New W-4 Form, Final Overtime Rule Among Top Changes
Employers have challenges unique to their business. One thing that all business owners have in common is their compliance obligations – and the list seems to be getting longer each year as federal, state, and local governments create new regulations.
In 2020, several major regulations include Form W-4 for federal withholding and the Final Overtime Rule. Both are effective Jan. 1. Paychex is highlighting 10 top regulatory changes that will impact businesses and providing additional resources to help employers educate themselves and their employees about their compliance requirements.
Paychex tracks the issues that matter most to 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.
The Tax Cuts and Jobs Act of 2017 forced a revision of the federal withholding process culminating in a brand-new Form W-4 for use in 2020. Now that the new federal form and revised withholding tables are available, individual states must determine if they will update their systems based on the federal changes, keep their current process, or develop a new withholding process. A few states have made their determinations, but the vast majority still have yet to make a decision.
Final Overtime Rule
In September 2019, the U.S. Department of Labor (DOL) announced its long-awaited Final Overtime Rule to revise the federal regulations governing which employees are entitled to minimum wage and overtime pay under the federal wage and hour law. Among other changes, the Final Overtime Rule raises the “standard salary” for the executive, administrative, and professional white collar exemptions from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker), effective Jan. 1, 2020. The new rule also allows employers to use non-discretionary bonuses and certain incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in a 52-week period.
Worker classification continues to be addressed by enforcing agencies, in the courts and in local and state legislatures across the country. Perhaps the most-impactful legislation this year, especially for workers of ridesharing services, is California AB5, effective Jan. 1, 2020. The new law will require employers to demonstrate a worker satisfies a three-part (ABC) test to be classified as an independent-contractor in the state. Other state and local legislatures are considering similar legislation.
Multiple Payment Options Available to Businesses
The rapid expansion of multiple faster payments options to pay and receive funds will continue in 2020, including the rollout of the Clearinghouse’s Real Time Payments network, expansion of Same-Day ACH, and pay-on-demand products that allow workers to receive pay when it is earned. These convenient, low-cost electronic payment options will continue to make non-cash payments increasingly popular. Businesses interested in improving their cash flow through utilizing these faster payment options and assisting their employees with financial wellness should consult with their financial institution or payroll provider for more information on payment options.
Employers need to be mindful of the impact various privacy-related regulations have on the way they do business. For example, the California Consumer Privacy Act (CCPA) will have a profound impact on how employers handle their employees’ and California-based clients’ information. Applicable employers will need to know what personal information is being collected, who has access to the personal information, to whom personal information is disclosed, and do so with the understanding that the client has a right to opt out of the sale of their personal information. If the consumer exercises their right to opt out, neither their service nor pricing will be negatively impacted.
Additionally, more and more employers are utilizing biometrics to identify employees and track hours worked. However, unlike other methods of authentication such as passwords, ID cards, etc., biometric identifiers cannot be changed once compromised. Employers should be mindful about collection, use, and adherence to regulations such as the Illinois Biometric Information Privacy Act (BIPA).
Health Care Reform
Many regulations have shifted under the current administration, including Association Health Plans (AHPs), Short-Term Limited Duration Insurance (STLDI), and Individual Contribution Health Reimbursement Accounts (ICHRAs). Additional tax reform changes include the removal of the federal penalty under the individual mandate. These changes prompted states to take legal action to shape the health coverage in their geographies, including instituting their own individual mandate or further limiting the federal rules of AHPs and STLDI in their jurisdiction. Employers might have some new alternatives and new obligations when it comes to employees’ healthcare options, depending on where they live, but these choices are often complex. Employers should also be cognizant that the current landscape is fluid, and state and federal elections in 2020 have the potential to alter this trajectory in various geographies.
Employer Shared Responsibility Enforcement
The IRS continues to expand and refine its enforcement of the Employer Shared Responsibility (ESR) provisions. In addition to the IRS 226J letters, which include the preliminary calculations for ESR payments for not offering adequate affordable insurance to full-time employees, the IRS has begun assessing penalties for untimely or non-filing of the information returns 1094-C/1095-C. The good-faith-effort relief for filing inaccurate or incomplete returns was extended recently, but this relief did not apply if the returns were not filed timely, and these penalties can be substantial. As the IRS continues to enhance its enforcement efforts, applicable large employers (ALEs) should ensure they do their due diligence to report information on Forms 1094-C/1095-C in a timely and accurate manner, as well as respond promptly to any notice received from the IRS.
Sexual Harassment Prevention
The #MeToo movement of 2018 continued to drive increased attention in 2019 to the prevention of sexual harassment in the workplace. State and city legislatures, including California, Connecticut, Illinois, New York state, and New York City, passed legislation and developed regulations that included provisions to implement or expand employer requirements for workplace sexual harassment prevention policies and/or training. All employers should consider examining their internal processes for addressing inappropriate behavior in the workplace and take steps to create a safe, respectful environment for all employees and non-employees.
Paid Family Leave and Paid Sick Leave
Many state and local jurisdictions implemented paid sick leave laws, and eight states and Washington, D.C., passed legislation to create paid family and medical leave programs that provide eligible employees with benefits when taking leave to care for themselves or a covered family member. Bipartisan interest in paid family leave law at the federal level also exists, with several proposals being considered. An additional trend in 2019: Maine, Nevada, and Bernalillo County (New Mexico) passed laws requiring employers to provide paid time off to eligible employees without requiring a reason for leave.
State and local jurisdictions continue to enact legislation that addresses decriminalization of marijuana, recognition of medical marijuana use, and/or legalization of recreational marijuana. Currently, 11 states and Washington, D.C., have passed legislation to legalize marijuana for recreational purposes. Employers must stay apprised of these legal developments, as well as court decisions, and consider adjusting their risk-mitigation strategies that include workplace policies to allow for accommodations where applicable for the lawful use of marijuana for medicinal purposes and the parameters of existing drug testing programs.