Top Regulatory Issues Businesses Might Face in 2023

As the calendar flips its last page of 2022, it’s safe to say the word businesses heard most this past year was “inflation”. The good news is that November marked the fifth consecutive month the rate slowed in the United States, down to 7.1 percent its lowest since January (7.5%) and an improvement over June’s 9.1%.

According to the U.S. Bureau of Labor Statistics, the slowdown in inflation can be attributed to a decrease in energy costs for gasoline and electricity, although food shelter indexes rose. Rates remain higher than economists and businesses would like, but the reprieve was welcome.

Looking to 2023, additional challenges to plan for include potential legislation and government regulations on business that could impact how to classify workers, pay workers, and provide paid time off for workers.

Hundreds of in-house compliance professionals at Paychex compiled a list of regulatory issues that could impact businesses the most in 2023 to help employers and HR personnel prepare for what could be coming down the road. Regulatory issues are those that involve any interaction with a regulatory authority (e.g., federal or state department of Labor, the Internal Revenue Service) or compliance with regulatory requirements from such government agencies.

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What are examples of regulatory issues? Here are the top issues Paychex identified for 2023:

Small Business Funding

Despite the absence of any new federal programs, businesses can still take advantage of the opportunities to find funds for their business, including some that have carried over from the COVID-19 pandemic. Some of these funds exist as tax credits such as the Employee Retention Tax Credit (ERTC). Businesses that paid qualified wages to keep employees working from March 12, 2020 through Sept. 30, 2021 (and for some certain businesses identified as Recovery Startups, wages could be paid through Dec. 31, 2021) have until either April 15, 2024 (for three quarters of 2020) or April 15, 2025 (for all eligible quarters of 2021) to file amended returns and retroactively claim the credit.

Businesses have received anywhere between tens of thousands to hundreds of thousands – even millions – of dollars in credit to infuse back in their business as they continue to recover from the financial challenges created by the pandemic.

Legislation in 2021, particularly the Inflation Reduction Act, doubled the maximum amount of the Research and Development Tax Credit, giving businesses in tax year 2023 a chance to claim up to $500,000 annually for qualified research activities.

Some states also continue to sponsor programs that enhance funding efforts to help businesses, including 48 approved State Small Business Credit Initiative programs. The U.S. Treasury has pumped millions of dollars into each state to augment capital access programs, loan guarantee programs, and venture capital programs. Most of these initiatives are to support underserved communities that have had challenges in securing funding.

Businesses also should do their due diligence in researching state and local avenues of funding, including industry-specific opportunities.

Pay Equity

The U.S. Department of Labor (USDOL) reported in 2020 that women across all categories earned only 81% annually of earnings made by men. Pay equity continues to be a topic of discussion at the state and local level – even in 2022, with movement on getting more legislation passed expected in 2023. The goal of pay equity is to close the pay gap, plus pay equity is a strong recruitment and retention tool.

As of late 2022, seven states and several local jurisdictions have laws that require employer transparency, including amendments in Rhode Island, Washington, and California that take effect in 2023. Covered employers in these states must follow requirements that might include posting pay ranges on job postings and/or providing pay scales to candidates and existing employees who apply for open positions to remain compliant with this regulatory requirement.

Another more prevalent way states and localities have been addressing pay discrimination is the adoption of salary history bans, which generally prohibit an employer or hiring manager from inquiring about a job candidate’s pay history prior to an offer of employment or, in some instances, at all. This practice was often used to exclude individuals from a pool of candidates, as well as determine potential compensation, which helped to widen the pay gap between men and women.

As of December 2022, there are 28 states and two territories, including the District of Columbia, that have salary history bans.

As 2023 starts, employers also will need to stay abreast of continued efforts at the federal and state levels to counter discrimination in pay through annual pay data reporting laws intended to mitigate race and gender discrimination in pay.

