Paychex HR and Payroll Services in Tucson, Arizona

Beginning January 1, 2019, Arizona employers not subject to federal COBRA requirements, and with an average of 1–20 employees during the prior calendar year, will be required to offer new state continuation coverage.

State continuation laws protect employees who lose their group health insurance due to specific qualifying events. In those cases, employers that are subject to the laws must offer temporary coverage equal to what was lost.

With the passing of Legislation S.B. 1217 in April 2018, Arizona became the 43rd state plus the District of Columbia to require state continuation coverage, leaving only Alabama, Alaska, Idaho, Indiana, Michigan, Montana, Nevada, and Puerto Rico without some form of requirements.

Who qualifies for state continuation coverage?

The new Arizona continuation law effectively mirrors COBRA requirements. An employee qualifies for state continuation coverage if they were enrolled in their employer’s group health plan for at least three months before a qualifying event. Coverage also applies to their spouse and any qualified dependents if they were enrolled in the plan at the time of the qualifying event.

The state continuation coverage must be equal to the health coverage provided by the employer before the event.

What counts as a qualifying event?

There are seven specific events that may qualify an employee, their spouse, and their dependents for coverage, as outlined in the Arizona continuation law. These include:

1. Voluntary or involuntary termination of employment, except in cases of gross misconduct
2. A reduction of hours that ends the employee’s eligibility for health insurance
3. Divorce or separation
4. Death of employee
5. Employee becomes eligible for Medicare
6. Dependent is no longer eligible for coverage under the employee’s plan
7. Retiree or the spouse or dependent child of the retiree loses coverage within one year before or after the employer begins a Title 11 bankruptcy proceeding

What are my responsibilities as an employer?

If you’re an employer subject to the Arizona law, you must notify your employee of their eligibility for state continuation coverage by writing within 30 days of the qualifying event. Postmarks within 44 days of the event are allowed under the law. The employee then has 60 days after the date of the communication or notice to elect to receive continuation coverage.

When elected, continuation coverage must be identical to the employee’s health coverage before the qualifying event. 

How long must I provide coverage?

State continuation coverage continues for 18 months after the start date, but it may be cut short in cases where:

• The employee doesn’t pay their premium + surcharge/administrative fee 
• The employee or dependent becomes eligible for Medicare or Medicaid 
• The employer no longer offers coverage to all employees 
• A covered dependent would otherwise lose coverage under the plan 

Extensions may also be provided in certain circumstances:

• An employee may request an 11-month extension for qualified dependents with a disability.
• The employer may provide an 18-month extension to a dependent if any of the qualifying events listed from 3–6 above occur during continuation coverage.

Could my business be penalized for non-compliance?

Unlike COBRA, where the U.S. Department of Labor can fine employers $110 a day for a delinquent notice, there is no stated penalty for non-compliance with Arizona state continuation.

How can I make state continuation easier to manage?

Companies that specialize in the administration of state continuation coverage and COBRA can help you set up a new program and monitor the law for changes that could affect your business. Connecting your program to your payroll and group health insurance can also help simplify state continuation for your business.

Visit Paychex WORX for updates on state continuation laws, COBRA, and more regulations that may affect your business.

The number of states requiring private employers to use E-Verify — the federal web-based system used to verify employment eligibility — is expanding, as Florida’s governor signed Senate Bill 1718 on May 10, 2023. The legislation includes provisions impacting private employers with 25 or more employees. Some provisions of the expanded law go into effect July 1, 2023, while other provisions have different effective dates.

Currently under Florida Labor Statute XXXI, the state requires private employers to verify an individual’s eligibility for employment after an offer has been accepted, using either the E-Verify system or by requiring the employer to retain copies of the same documents presented to complete Form I-9. That statute, which took effect Jan. 1, 2021, also requires the use of the E-Verify system for all public employers, contractors, and subcontractors.

What Is E-Verify?

