10 Top Regulatory Issues for Small Businesses in 2018
Small business owners may feel overwhelmed by current regulatory issues and legislative reforms. The Trump administration has upended many longtime policies, and it can be tough to keep up with the changes. To help keep small businesses aware of the issues that impact them, Paychex has identified some of the most important regulatory challenges, and explains how they could affect businesses in 2018.
- Tax reform
In the last weeks of 2017, Congressional Republicans passed with unusual speed the first major tax overhaul in decades. Businesses and lawmakers are now rapidly assessing the bill's impact, since many provisions take effect in 2018. Key points for businesses include the reduction in the corporate tax rate to 21 percent, and deduction of business income for pass-through entities of up to 20 percent (requirements for application of this deduction are complex). Stay tuned as the impacts of this policy evolve.
- States react to federal tax reform
State taxing authorities must decide how they will handle changes brought on by federal tax reform. Many states conform to federal tax standards, and will need to move quickly to update their systems. Many states are also scrambling to come up with laws to lessen the effect of federal tax changes on their state taxpayers. Most states conform to the Internal Revenue Code (IRC) to some extent: some adhere to the entire code, others conform with exceptions, and some follow the code on a specific date.
Based on the new tax law, states would have to make legislative changes if they opt for date-specific conformity to the IRC. The start of 2018 could be a busy time for state leaders who are assessing how to absorb the changes caused by the federal tax overhaul and make adjustments within a condensed timetable.
- The Affordable Care Act
Under the Affordable Care Act (ACA), individuals must demonstrate they have qualified health insurance coverage or qualify for an exemption on their tax returns, or face a penalty from the IRS. The tax reform overhaul negates the ACA’s individual mandate penalty by reducing it to $0 by 2019. Although the tax bill does not repeal the provision, negating the penalty amount essentially has that effect.
It should be noted that this does not change the filing requirement for the individual mandate; the IRS requires self-insured employers and insurers to report individuals covered by their plan or face penalties. Other provisions in the ACA, including the employer shared responsibility provision, remain unchanged. Employers should prepare for current year ACA filing obligations and gather 2018 tax year data for next year’s filing.
- Paid leave laws
More than 40 states and local jurisdictions have passed paid sick leave laws applicable to private employers. 2018 will bring the nation's most comprehensive paid family leave program to New York state. Paid leave laws, whether passed or proposed, can be complex, but family leave laws are the most onerous, containing provisions related to employer coverage, employee eligibility, employee/employer notice requirements, recordkeeping, and penalties. Many also impose employee payroll deductions and employer taxes, which require coordination with other leave laws such as the federal Family and Medical Leave Act.
The Workflex in the 21st Century Act, a recent proposal in Congress, could pre-empt the many state and local paid leave laws for employers that elect to offer paid leave and flexible work schedules as prescribed in the legislative proposal.
- Employee verification
Businesses use Form I-9, Employment Eligibility Verification, to meet the federal requirement to confirm an employee's identity and eligibility to work in the U.S. The IRS made minor changes to the form in 2017. Even still, employers need to ensure they use the correct form and deliver the separate instruction pages to all workers on their first day of employment.
Immigration and Customs Enforcement plans to quadruple the number of Form I-9 on-site inspections in 2018, consistent with President Trump's campaign platform and post-election agenda for immigration reform. Additionally, the Legal Workforce Act, introduced in 2017, could eventually phase out the Form I-9, replacing federal verification requirements for employers by mandating the use of the E-Verify system. Currently only private employers in a handful of states must do this.
- Overtime regulations
The final overtime rule, released during the Obama administration, was invalidated in a federal district court in 2017. Activity related to federal overtime regulations will continue in 2018. Over the summer, the Wage and Hour Division of the U.S. Department of Labor (DOL) released a request for information soliciting public comments on the existing overtime regulations that define and delimit exemptions from the federal Fair Labor Standards Act's minimum wage and overtime requirements for certain white-collar employees. We expect this step in the formal rulemaking will be followed by a notice of proposed rulemaking, and then a final rule revising the overtime regulations.
Employers should continue to comply with the existing federal overtime regulations, as well as applicable state requirements that may incorporate salary levels exceeding the federal level. We could see new federal overtime regulations by early 2019.
- Pay equity
In 2017, the White House Office of Management and Budget (OMB) made controversial revisions to the EEO-1 form that were scheduled to take effect in 2018. However, the OMB stayed the changes this past summer.
Employers should note that the changes made to the submission date of the EEO-1 (March 31, 2018) and the "workforce snapshot period" (fourth calendar quarter of 2017) are in effect for 2018 submissions. It remains to be seen whether the EEOC, with its newly appointed members, will revisit the collection of employer wage data as it moves forward with its strategic enforcement plan for fiscal years 2017-2021. The plan includes a focus on gender-based pay discrimination enforcement.
Pay discrimination based on gender also concerns states looking to aggressively address recognized and documented gender pay gaps and ensure pay equity in the workplace. In 2018, states and even some local jurisdictions will likely push through proposals to ban or limit the collection and use of salary information and benefits history in the hiring process.
- Cyber security and privacy
Cyber security threats represent an ever-growing hazard in today's global, digitally connected society. Businesses that fail to protect sensitive information face regulatory, reputational, and litigation risks, as well as crushing remediation expenditures.
States' attorneys general and federal regulatory agencies, such as the Federal Trade Commission and the Consumer Financial Protection Board, investigate and penalize businesses for data security failures leading to data breaches. Recent comprehensive cybersecurity rules enacted by state agencies in New York and Colorado may prompt other states to regulate and enforce data security standards in the financial services and insurance industries. And with the rise of biometric technology in the private sector, privacy laws regulating the collection and use of biometric data, such as those in Illinois, Texas, and Washington, may become nationwide industry standards.
- State and municipal retirement plans
Because a large percentage of private-sector workers aren’t saving enough for retirement, combined with the forecasted shortcomings of the Social Security program, many states are considering developing state-sponsored retirement savings plans. To date, nine have enacted laws allowing program development.
Each state's program is structured as a Roth individual retirement account (IRA), a multiple employer plan (MEP), or a marketplace where users can shop for and compare plans. Employer requirements vary by state: Some mandate participation based on company size, while others keep employer participation voluntary. Auto-enrollment of employees is also state-specific.
The OregonSaves program is furthest along with implementation. Illinois, Connecticut, California, Maryland, Vermont, and Washington anticipate rollouts in 2018 or 2019; New Jersey and Massachusetts have yet to specify start dates. Another 22 states and municipalities have introduced legislation supporting the creation of state-run programs. Businesses that don’t offer their employees a retirement plan will need to watch individual state developments closely.
- Payment evolution
In September 2017, the second phase of same-day automated clearinghouse (ACH), permitting debits up to $25,000, became a payment option for businesses, giving cash flow management a boost. Faster payment options will continue to expand and become more available to small businesses in 2018.
Starting in March 2018, financial institutions will be required to meet a strict 5 p.m. local deadline for same-day ACH funds availability. The gig economy — temporary, flexible jobs performed by freelancers — is pushing faster payment modalities. 2018 may see near real-time payment solutions, along with more convenient options for paying out tips to employees. Small businesses should work closely with their financial institutions, payment processors, and vendors to identify opportunities to improve payment speed.
Paychex tracks the issues that matter most to small and mid-sized businesses, and provides the information and resources they need to make the best decisions. If you’re looking to advance the long-term success of your business, Paychex can help you along the way.