What are some of the administrative burdens related to designing and implementing premium pay? Are there any strategies to reduce these burdens?

Premium pay, as defined by the American Rescue Plan (“ARP”) Final Rule, is designed to compensate workers who, by virtue of their employment, were forced to take on additional burdens and make great personal sacrifice as a result of the COVID-19 pandemic.[1] When designing and implementing premium pay, there are several steps municipalities must take.

1. The municipality must consider the Final Rule’s definition of an eligible worker.[2]
2. The municipality must determine whether the eligible worker performs work that is essential to the COVID-19 pandemic, as defined by the Final Rule.[3]
3. The municipality must confirm the premium pay is a response to the pandemic.[4]
4. The premium pay must be limited to $13 per hour and $25,000 per employee over the period of performance.[5]

To ease the administrative burdens related to design and implementation of premium pay, municipalities may consider a few simple guidelines:

• As a threshold matter, any work performed by an employee of a state, local, or tribal government is considered performed by an eligible worker, which include workers “needed to maintain continuity of operations of essential critical infrastructure sectors.”.[6]  A non-exhaustive list of these sectors and occupations can be found in the Overview of the Final Rule.[7] Premium pay may not be paid to volunteers.[8]
• The municipality must ensure that all eligible workers receiving premium pay are performing “essential work.”[9] This does not include work performed while teleworking from a residence. Essential work includes either: regular, in-person interactions with patients, the public, or coworkers of the individual who is performing the work, or regular physical handling of items that were handled by, or are to be handled by, patients, the public, or coworkers of the individual who is performing the work.[10]
• Premium pay must be a response to the COVID-19 pandemic.[11]
• Income and premium pay must not exceed the following caps:
  • Premium pay cannot exceed $13 per hour or a total of $25,000 over the entire period of performance.[12] Municipalities have discretion over how premium pay is delivered as long as it does not exceed the hourly limit or the total maximum allowable pay of $25,000 during the performance period.[13]
  • A written justification of the need for premium pay must be submitted to Treasury if the worker’s pay (with or without premium pay) exceeds 150% of the median income of the residing state or county’s average annual wage for all occupations and the eligible work is exempt from the Fair Labor Standards Act (“FLSA”) overtime provisions.[14]
• Eligible workers who are exempt under the FSLA do not need to meet the income test and will automatically be eligible for premium pay without a written justification.[15]

Premium pay must be paid in addition to wages already received and cannot be a reimbursement of premium pay or hazard pay already received by the worker.[16]

Additionally, premium pay is subject to all applicable taxes and withholding per the IRS and must be included in a worker’s gross income for tax purposes.[17]

Last Updated: February 15, 2023