The massive $787.2 billion economic recovery package signed into law as the American Recovery and Reinvestment Act of 2009 (ARRA) by President Obama on Tuesday will impact employers in several ways. Embedded in this stimulus package are provisions relating to COBRA, business tax credits, executive compensation, and H-1B visas, among others areas.

COBRA

The stimulus provisions regarding changes to the Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation of coverage are complex and place additional burdens on employers. The key concept of the new COBRA provision involves the creation of a new “qualifying event” that makes involuntarily-terminated employees (and their covered dependents) eligible for a 65% COBRA premium subsidy for up to 9 months. An eligible employee is one who has been involuntarily terminated between September 1, 2008 and December 31, 2009 and who earns less than $125,000 if single or $250,000 if filing jointly (for those earning above these limits, the subsidy becomes taxable through an income-based phase in). Eligible individuals who initially declined coverage must be given an additional 60 days to elect to receive the subsidy. Employers or health plans that administer the COBRA benefits will receive a credit against payroll taxes for the cost of the subsidy. COBRA notices must provide information about the new extended coverage. Model notices will be made available from the Department of Labor within 30 days. Under ARRA, group health plans are permitted to offer eligible individuals to choose different coverage under the plan when the individual was receiving active employee coverage. 

The new COBRA provisions are effective for premiums as of March of this year.

H-1B Restrictions for TARP Recipients

An eleventh hour modified amendment to the stimulus package substantially limits the ability of employers that receive Troubled Asset Relief Program (TARP) funds to hire or keep employees who hold H-1B work visas. For two years, employers that receive TARP funds or certain other federal loans will be restricted from hiring new H-1B workers, or extending the status of their existing H-1B workers, unless they can show they have actively recruited US workers (that is, US citizens or permanent residents) and were unsuccessful in these attempts. Additionally, these employers must show that they are not using H-1B workers to replace laid-off US workers or otherwise displace American workers.

 Executive Compensation

A controversial portion of the stimulus package sets limits on executive compensation. The Act creates a sliding scale of compensation limits for the highest earners in an organization receiving TARP funds based on the amount of funds received. Some restrictions include banning a senior executive officer and any of the next 20 most highly compensated employees from receiving any bonus, retention award, or incentive compensation based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate. The restrictions in this provision do not, however, ban the payment of bonuses required to be paid pursuant to a written employment contract executed on or before February 11, 2009.

The compensation limits prohibit golden parachutes for a senior executive officer or any of the next 5 most highly-compensated employees. These provisions do not apply to the payment of long-term restricted stock, provided that such long-term restricted stock (a) does not fully vest during the period in which any obligation arising from financial assistance provided to that TARP recipient remains outstanding; (b) has a value in an amount that is not greater than 1/3 of the total amount of annual compensation of the employee receiving the stock; and (c) is subject to such other terms and conditions as the Secretary may determine is in the public interest.

The sliding scale of limitations works as follows: 

• For any financial institution that received financial assistance provided under the TARP equal to less than $25,000,000, the prohibition shall apply only to the most highly compensated employee of the financial institution.
• For any financial institution that received financial assistance provided under the TARP equal to at least $25,000,000, but less than $250,000,000, the prohibition shall apply to at least the 5 most highly-compensated employees of the financial institution, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.
• For any financial institution that received financial assistance provided under the TARP equal to at least $250,000,000, but less than $500,000,000, the prohibition shall apply to the senior executive officers and at least the 10 next most highly-compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.
• For any financial institution that received financial assistance provided under the TARP equal to $500,000,000 or more, the prohibition shall apply to the senior executive officers and at least the 20 next most highly-compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient. 

Limitations are also imposed on “excessive expenditures,” such as entertainment or events, office and facility renovations, aviation or other transportation services, and other activities or events that are not reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course of the business operations.

Work Opportunity Tax Credit (WOTC)

The WOTC, a voluntary program by which employers earn a tax credit for hiring individuals from one or more specific groups, is expanded under ARRA. Under the new law, employers are eligible to earn a tax credit for hiring unemployed veterans and disconnected youths after December 31, 2008. A person is considered an unemployed veteran under this Act if he or she has been discharged or released from active duty in the Armed Forces at any time during the 5-year period ending on the hiring date, and is in receipt of unemployment compensation under state or federal law for at least four weeks during the one-year period preceding the date of hire. A “disconnected youth” is considered one who is between the ages of 16 and 25, is not regularly attending school or employed during the 6-month period preceding the hiring date, and is not “readily employable by reason of lacking a sufficient number of basic skills.” 

For an in-depth analysis of these changes, see Littler's ASAPs: Stimulus Package: An In-Depth Look at the New COBRA Subsidy in the ARRA by: Steven J. Friedman, Susan K. Hoffman, and J. René Toadvine, and Besides COBRA: What Does the Stimulus Package Have for Employers by: Ellen N. Sueda, GJ Stillson MacDonnell, Patricia A. Haim, and Chadwick M. Graham.