• California has a pay data reporting law
• Illinois has the Equal Pay Act

Employee Classification Guidance

In mid-October 2022, the U.S. DOL published a Notice of Proposed Rulemaking to revise the current guidance on how to determine whether an individual is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). The proposal would rescind the current rule, aligning it with judicial interpretations of FLSA, and implement the multi-factor, “totality of circumstances” analysis. This approach is to ensure that no one factor is pre-assigned more weight than another and that all factors are analyzed before determining an individual’s classification.

With the public comment period completed, the USDOL is expected to issue its final rule in 2023, which would impact businesses’ regulatory compliance. Understand that the rule is only applicable when determining worker classification under the federal wage and hour law, so employers must be diligent in keeping up with compliance obligations regarding the complex tests for determining worker status under the many other federal, state, local, and industry-specific regulations and laws.

This rule could have major financial implications on employers where individuals formerly classified as independent contractors become classified as employees and are perhaps eligible for the employer’s health coverage and retirement benefits.

Encourage Retirement Savings

SECURE Act 2.0 of 2022, signed into law Dec. 29, 2022 as part of the omnibus spending package, provides businesses and their employees with added incentives with their retirement plans.

The law builds and expands upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which went into effect in late 2019 to help counter the retirement crisis in the United States.

SECURE Act 2.0 expands eligibility for certain small businesses to qualify for a credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan. Also in 2023, an employer contribution credit is available for eligible businesses based on their employee matching or profit-sharing contributions. Auto-enrollment of employees into a company's retirement plan is mandatory beginning in 2025, which is meant to encourage more individuals to participate in saving for retirement.

Additional changes include an increase in the age to begin required minimum distribution, more opportunities for part-time workers to participate in a plan, and a  student loan payment matching option that aims to counter two crises – student loan debt and retirement savings at the same time.

Paychex compliance professionals also continue to monitor the expansion and implementation of state-level retirement mandates. In 2023, Colorado, Connecticut, Illinois, Maine, Oregon, and Virginia have deadlines for their established plans or scheduled plans to launch their programs. Check out what’s happening in your state.

• Podcast: 8 Ways SECURE Act 2.0 Could Impact Your Workplace Retirement Plans

Wage and Hour Regulations

Based on listening sessions held in mid-2022, it’s anticipated that the USDOL will release proposed changes to the federal overtime regulations. The changes would reflect the current labor market, including an increase in the salary threshold for exempt workers. Paychex will continue to monitor the situation to help businesses navigate any additional regulatory compliance issues that could result from the changes.

At the state and local level, the wage and hour landscape remains active with minimum wage increases taking effect in almost half the states. All but a few of these increases already were scheduled to be implemented, but in Nevada’s case, its two-tiered minimum wage that factored in whether businesses provided qualifying health benefits was put to the voters in 2022. The ballot measure to establish a $12 minimum wage regardless of health benefits offered passed and will take effect July 1, 2024.

In Michigan, the 2023 minimum wage will depend ultimately on the outcome of ongoing litigation.

In certain jurisdictions, the elimination of sub-minimum wage and tip credits is also shaping the narrative around wages.

Businesses must also keep on top of industry-specific regulatory requirements regarding wages and hours worked – especially in the retail, hospitality, and healthcare industries. The pre-emptive move came from California when it enacted the Fast Food Accountability and Standards Recovery Act (FAST Act) in September 2022. The purpose of the law is to establish a council with the authority to set industry-wide standards that promote the health and safety of fast-food workers in the state.

Opponents of the law filed a voter referendum to block the law, securing more than the required number of verified signatures by Dec. 5, 2022, to block the law potentially from taking effective Jan. 1, 2023, and putting it as a ballot measure in the 2024 general elections. Check out what’s happening in your state.

Paid Leave

In the absence of any significant movement to adopt a federal paid leave program, further hindered by narrow margins for the majority party in either chamber of Congress, states have become more active in this area. When 2022 began, nine states and the District of Columbia had laws on mandated paid family leave – joined most recently by Maryland and Delaware.