E-Verify is a federal government program available since the mid-1990s to employers to verify employment eligibility of newly hired employees. The system is designed to help mitigate the risk of hiring and employing individuals who are not authorized to work in the United States. Certain federal contractors are required to use the system, and since the 1990s and mostly in the past decade, 23 states and localities have adopted legislation that mandates the use of E-Verify for certain employers.

E-Verify is available, however, for any employer to utilize voluntarily.

The E-Verify system compares information from an employee’s completed Form I-9 with records available to the U.S. Department of Homeland Security and the Social Security Administration. Form I-9 — the federal form used to verify the identity and employment authorization of individuals hired to work in the U.S. — includes multiple sections. Employees must complete every field in Section I (bullets below), with the exception of their telephone number, email-address, and social security number.

• Name
• Address
• Date of birth

However, if the employer participates in E-Verify, employees must provide their social security number.

E-Verify is designed to provide real-time results that enable employers to know if an individual is eligible for employment in the United States. If there is information that does not match, the employer and employee are provided with details on how to resolve the situation.

States Requiring All or Most Employers To Use E-Verify

The states that require all or most employers in their state to use E-Verify are Alabama, Arizona, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, and Utah. Florida joins this list on July 1, 2023, when it will mandate the use of E-Verify for private employers with 25 or more employees.

While certain public and private employers and government contractor might be required to use the E-Verify system under applicable law, any business in any state may use the system to verify new hires voluntarily.

However, employers should discuss with legal counsel whether they would want to do so voluntarily.

Are Public Employers Required to Use E-Verify?

In addition to Florida, there are also some states, counties, and cities that require public employers and employers with government contracts to utilize E-Verify. Under a presidential Executive Order, certain federal contractors in every state, as well as their subcontractors, are required to use E-Verify under the Federal Acquisition Regulation (FAR). Exemptions and exceptions to this requirement can be found on the E-Verify website.

What Florida Employers Should Know About Senate Bill 1718

Employers covered under the new Florida law (SB 1718) must comply with the federal requirements of the E-Verify system for newly hired employees (not independent contractors) beginning July 1, 2023. Compliance with the E-Verify system prohibits employers from creating cases for employees hired before the employer enrolled in E-Verify.

The following, although not inclusive of every requirement, are just a few of the obligations employers have once an employee is hired. The E-Verify website has more details about your requirements.

• Employers have three days after the first day a new hire begins work to create a case in E-Verify to confirm the employee’s employment eligibility.
• If an employer is unable to gain access to the E-Verify system in those first three business days after a new hire, the employer must retain proof of inaccessibility (e.g., a screenshot of each day the system could not be accessed, an announcement that the system was unavailable).

Employers are also subject to recordkeeping obligations under Senate Bill 1718 that include retaining copies of the documentation presented by the newly hired employee when completing Form I-9 along with any official verification generated from the E-Verify process.

Additional employer compliance requirements under the Florida legislation include certification on its initial return each calendar year of the Re-employment Tax Return.

An employer who voluntarily uses E-Verify and wishes to document usage of the system may also make a certification on its first return each calendar year.

What Are the Penalties for Non-Compliance with Florida’s Senate Bill 1718?

Starting July 1, 2024, enforcement will begin for covered employers. If an employer fails to use the E-Verify system to verify the identity and work authorization of each new hire, the employer will be notified of a determination of noncompliance by the Department of Economic Opportunity and will have 30 days after notification to cure this noncompliance.

Penalties might be assessed for employers who fail to use the E-Verify system three times in any 24-month period. This:

• Might result in fines of up to $1,000 per day until sufficient proof of compliance is provided.
• Could result in suspension or revocation of licenses such as a franchise, permit, certification, registration, charter, or similar form of authorization required by law.
  • The number of days such licenses will be suspended varies with the number of unauthorized individuals employed.

Additional provisions and penalties can be found in the legislation.

A series of co-mingled laws dating back to the earliest days of the COVID-19 pandemic in March 2020 provided billions of dollars in aid that included funding to help finance the requirement for certain employers to offer emergency paid sick and emergency family and medical leave — and later credit for qualified employers who voluntarily offered this coverage.

