On March 10, the House of Representatives passed the Senate version of H.R.1319, the American Rescue Plan. The latest coronavirus aid legislation extends certain tax credits (employee retention tax credit and payroll tax credit for coronavirus-related paid sick and family leave for employers with fewer than 500 employees) and provides enhanced Affordable Care Act (ACA) and COBRA subsidies. It also authorizes direct stimulus payments to certain individuals and extends federal unemployment benefits. The House voted on the bill as it was modified and passed by the Senate on March 6. The Senate vote was 50 to 49. The House vote was 220 to 211.
The Senate changed the version of H.R.1319 passed by the House (by a vote of 219 to 212) on February 27. Among the changes of most interest to NAIFA members are:
The offsets to the bill’s multiemployer pension rescue plan were changed. The Senate replaced the House bill’s 2031 repeal of inflation adjustments for contributions to and benefits paid from employer-sponsored retirement plans with an adjustment to the limitation on the deduction for corporation-paid compensation (section 162(m)). Under the change, the compensation deduction will be limited for the corporation’s top-paid eight (up from current law’s five) employees.
Enhanced COBRA coverage subsidies—The Senate modified the House’s 85 percent subsidy for COBRA coverage to 100 percent, until September 30, 2021.
The Senate dropped the House-passed phased-in increase in the federal minimum wage. The Senate modified the House-approved unemployment benefit provisions—under the Senate provisions (included in the now-enacted bill), the federal supplemental unemployment benefit will be available through September 8, 2021, with the extra federal weekly benefit set at $300/week rather than $400/week. In addition, the Senate provision makes the first $10,200 in unemployment benefits tax-free for households that earn less than $150,000/year.
The direct stimulus payments to individuals remain at $1,400 per eligible individual. Eligible individuals are those who earn less than $75,000/year ($150,000 for a married couple). However, partial amounts of the $1,400 payable to those who earn above $75,000/$150,000 completely phase out as of incomes of $80,000/single ($160,000/married). That’s a decrease from the House provision that ended phased-down stimulus payments at income levels of $100,000/single ($200,000/married).
Many of the provisions in H.R.1319 remained the same after the Senate vote. So, the law as enacted contains provisions that would:
Extend the employee retention tax credit (ERTC) until January 1, 2022—prior to this new law, the ERTC would have expired at the end of June, 2021.
Extend the federal refundable payroll tax credit for coronavirus-related paid sick and family leave for businesses with fewer than 500 employees through September 30, 2021.
Increase Paycheck Protection Program (PPP) funding by $7.25 billion.
Expand ACA subsidies—The new law would expand, for 2021 and 2022, the ACA premium tax credit program. The provision caps what people must pay for individual or family health coverage purchased through an ACA exchange at a maximum of 8.5 percent of income. So, people with high incomes could qualify for the ACA premium tax credit subsidies if their premium payments exceed the 8.5 percent of income threshold, even if their incomes exceed the percentage of poverty cap that was part of the premium tax credit program prior to enactment of the American Rescue Plan.
H.R.1319 also provides money for state and local governments struggling with pandemic-related costs, funding to help safely reopen schools, money for COVID vaccination acquisition and distribution, funding for COVID testing and contact tracing, aid to restaurants and bars, money for transportation and disaster relief, rental assistance, an increase in the child tax credit, aid to airlines, and other provisions.
Prospects: Now a new law, H.R.1319 leaves a number of issues unsettled, including increasing the federal minimum wage, and whether to impose a federal paid leave policy or program on the nation’s employers. Still also open is whether Congress will do yet another coronavirus aid measure later this year. As of now, the economy appears to be rebounding and the pandemic looks like it may be abating. If those trends hold, another coronavirus aid bill is unlikely. However, expect reemergence of the minimum wage and paid leave issues as lawmakers shift focus from emergency aid to longer-range policy issues.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
House Passes PRO Act
On March 9, the House of Representatives passed the PRO Act (H.R.842), a bill containing a worker classification provision that could adversely impact many NAIFA members by disrupting their working relationships with their carriers. The problematic provision creates a national test to determine when a worker is an employee rather than an independent contractor. The vote was 225 to 206. Five Republicans voted “yes;” one Democrat voted “no.”