Each state’s program is different, including eligibility requirements, coverage, and implementation dates, but every program is or will be funded through payroll taxes paid by employees. In some cases, employer-paid payroll taxes also will help fund the programs.

On Jan. 1, 2023, New Hampshire begins open enrollment for the country’s first opt-in, voluntary paid family leave insurance program. The Granite State Paid Family and Medical Leave program will be available to employers or directly to employees. The private market plan won’t require an income tax or automatic payroll deduction. Similarly, Vermont announced plans to create the Vermont Family and Medical Leave Insurance program, which also will be a voluntary medical leave program. Benefits will be available beginning in July 2023.

Privacy/Cybersecurity

With the growth and continued norm of a hybrid and remote workforce, businesses face new challenges, including the need to adapt privacy policies and cybersecurity practices. These policies and practices should balance the needs of the business against employee and customer expectations regarding the safeguarding of personal information.

No industry or business sector was safe in 2022 from cyberattacks. A quick glance at national and international headlines proved that: the Los Angeles Unified School District had a significant infrastructure disruption. An Australian telecom company suffered the largest cyber breach in the country’s history. Health insurers, educational institutions, and even an IT services consulting company – all hacked.

According to the National Conference on State Legislatures, states continued to introduce or consider cybersecurity legislation, including at least 40 states that produced more than 250 bills or resolutions. However, only a little more than half those states combined to enact 41 of the bills in 2022 – a majority centered on cybersecurity training and funding for cybersecurity programs.

Without a federal privacy law, states have looked to broaden the scope of data protection laws. In step with that, the marketplace has seen a flood of technology solutions designed to assist a business with its obligations. However, businesses need to be mindful that using these solutions might entail new privacy considerations, so it’s imperative to confirm that the solution complies with the rules and regulations of your state and local jurisdictions.

• Article: A cybersecurity plan can be a key productivity hack for your business
• Article: What is Cyber Liability Insurance and Why is It Important
• Podcast: Cybersecurity: What Small Businesses Need to Know
• Paychex can help: Cyber liability insurance

Other Areas of Interest for Businesses To Consider

New Tax Laws: Many states are reviewing potential inflationary adjustments to personal income tax withholding rates, so employers should remain watchful for changes impacting employee withholding tax calculations.

The COVID-19 pandemic forced many states to borrow funds from the federal government to pay unemployment benefits. Employers in states where these Title XII loans are not repaid by Nov. 10, 2023, might owe additional FUTA tax amounts in January 2024. This is commonly known as FUTA credit reduction.

As a helpful budgetary practice is to prepare for an additional tax bill if your state doesn’t repay its outstanding loan amount by the deadline. As of December 2022, the following states could be impacted: California, Connecticut, Illinois, and New York.

Hybrid and Remote Work: In the post-pandemic environment, the remote and hybrid model is a workforce structure employers should have to consider and adapt to, including any compliance obligations that might exist if your employees do not live in the same geographical area as the business. Employment regulations based on an employee’s location can vary state to state and even at the local level.

The laws and even interaction between geographies can be complex, impacting tax considerations such as reporting and remittance, workers’ compensation coverage, paid sick leave, family and medical leave, wage and hour laws, as well as anti-discrimination and pay equity protections.

• Related content: New benefits for remote workers

Healthcare Reform: Covered employers have Employer Shared Responsibility (ESR) reporting obligations under the Affordable Care Act and must ensure the furnishing and filing of timely and correct information returns, especially with increased scrutiny by the IRS. This heightened scrutiny follows the discontinuation of the good faith transition relief from penalties that began in 2021, following several years where businesses were not penalized for incomplete or incorrect returns.

Starting with plan years beginning in 2023, there is a lower affordability rate and a greater risk of an ESR assessment due to the continuation of the Enhanced Premium Tax Credit, so Applicable Large Employers (ALEs) might want to reevaluate employee health contributions to determine if adequate affordable coverage is being offered to full-time employees.