How the Economic Stimulus Plan Labor Law Changes Affect Human Resources Professionals and Employers

Labor Law Changes and the Economic Stimulus Package: Its Effect on Human Resources Professionals

Several features of the $780 billion stimulus plan passed this week will affect how Human Resources professionals perform their jobs in 2009 and beyond.

The goal of the law signed by President Barack Obama on February 17, 2009 is to save or create more than 3 million jobs. The bill, H.R. 1, was developed jointly by the House and Senate.

E-Verify

During negotiation, members of the House and Senate removed all mention of the federal government's E-Verify system. The initial bill passed in the House would have required that any business receiving funds from the federal government under the stimulus bill use that system to verify that all employees are legally authorized to work in the U.S., using that system.

E-Verify is still required by many states and local governments, and is free to all private employers in the country. All federal contractors will be required to implement E-Verify later this year.

In addition, the stimulus bill requires that any employer receiving aid hire U.S. workers who have been laid off before recruiting and hiring workers from other countries on H-1B visas. This measure is expected to have the biggest impact on IT employees. Employers are still permitted to hire workers on H-1B visas, but most show good cause why they cannot fill the positions with workers from the U.S. In addition, the employer must show that they are paying workers on H-1B visas the same salary as their U.S. counterparts.

One of the most controversial HR components set limits on companies that accepted funds under the Bush Administration TARP or Troubled Asset Relief Program. The final version of the bill includes a sliding scale that would place limits on compensation for 5 to 20 of a company's highest-paid executives. More executives would be affected at companies that accept larger amounts of funding from TARP.

Extended Unemployment Benefits and Continued Health Care Coverage for the Unemployed

The bill also includes funding for extended unemployment benefits for workers and continued health care coverage for the unemployed. Currently the usual 26-weeks of unemployment has been extended by 7 weeks so workers can collect unemployment for a total of 33 weeks. That extension, which as scheduled to end on March 31, 2009 has now been extended to December 31, 2009. In addition, workers will not have to pay federal taxes on the first $2,400 of unemployment benefits.

Some qualified workers will have COBRA health care premiums subsidized 65% for up to 12 months. The plan also includes funds for improved health care technology. Workers who have lost their jobs due to companies moving factories to other countries, will be eligible for training and other benefits under TAA or Trade Adjustment Assistance.

Cobra Stimulus Plan Impact on Employers

Employer Notice Requirements

The Act requires employers to amend COBRA notices to inform all individuals who become eligible for COBRA between September 1, 2008 and December 31, 2009, of the following:

1. A description of the eligibility rules for the 65% subsidy;
2. An eligible individual's ability to make a COBRA election even if COBRA was initially declined;
3. The option to elect other same premium or lower-premium coverage, if available;
4. How the subsidy may be elected; and
5. An explanation of an individual's obligation to notify the plan of eligibility for other group plan coverage.

This notice may either be incorporated into other COBRA materials explaining election rights or be sent with other COBRA materials as a separate notice.

The notice requirement becomes effective April 18, 2009, and the DOL has been directed to issue a model notice for employer use by March 19, 2009.

Effective Dates

The ARRA became effective February 17, 2009, and, technically, COBRA provisions must be immediately revised to reflect the subsidy. However, the ARRA contains a grace period of two full COBRA billing periods subsequent to the Act's effective date within which to commence the subsidy, provided appropriate premium credits (or refunds) are provided in subsequent periods.

Impact on Employers

While the reimbursement of the subsidy appears to make these provisions cost-neutral to the employer, it, in fact, does not. In general, COBRA beneficiaries have significantly worse experience than active employees as a group – primarily because of the cost of COBRA coverage, but also because former employees with high medical expenses may be less likely to obtain other coverage as quickly as healthier (often younger) former employees. While the subsidized coverage may be more attractive to those former employees with less expectation of high medical expenses, the fact remains that laid-off employees have limited resources and purchasing medical care may be of lower priority to those with less claims experience, even at subsidized rates.

In addition, the retroactive election period (of at least 60 days) afforded to those who were laid off on or after September 1, 2008, and who did not originally elect COBRA, is likely to lead to elections of coverage by those who did not expect high medical bills when they were laid off but who have developed serious medical conditions in the interim. Thus, we expect that the pattern of higher-than-average COBRA experience will continue.

What Should Employers Do Now to Comply with the COBRA provisions?

Employers should take steps to ensure timely compliance with the provisions of the ARRA. First, individuals should be identified who are eligible for the subsidy (i.e., those who were involuntarily terminated beginning September 1, 2008). Second, if an employer maintains another same-cost or lower-cost plan, the employer should determine if it will offer eligible individuals the choice of that plan (or plans) or the coverage normally made available to COBRA-eligible individuals. Third, the employer must also decide how affected individuals will be notified of this new law, particularly whether a notice will be provided imminently or whether the employer will wait to provide the notice after the DOL issues a "model notice." Finally, the employer's payroll processes must be reviewed and changed to meet the requirements of the new law.

Content From: Labor Law Center Blog and Littler.com