Risk and Compliance

Eyes on Compliance

Small business funding and compensation practices top the list of pressing employment issues for 2023.

2023 is well underway, but employers are still anticipating forthcoming challenges. Many business owners have moved on from inflation-related worries —the growth of which began slowing last summer—and are now focused on upcoming adjustments to the rules and regulations that govern their operations.

As is often the case, the turning of the calendar is expected to bring a steady stream of new guidance, which will touch on matters from worker classification and funding models to retirement plans, anti-discrimination laws, and everything in between. While changes of the magnitude and breadth of those expected in 2023 can be intimidating, understanding what’s coming is just half the battle.

With this in mind, here are new or updated laws and regulations that will impact the way business is done in the coming months and beyond.

Small Business Funding

With financial pressure at top-of-mind for many, understanding how and where to access small business funds in the new year will be critical. Although it appears there will be no new federal programs in 2023, businesses can still seek out assistance through existing national, state, and local initiatives.

1. The Employee Retention Tax Credit (ERTC). This COVID-era policy is still available on a retroactive basis. While businesses that already claimed the ERTC won’t have access to more funds, those that have yet to file amended returns and claim credit can still take advantage of the program. Businesses that paid qualified wages to keep employees working between March 12, 2020 and September 30, 2021, could be eligible for a credit, while organizations identified as “Recovery Startups” can include wages paid through December 31, 2021.

2. Paycheck Protection Program (PPP) forgiveness. At COVID-19’s onset, the Small Business Administration began offering Paycheck Protection Program (PPP) loans to help businesses stay afloat during lockdowns. In 2020, they began accepting applications for loan forgiveness so businesses that used the funds appropriately could forego payments.

If an organization received a PPP loan, they may still be eligible to apply for forgiveness in a few occasions.

  1. The company has used the entirety of the loan proceeds for which they are requesting forgiveness.
  2. The PPP loan has not yet reached maturity.
  3. The application is filed no more than 10 months after the last day of the covered period.

3. The Inflation Reduction Act. As mentioned above, concerns about inflation have been slowing—and much of that is thanks to the Inflation Reduction Act. This legislation, which was introduced last year, doubled the maximum amount that could be claimed against payroll tax liability for the Research and Development Tax Credit. Under this change, eligible businesses will be able to claim up to $500,000 on their 2023 tax documents for qualified research activities.

4. State and local incentives. Some states and local organizations continue to sponsor funding programs for local businesses. At the state level, State Small Business Credit Initiative (SSBCI) programs may offer relief, with the 2021 version of the SSBCI providing $10 billion to state (and D.C.), territory, and tribal governments to support small businesses recovering from the pandemic. This includes eligible post-pandemic start-ups as well. SSBCI funding provides technical assistance to small businesses who apply and other small business programs, as well as credit and investment programs.

The Inflation Reduction Act doubled the maximum amount that could be claimed against payroll tax liability for the Research and Development Tax Credit so eligible businesses will be able to claim up to $500,000 on their 2023 tax documents for qualified research activities.

Pay Equity and Transparency

In 2023, U.S. businesses will likely be taking a deep look at their compensation and pay transparency policies. The topic of pay equity has not left the headlines or the minds of legislative bodies for years now, and more stringent pay-related laws are likely to be enacted across the country in the coming year.

Of particular note are measures in Rhode Island, Washington, and California, which took effect at the beginning of 2023. Under the new laws, employers in these states are required to demonstrate transparency by including pay ranges on job postings, distributing pay scales to candidates and existing employees who apply for open positions, and more. 

In an effort to level the playing field, other laws take aim at the use of salary histories in recruitment processes. These regulations were made to stop employers from using this information to exclude individuals or determine potential compensation, as these practices are believed to contribute to the wide pay gaps between men and women and individuals of different racial backgrounds. As of December 2022, 28 states and two territories have put salary history bans into place, and that number is likely to grow.

1. Worker classification changes.

A Notice of Proposed Rulemaking put forth by the U.S. Department of Labor (USDOL) in October of 2022 aimed to revise the current guidance for determining a worker’s classification as an employee or independent contractor under the Fair Labor Standards Act (FLSA). The proposal was designed to bring the language of the FLSA into alignment with judicial interpretations of its terms.

Under the new language, employers would have to use a multi-factor or “totality-of-circumstances” analysis to determine a worker’s status, ensuring that no single factor is given more weight than another when designating workers as employees or contractors. Per the proposal, all factors will need to be considered before an individual’s classification is determined.

As of December 2022, 28 states and two territories have put salary history bans into place, and that number is likely to grow.

2. Retirement savings.

Over the past few years, legislators have taken action to ensure Americans are prepared for a fulfilling—and adequately funded—retirement. Most recently, SECURE Act 2.0 made its way into law and expanded tax credits for small businesses starting new retirement plan offerings. Under SECURE 2.0, some small businesses (those with 50 or fewer employees) qualify for a tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan. The Act also outlines a new employer contribution credit for 2023, which is available for eligible businesses based on their employee-matching or profit-sharing contributions.

3. Wage and hour laws. 

States and localities have also made significant adjustments to wage and hour laws across the country. Numerous states (like Nevada and New York, among others) have pursued or are debating minimum wage increases, and more have taken steps to amend laws related to shift length and overtime requirements. At the same time, others have or are considering eliminating sub-minimum wage and tip credits for certain kinds of workers.

These regulations are often industry-specific and, at present, focus primarily on retail, hospitality, healthcare, and food service workers. However, employers across industries may want to pay close attention to how these conversations shake out as similar guidelines may soon touch their sectors.

While these aren’t the only compliance-related issues on the horizon for 2023, they represent pressing employment issues and will likely continue to evolve. Navigating such a complex landscape can be challenging—and the prospect of ever-shifting laws only makes the task more convoluted. However, businesses that stay in the know and work to understand the ins-and-outs of these requirements will find themselves positioned for long-term success and more prepared to contend with changes as they come.

Pamela Lacy is an HR coach at Paychex, Inc.

Tags: March 2023, Risk and Compliance

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