Save on Employee Benefits Through the New Federal Relief Package

Here's how you can pay for employee benefits using the Paycheck Protection Program.

The American Rescue Act was signed into law last March 11, and provides additional pandemic relief for small businesses, adds grants for restaurants, increases funding for grants for entertainment venues, and makes changes to the Paycheck Protection Program (PPP). Now that the dust has settled, what does this mean for your business?

$7.25B in Paycheck Protection Program (PPP) Funding

The new law adds about $7.25 billion to the Paycheck Protection Program. This popular program provides forgivable loans to small businesses, independent contractors, freelancers, and proprietors. The loans will only be forgiven, however, if at least 60% of the money is used to support payroll expenses and the remainder goes to mortgage interest, rent, utilities, personal protective equipment or other business expenses.

PPP loan forgiveness is also expanded to include payments made for premiums on behalf of individuals who qualify for COBRA health insurance continuation coverage. The expansion applies only with respect to loan forgiveness applications received after March 10, 2021.

The rules of the program have been changed to target businesses that have suffered revenue declines and expanded to include more eligible businesses. This time around, money has been set aside specifically for businesses in low-income communities.

The final day for applications is on March 31, although there is new legislation that proposes to extend the deadline two months through the end of May. You can apply by finding a Small Business approved lender here.

What This Means for Your Business

Whether or not you took out a PPP loan the first time, if your business had continued to struggle in 2020, consider applying if you believe your business qualifies. These loans, just like the first round, may qualify for full forgiveness. And if you didn’t apply the first time because you didn’t think your business was big enough, now may be the time to consider it, as second draw PPP loans put even more emphasis on very small businesses (300 employees or fewer).

Again, these funds are forgivable, so if you realize you might have qualified for more in loan funds the first time, having that cushion could be what your business needs to get through the coming months.

Using Your PPP Loan for Employee Benefits

At least 60 percent of the PPP loan must be used to fund payroll and employee benefits costs.

What does this mean? In addition to salaries, the rules include, “covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).”

So yes, you can use the PPP loan towards the health plan premium that you pay for or partially pay for. However, ‘payroll costs’ do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium.


Where and When to Apply

You can apply through any existing SBA lender. The final day for applications is on March 31, although there is new legislation that proposes to extend the deadline two months through the end of May. You can apply by finding a Small Business approved lender here.

Things are looking hopeful that the economy will recover in 2021. But regardless of this recovery, many small businesses still need help recovering from the devastating financial impact of the prior year. Our advice for employee retention? Take advantage of as many of these stimulus programs as you can.

The full American Rescue Plan Act can be found here.

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Employee FAQ

In most scenarios, the employer must give you the option to stay on the group health plan.

Part A covers hospitalizations and inpatient care.

Part B covers office visits and outpatient care.

Part C combines Part A and B benefits into a single plan administered by private insurance companies. This is referred to as the Medicare Advantage plan.

Part D covers prescription drugs, and many Part C plans also include Part D coverage.
There are also Medicare Supplement plans, sometimes called Medigap plans, which are available to people covered under Parts A and B. These plans cover some of the deductible and out-of-pocket expenses associated with Medicare.

Usually, if the employer has fewer than 20 employees, Medicare will be your primary insurance coverage. Likewise, if the employer has 20 or more employees, the group health plan will usually be your primary insurance coverage. Check with the employer to be certain.

Most people don’t have to pay any premium for Medicare Part A. Most people must pay a premium for Medicare Part B. The exact premium depends on your income and varies from one year to the next. Check for a list of the current premiums.

Generally, you’ll need to sign up for both Medicare Part A and B even if you continue the group health plan. The group health plan usually won’t pay for what Medicare would otherwise cover

Most people choose to delay enrollment in Part B due to the premium. However, you may want to consider enrolling in Part A since there is usually no premium.

Yes. Enrolling in either Part A or B will eliminate your ability to contribute to an HSA.

Not if you delay enrollment because you are covered by a group health plan based on your current employment or your spouse’s employment. However, once employment is terminated, you must sign up for coverage within 8 months even if you elect COBRA. Failure to sign up for Medicare Part A and/or B during this time could limit when you can enroll and/or result in a penalty.

Your acceptance is guaranteed with every insurance company within 6 months of enrolling in Part B. Even if you’ve been enrolled in Part B for more than 6 months, most plan options will be available to you at a later date provided you delayed enrollment in a Medicare Supplement plan because you were covered by a group health plan. You’ll need to act quickly after losing coverage under the group health plan. You’ll have 63 days to sign up.

You’ll have a 7-month initial enrollment period that starts 3 months before you’re eligible for Medicare, includes the month of Medicare eligibility, and concludes 3 months thereafter. If you delay enrollment in either plan because you were covered by a group health plan, you’ll have at least 60 days to sign up for either plan after you lose the group health plan.

Please be aware that if you delay enrollment in Part D you could be charged a late enrollment penalty unless you have creditable prescription drug coverage elsewhere. The employer is supposed to provide you with a notice prior to October 15th of each year which indicates if the drug coverage on the group health plan is creditable. The term creditable means the prescription drug coverage on the group health plan is at least as good as the standard Part D plan. Most group health plans provide creditable prescription drug coverage.