The end of the National Public Health Emergency resulted in the end of these requirements for certain employers to offer the emergency leaves. What remains now for businesses still trying to recover from the negative financial impact of the pandemic is the potential to claim payroll tax credits if they were eligible but did not claim these credits previously or if they need to adjust the amounts they claimed.

Note: These tax credits need to be reconciled with other tax credits and government funding to ensure that no double-dipping takes place, which includes any tax credits/amounts already claimed and received for Paycheck Protection promise (PPP) loan forgiveness and the employee retention tax credit.

It’s important to understand the framework of leave and associated credit for any employer who needs to amend any prior quarter’s Form 941 in 2020 and 2021 to claim or adjust the credit, so it is done accurately. This requires the use of Form 941-x.

Tax Credits Under Family First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) originally offered payroll tax credits to American private employers with fewer than 500 employees to offset the costs of the requirement to provide employees with qualifying paid leave for specified reasons related to COVID-19. When that mandate sunset at the end of 2020, the American Rescue Plan Act (ARPA) extended and expanded the payroll tax credits, allowing covered employers to take the credits until Sept. 30, 2021, if they voluntarily provided employee paid leave under the FFCRA framework.

However, the credit could be impacted by state and local COVID-19 leave requirements and the interaction with the requirements under FFCRA. Plus, an employer could only qualify for the federal tax credit if the leave met the requirement of the original FFCRA mandate.

It should be noted that the credit cannot be claimed by private employers with 500-plus employers even if they offered comparable leave.

The following highlights the changes under ARPA and delineates by date because if you plan to claim the credit on payroll taxes paid through March 31, 2021, or after April 1, 2021, there are different requirements.

What is the Purpose of the Tax Credits?

Employers who provided employees with qualified paid leave related to COVID-19 that fell under the Emergency Paid Sick Leave Act (EPSLA) and/or the Emergency Family and Medical Leave Expansion Act (EFMLEA) can receive tax credits to reimburse 100 percent of leave wages paid.

April 1, 2020 through March 31, 2021

Generally, American private employers with fewer than 500 employees were eligible to claim the credits. Self-employed individuals could have claimed the family leave credit for up to 50 days.

April 1, 2021 through Sept. 30, 2021

In addition to private employers, healthcare providers and certain governmental and state/local employers became eligible to claim the credit under the same requirements. The limit on the family leave credit for self-employed individuals increased to 60 days.

Under ARPA, new non-discrimination rules also were established that apply to the credit for either leave, disallowing a credit for any employer who discriminates in favor of highly compensated employees, full-time employees or employees based on employment tenure.

Calculation of Maximum Hours

April 1, 2020 through March 31, 2021

• Full-time employees were entitled to 80 hours of leave under the EPSLA if they were normally scheduled to work at least 40 hours each workweek.
• Part-time employees who worked less than 40 hours per week were entitled to EPSL in the amount up to the number of hours that an employee works, on average, over a two-week period.

The U.S. DOL included additional guidance in its Temporary Final Rule for the calculation of maximum EPSL if a traditional weekly schedule does not exist or if a schedule varies.

Under the EFMLEA, calculate hours of leave based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, you may use a six-month average to calculate the average daily hours.

April 1, 2021 through Sept. 30, 2021

The maximum number of days for which qualified sick leave wages could be paid and the number allowed for an employer to get a credit would be reset to 10 days. Hours were calculated as noted above. However, employees couldn’t carry over unused hours. If an employer chose to provide leave under the EPSLA or EFMLEA, they would be eligible to claim the credit again.

What Are the Qualifying Reasons for Taking Leave?

