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LABOR & EMPLOYMENT LAW — 02/27/09

President Obama signs economic stimulus package: What are the labor and employment provisions?

President Barack Obama signed the $787.2 billion economic stimulus package in Denver, Colorado on February 17, 2009. Passed by Congress on February 13, the American Recovery and Reinvestment Act of 2009 (H.R. 1) is aimed at combating the worst economic crisis since the Great Depression. The House of Representatives passed the economic stimulus plan on February 13, 2009, voting 246 to 183 in favor of the measure. The Senate passed the plan late February 13 by a vote of 60-38. The Senate vote occurred under unusual circumstances as it was held open for several hours to accommodate a late arriving democratic senator who had returned home that day for a memorial service. Prior to the yea vote by Senator Sherrod Brown (D-Ohio), the tally stood at 59-38, one vote shy of the 60 needed to overcome a procedural point of order. Three republicans crossed party lines to back the measure, but democratic leadership found themselves needing Brown's vote as Senator Edward M. Kennedy (D-Mass) was too ill to make it to the Capitol.

Obama said that passage of the economic package "is a major milestone on our road to recovery." The President, in his weekly radio address on February 14, thanked the members of Congress who voted for the bill. Obama said the package will save or create more than 3.5 million jobs over the next two years, boost business and consumer spending and establish the groundwork for long-term economic growth. He stressed, however, that the economic plan is only the beginning of action that must be taken to stabilize and reform the banking system and make credit available to families and businesses. "Our long-term economic growth demands that we tame our burgeoning federal deficit; that we invest in the things we need, and dispense with the things we don't," Obama asserted. The President acknowledged that his agenda is challenging but that it is possible to "turn this crisis into opportunity."

Compromise reached. House and Senate lawmakers reached an agreement to scale back the American Recovery and Reinvestment Act of 2009 on February 11. Many of the tax cut provisions were pared down in order to reduce the overall cost, including the "Making Work Pay" credit highly touted by the Obama Administration. Still, tax cuts comprise approximately 35 percent of the bill. President Obama thanked Democrats and Republicans in Congress for supporting the compromise. He said the measure will save or create more than 3.5 million jobs and put the US economy on track. The plan will provide "immediate tax relief to families and businesses, while investing in priorities like health care, education, energy, and infrastructure that will grow our economy once more," Obama said in a written statement. Although the bipartisan agreement reduces the "Making Work Pay" tax credit, White House Press Secretary Gibbs cited the President's oft-repeated argument for acting swiftly on the economic package. "The President said, let's not make the perfect the enemy of what's absolutely necessary now," Gibbs noted.

The "Making Work Pay" tax credit would cut taxes for more than 95 percent of working families in the United States. For 2009 and 2010, the bill would provide a refundable tax credit of up to $400 for working individuals and $800 for working families. This tax credit would be calculated at a rate of 6.2 percent of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns. This proposal is estimated to cost $116.199 billion over 10 years.

E-Verify provisions struck. Representative Ken Calvert's (R-Cal) and Jack Kingston's (R-GA) E-Verify provisions have been stripped from the final version of the stimulus bill. This includes Calvert's provision that would have reauthorized the E-Verify program for four years and Kingston's provision requiring businesses that receive funds from the stimulus legislation to use the E-Verify program. Specifically, Kingston's provision states that "none of the funds made available in this Act may be used to enter into a contract with an entity that does not participate in the E-Verify program described in section 401(b) of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996."

Restrictions on hiring foreign nationals by TARP recipients. Proposed by Senators Bernie Sanders (I-Vt) and Charles Grassley (R-Iowa), a provision that would require that companies receiving TARP funds and applying for workers under the H-1B process operate as an "H-1B dependent company" made its way into the final bill. This means such companies will still be able to hire H-1B visa holders, but must comply with the H-1B dependent employer rules, which include attesting to actively recruiting American workers, not displacing American workers with H-1B visa holders and not replacing laid off American workers with foreign workers. The H1-B provision includes a two-year sunset date. "The measure would require the bailed-out banks to hire only Americans for two years, unless they could prove they were not replacing laid-off Americans with guest workers," said Sanders in a February 13 release.

H1-B visas are given to US companies seeking to hire nonimmigrant aliens in specialty occupations of distinguished merit and ability when such workers are in limited quantities in the United States. A specialty occupation requires the theoretical and practical application of a body of specialized knowledge and a bachelor's degree or the equivalent in the specific specialty ( e.g., sciences, medicine and health care, education, biotechnology and business specialties, etc).

COBRA. To help workers maintain health coverage, the stimulus bill provides a 65 percent subsidy for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation premiums for up to nine months for workers who have been involuntarily terminated, and for their families. Employers who pay COBRA assistance payments for their separated employees would be able to recover the cost; they would receive a credit against their payroll tax deposits to offset the subsidy. The subsidy also applies to health care continuation coverage if required by states for small employers.

To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009. Employers are responsible for notifying individuals who are eligible for the COBRA subsidy.

The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between September 1, 2008 and enactment, but failed to initially elect COBRA because it was unaffordable, would be given an additional 60 days to elect COBRA and receive the subsidy. To ensure that this assistance is targeted at workers who are most in need, participants must attest that their same year income will not exceed $125,000 for individuals and $250,000 for families. The Joint Committee on Taxation estimates that this provision would help seven million people maintain their health insurance by providing a vital bridge for workers who have been forced out of their jobs in this recession. This provision is estimated to cost $24.7 billion.

Unemployment insurance. Under current law, all federal unemployment benefits are subject to taxation. The average unemployment benefit is approximately $300 per month. The stimulus bill temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. Any unemployment benefits over $2,400 will be subject to federal income tax. This proposal is in effect for taxable year 2009. This proposal is estimated to cost $4.740 billion over 10 years.

In addition, through December 31, 2009, the bill continues the Emergency Unemployment Compensation program, which provides up to 33 weeks of extended unemployment benefits to workers exhausting their regular benefits. This provision is estimated to cost $26.96 billion.

The bill also increases unemployment weekly benefits by an additional $25 through 2009. This provision is estimated to cost $8.8 billion. The bill provides one-time grants to reward and encourage states enacting specific reforms designed to increase unemployment compensation coverage among low-wage, part-time and other jobless workers, as well as provides an additional $500 million in administrative funding to all states. This provision is estimated to cost $2.975 billion. The bill temporarily waives interest payments and the accrual in interest on loans received by state unemployment trust funds through December 31, 2010. This provision is estimated to cost $1.1 billion. Additional provisions extend unemployment compensation for 13 weeks to railroad workers, who are not included in the federal/state unemployment system (this provision is estimated to cost $21 million) and provide temporary federal assistance to states for the administration of the extended benefits program (this provision is estimated to cost $138 million).

Incentives to hire unemployed veterans and disconnected youth. Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth. An individual would qualify as an unemployed veteran if they were discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. This proposal is estimated to cost $231 million over 10 years.

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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