The PRO Act (short for the Protecting the Right to Organize Act) is largely a unionization measure, strongly supported by organized labor and most Democrats. However, it contains a worker classification provision that is harmful to many insurance companies and their agents/financial representatives. NAIFA and the carriers are lobbying hard to win an exemption for insurance agents and financial advisors from the PRO Act’s strict employee test, but because of cross-Congress rules, the issue is unlikely to be settled until the Senate takes up the bill. (The cross-Congress rule allows the House to vote on a bill that died when last year’s 116th Congress ended, without going through a new committee process, if the vote comes prior to April 1 and is on a bill unchanged from the 116th Congress.)
Generally, many NAIFA members work for their companies under an independent contractor arrangement, but their activities are closely regulated, at both the state and federal levels, by insurance and securities laws and rules. Under the PRO Act’s worker classification rule, such close regulation could trigger a classification of those workers as employees.
In most respects, the PRO Act mirrors California’s “ABC” test of whether a worker is an employee or independent contractor. But the California ABC test contains an exception for insurance agents; the PRO Act does not.
The ABC test classifies a worker as an employee unless the worker is free from the control and direction of the hiring entity in connection with the performance of the work, and unless the worker performs work that is outside the usual course of the hiring entity’s business, and unless the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
Prospects: The PRO Act faces considerable opposition in the Senate, where it will need 60 votes to pass and where it will be hard-pressed to find even 51 votes. But the PRO Act is at the very top of organized labor’s wish list; it has the Biden Administration’s and a clear majority of Democrats’ support. And Democrats control the agenda in both the House and Senate. So, although chances for enactment are no better than 50-50, it is highly likely there will be a hard-fought battle over the bill in the Senate later this year. NAIFA will continue to fight for an exemption from the PRO Act’s worker classification rule.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org
US Department of Labor Announces Plan to Rescind Two Final Rules on Worker Classification
On March 11, the U.S. Department of Labor (DOL) announced plans to rescind two final rules that the Biden administration believes would significantly weaken protections afforded to American workers under the Fair Labor Standards Act.
The first Notice of Proposed Rulemaking proposes the withdrawal of the Independent Contractor Final Rule issued by President Trump’s Labor Department on Jan. 7, 2021. The reasons stated include:
The rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA.
Courts and the department have not used the new economic reality test, and FLSA text or longstanding case law does not support the test.
The rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.
Among its provisions, the FLSA requires covered employers to pay employees at least the federal minimum wage for every hour worked and overtime premium pay of at least one and one-half times their regular rate of pay for every hour worked over 40 in a workweek. An independent contractor has no FLSA protections.
The proposed rule, which will set out the test for determining whether a worker is an employee or an independent contractor, is expected to replace the Trump Administration’s rule. The new proposed rule could have an adverse impact on NAIFA members who work as independent contractors for their carriers. The DOL’s Wage and Hour Division will publish its proposal to withdraw its Independent Contractor rule in the Federal Register on March 12 and is allowing a 30-day comment period for feedback.
Based on insider expectations, it appears likely the new proposed worker classification rule will tilt toward, if not parallel, the worker classification rule in California (the “ABC test”) and/or the one in the pending PRO Act (a mirror of the California ABC test, but without the exemptions (including one for insurance agents) contained in the California law). The three-part ABC test focuses on the degree of control exerted by the hiring entity over the worker performing the Services.
The second Notice of Proposed Rulemaking seeks to rescind a current regulation on joint employer relationships under the Fair Labor Standards Act, published in the Federal Register and which took effect on March 16, 2020.
In February 2020, 17 states and the District of Columbia filed a lawsuit in the U.S. District Court for the Southern District of New York against the department, arguing that the Joint Employer Rule violated the Administrative Procedure Act. The court vacated the majority of the Joint Employer Rule on Sept. 8, 2020, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain why the department had deviated from all prior guidance or consider the effect of the rule on workers.
Prospects:A new proposed worker classification regulation will complicate an already difficult issue that is currently pending before Congress. But it is one that is very important to many NAIFA members and their carriers. NAIFA conducted a survey of its membership to determine just how widespread the problem is and is using the resulting data to argue in favor of an exemption for insurance agents from the stringent ABC test. It now appears that the issue will set up a two-front battle—one in Congress and one at DOL. NAIFA will keep you posted.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org
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