April 1, 2020 through March 31, 2021

An employee qualified for EPSL if they were unable to work (including unable to telework) related to COVID-19 because the employee:

1. Was subject to a federal, state, or local quarantine or isolation order
2. Had been advised by a healthcare provider to self-quarantine
3. Was experiencing COVID-19 symptoms and is seeking a medical diagnosis
4. Was caring for an individual subject to an order (described in 1) or self-quarantine (described in 2)
5. Was caring for his or her child whose school or place of care is closed (or childcare provider is unavailable)
6. Was experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services

Part-time employees would generally have been eligible for Emergency Paid Sick Leave in an amount equivalent to their regularly schedule hours for a two-week period.

Under the EFMLEA, an employee would have only qualified for leave under No. 5 above.

April 1, 2021 through Sept. 30, 2021

The American Rescue Plan Act changed leave under the EFMLEA. Employees qualified for all six reasons to take leave that was available under the EPSLA, plus both leaves gained additional reasons under No. 3 (above), as follows:

• Employers could have claimed the credit for sick leave wages paid for employees taking leave while they awaited the results of a diagnostic test for COVID-19 after being exposed to the virus or because their employer requested the test.
• Leave taken for the employee to obtain a COVID-19 vaccine or to recover from any health issues resulting from the vaccine.

What Are the Wage Calculations for Paid Sick Leave?

Employees were to be paid based on:

• For reasons Nos. 1 to 3 above, the higher of the employee's regular rate of pay, or the applicable state or federal minimum wage, up to $511 per day
• For reasons Nos. 4 to 6 above, the higher of 2/3rds of the employee's regular rate of pay, or the applicable state or federal minimum wage, up to $200 per day

What Should Businesses Know About the EPSLA?

The American Rescue Plan Act of 2021 changed some of the provisions of the FFCRA, including the reallocation of which portion of the credit is non-refundable. The amount of the credit stayed the same.

April 1, 2020 through March 31, 2021

• If the credit exceeded the employer’s total liability of the portion of Social Security in any calendar quarter, the excess was refundable to the employer.

April 1, 2021 through Sept. 30, 2021

• If the credit exceeded the employer’s total liability of the portion of Medicare in any calendar quarter, the excess is refundable to the employer.

Additional changes included:

• The credit increased by the cost of the employer’s qualified health plan expenses and by the certain employer’s collectively bargained contributions to a defined benefit pension plan and certain amounts of collectively bargained apprenticeship program contributions.

Paid sick time provided under this Act was not preempted by other federal, state, or local laws. The IRS created FAQs that provide an overview of the tax credits.

What Should Businesses Know About the EFMLEA?

Under the EFMLEA:

Through March 31, 2021

An eligible employee qualifies for leave for caring for his or her child whose school or place of care is closed (or childcare provider is unavailable) would be paid by their employer after the first 10 days of leave at a rate of not less than two-thirds of their current rate of pay for the number of hours the employee would otherwise be scheduled to work, up to a maximum of $200 per day or an aggregate of $10,000, for up to 12 weeks in a 12-month period.

April 1, 2021 through Sept. 30, 2021

Other changes under ARPA are an increase in the maximum aggregate amount to $12,000 for up to 12 weeks in a 12-month period and the expansion of eligibility to include employers of healthcare workers and emergency responders

Recordkeeping

Employers must retain documents and information regarding leave for a period of four years, regardless of whether the decision was made to grant or deny the request for leave.

For tax credit purposes, the U.S. DOL requires employers to maintain the following for four years:

• Documentation to show how the employer determined how much paid leave the employee was eligible for (e.g., records of work performed, telework, and paid leave credits)
• Documentation to show how the employer determined the amount of qualified health plan expenses that were allocated to wages.
• Copies of any completed IRS Forms 7200 and 941 that the employer submitted to the IRS (or provided to a third-party payer to meet an employer’s employment tax obligations).

How Paychex Can Help

The passage of multiple laws created complexities for businesses owners who want to take advantage of the paid leave tax credits. However, employers must review their obligations under existing state and local COVID-19 leave laws, as well as any other federal, state or local laws related to an employee’s right to leave.

This is a good time to re-evaluate your HR needs. Consider how our HR Services, tax services and payroll solutions could save you time by helping alleviate extra work and the potential risk of non-compliance.