenges they face, the MEUC provides for a $100 weekly benefit for those mixed earners who earn at least $5,000 per year in self-employment income. This benefit is in addition to the benefits to which they are entitled under state law and the $300 supplemental weekly benefit under the FPUC. The MEUC is applicable for weeks of unemployment between December 27, 2020, and March 14, 2021, when it expires.
Administration of Unemployment: Additional Safeguards
Effective January 31, 2021, new applicants for the PUA must provide documentation to substantiate employment or self-employment within 21 days of the application date; 90 days for individuals already receiving PUA as of January 31.
Various states have identified the following as documents suitable to substantiate income for purposes of PUA eligibility consideration, including but not limited to:
- Business financial statements/records
- Form 1040, Schedule C, F, SE or K to determine monetary eligibility
- Affidavits from individuals with knowledge of the business, or other evidence (trip tickets, etc.) to verify applicant's self-employment
- 2019 federal income statements
- Recent records connected to the business, e.g., phone or utility bill, current business license or rental agreement for place of business
- Documents that show net income
Additionally, beginning on January 31, 2021, states must implement procedures to verify the identity of all PUA applicants, as well as plans to address unemployment recipients who refuse to return to work or who refuse to accept offers of suitable work without good cause. These measures should provide direction for employers who face pushback from workers who decline to return to work in favor of collecting additional unemployment benefits. Notably, this requirement is part of a larger legislative effort to root out unemployment insurance fraud.
Paycheck Protection Program “Second-Draw” Loans
The CAA allows small- to medium-sized businesses adversely impacted by the pandemic another opportunity to apply for Paycheck Protection Program (PPP) loans, up to a maximum amount of $2 million. Eligible entities have: fewer than 300 employees; exhausted (or are soon to exhaust) the full amount of their first PPP loan; and at least a 25 percent reduction in gross receipts in the first, second or third quarters of 2020, as compared to the corresponding quarter in 2019.
Eligible businesses include, but are not limited to, certain nonprofits, self-employed individuals, sole proprietors and independent contractors. Like the first round of loans, PPP second-draw loans are eligible for complete forgiveness, so long as payroll costs account for at least 60 percent of the loan funds, and eligible costs, like mortgage, rent and utility payments account for the remainder.
For a more detailed discussion regarding the second-draw loans and other PPP information, see our December 28, 2020, Alert.
Families First Coronavirus Response Act: Tax Credits Extended for Paid Sick and Family Leave
Pursuant to the Families First Coronavirus Response Act (FFCRA), employers of fewer than 500 employees were required to extend qualified sick-and-family-leave wages to employees requiring time off for COVID-19-related reasons. In exchange, the FFRCA entitled those employers to tax credits offsetting the expense of same. While the requirement to provide such leave expired on December 31, 2020, as scheduled, the CAA extended the tax-credit provisions from December 31, 2020, to March 31, 2021. In other words, employers are no longer required to provide paid sick or family leave under the FFCRA, but may choose to do so and avail themselves of the tax credits offered by the FFCRA.
Employers must still adhere to any state or local laws providing COVID-19-related leave (such as, for example, those in New York) and, in certain circumstances, may run the leaves concurrently and avail themselves of the FFCRA tax credits in doing so. Employers may not apply for tax credits related to leave extended over and above that required under the FFCRA.
Deferred Payroll Taxes
Not without controversy, the Treasury Department implemented a tax holiday, pursuant to the president's August 8, 2020, executive order authorizing employers to defer withholding (and thereby deposit) of employees' share of Social Security taxes, or the railroad-retirement tax equivalent, on all wages paid between September 1, 2020, and December 31, 2020, through the end of 2020.
Correspondingly, employers who availed themselves of this option also committed to repay every dollar for which they deferred withholding (and thereby deferred depositing) between January 1, 2021, and April 30, 2021; this, on top of the timely withholdings and deposits attendant to wages paid (6.2 percent of each employees' wages) between January and April, 2021. Worse, employers that failed to meet the repayment would be subject to the onslaught of penalties and interest set to accrue beginning on May 1, 2021.
Section 274 of the CAA provided a much needed reprieve for employers who took advantage of the tax holiday, particularly those who did so without appreciation for its impact, and for employees who would have seen their payroll taxes nearly double in the first four months of 2021. Section 274 extends the withholding (and deposit) deadline from April 30, 2021, to December 31, 2021, and holds at bay through January 1, 2022, penalties and interest otherwise set to accrue beginning on May 1, 2021.
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While the CAA may not have met the expectations of all employers and employees it impacts, for many, its provisions will help them stem the tide of this still-uncharted pandemic in the weeks and months ahead.
Action Items for Employers
- While many states have existing certification requirements that would prohibit employers from certifying employees who refuse offers to return to work (to which employers should adhere), others do not. Employers in those states should closely monitor developments regarding new certification requirements pursuant to the CAA. All employers should develop a uniform approach to conveying return-to-work offers and document all communication regarding them. Given Congress' focus on potential fraud, such communications may become relevant in a dispute.
- Recall that non-FFCRA-related sick and family-leave policies are still applicable. Review existing leave policies to ensure compliance.
- Prepare to communicate various unemployment benefits now available under the CAA to workers who may be impacted, including furloughed, reduced-schedule and workshare workers, as well as departing employees.
- Regularly review federal guidance applicable to the newly revamped PPP loan, and the application and selection processes. While the updated PPP rules appear favorable to employers, employers should remain vigilant, as federal guidance will inevitably clarify the CAA, possibly narrowing its PPP-related provisions.
- Discuss with a trusted tax adviser the implications under the CAA particularly as it relates to the management and timing of withholdings and deposits, as well as allocation of all applicable credits. See our December 30, 2020, Alert addressing the myriad of tax implications under the CAA.
Significantly, employers should not get too comfortable. With a new administration and incoming Congress, employers should expect further developments relating to FFCRA and the CARES Act, and even new stimulus considerations.
For More Information
If you have any questions about this Alert, please contact Eve I. Klein, Meagan E. Garland, Sarah A. Gilbert, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group
Originally Published by Duane Morris, January 2021
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
