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Mike Trabold (00:00):
If minimum wages go up, or certainly in some states, even industry-specific wages are going up, and that again has almost a de facto increase across the board because if the fast-food industry is getting impacted and you're going for that same labor pool, you have to be able to make that move.
Speaker 1 (00:23):
Welcome to Paychex THRIVE, a business podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.
Gene Marks (00:40):
Hey, everybody, and welcome back to another episode of the Paychex THRIVE podcast. Thank you for joining us. My name is Gene Marks, happy to have you here. Special guest today for lots of conversation is Mike Trabold. Mike is the Director of Compliance at Paychex. The reason why I love talking to you, Mike, and the reason why I like having him on the show is because Mike is the guy walking around with so much information that you need to know running a business about basically your employees and your workplace, you know?
We are in an environment right now where the world is very, or the political environment is very pro-worker, which is fine. There's a lot of regulations, there's a lot of things we need to know as business owners, a lot of these are good things to help us run our businesses, but at the same time, you know, these are requirements that we need to be very much aware of. And Mike is the guy that has this information for us. So, Mike, thanks so much for joining.
Mike Trabold (01:35):
It's awesome to be here, Gene.
Gene Marks (1:37):
So, let's jump into the many topics that we want to discuss today. First and foremost, and we've got our laptops out. Guys, we're taking notes on this ,as well. We need to refer. There's a lot of detailed stuff here. Let's talk about compensation to start with, Mike.
The Small Business Employment Watch that Paychex publishes said that in November annualized hourly earnings were about 2.25% increase on an annualized basis. So, Paychex is reporting that there's, again, between a 2% to 3% wage increase that's annualized. I'm running a business. I'm making my budgets for next year. I'm going to be thinking of what I should be raising my employees’ [wages to]. Give me some of your thoughts, Mike, on what should salary increases be next year? What would you do if you were running a business?
Mike Trabold (2:25):
Yeah, it's a great question, Gene. And I know it's something a lot of our clients are really thinking about a lot, a lot of small businesses are. It was one of the real, as everybody knows, things that kind of emerged out of the pandemic that a lot of businesses had to really look at what do you have to do to keep talent in the house? One of the things we're hearing a lot about, or we're trying to make sure people are aware of, is be aware of what some of the trending is, and whether it's the small business watch, or even a lot of the things that we're doing now with clients to provide some data on what trending is, what competitors are doing, super important.
A lot of people, especially small businesses, it's challenging, because if you're trying to go up against talent with bigger companies, sometimes it's really difficult. So, certainly need to be aware what some of that trending is. Even, and again, most businesses are gonna have a range of workers all the way from your entry level folks who are minimum wage, minimum wage changes might be relevant all the way to, hey, if you've got people that are in that mid-management place, you've got to be cognizant of what's happening with the DOL thinking about, you know, potentially some of their overtime changes and so forth.
But a lot of it is, can you, and what we're hearing a lot of clients really think about is, is there a way to offer kind of a complete package? Even if you can't offer maybe as high as you want on wages, are there things you can do on the benefits side that could be very powerful, as well?
So, a lot of it is make sure you've got the information, make sure that you've got some awareness on trending, be as competitive as you can, but are there other things you can weave into that in terms of benefits or just other kind of workplace perks? We're finding a lot of small businesses really interested in that to make sure that they can be as competitive as possible.
Gene Marks (4:10):
Is there, you know, is there a number? The answer is, I think, it depends, you know, because a lot of my clients are saying, we want to give raises next year. We don't even know. Inflation right now is around 3%, but that could go up. And by the way, people are still getting bumped up salaries if they switch jobs, as well, as opposed to just staying on the same job, you know. Is there a number that you target or is it "just depends"?
Mike Trabold (4:40):
I hate to say it depends, but it really does depend. We're seeing so many different trends. A lot of times we're seeing even ripple effects. So, if minimum wages go up or certainly in some states, even industry-specific wages are going up and that again has almost a de facto increase across the board because if the fast-food industry is getting impacted, and you're going for that same labor pool, you have to be able to make that move.
So, it is dependent, it is based on a lot of factors. That's why, even if you're a small business, if you can get access to trending intelligence out there, with this coming easier and easier, with some of the AI things that are kind of evolving, and even what we're trying to provide to clients here at Paychex. Having that information is important because it's not always a set amount that you have to think about.
Gene Marks (5:34):
Fair enough. And again, this podcast is not designed to be some kind of promotion tool for Paychex, but I do want to say to you guys that might be listening, or watching this is that the Small Business Employment Watch really does give trends in wages that are increasing by industries and by region, as well. So, Mike is talking about going to specific places to do your research. That is a really good place to consider doing your research.
Okay, let's move on to the next topic, which is minimum wages, okay? So, I've been speaking a lot about this to industry associations. I counted, now I might not have my count completely right, but I counted 22 states, I might be wrong, that are increasing their minimum wages in 2024. Alaska, California - big surprise - Nebraska, Nevada, New Jersey. There is obviously that trend towards minimum wage. So, first question on minimum wage. The national minimum wage is $7.25 an hour.
Still approximately half the states are using that national minimum wage as their minimum wage. Have you seen any movement towards an increase in the national minimum wage in 2024?
Mike Trabold (6:40):
We've actually seen some movement in some legislation just recently been introduced, a little bit surprisingly by the GOP, because I think even everybody in DC recognizes that the federal minimum wage is probably too low. Now, will that get traction? To be determined, because there is a few caveats that came with that piece of regulation; one of which is that they want employers to kind of all move to the E-Verify process, which is that kind of federal employment verification tool to guard against all the things they're looking for relative to that. So, that was one of the caveats that the GOP was looking for there.
So, we're not sure whether with some of those type of aspects whether that will actually get legs federally. So, I think the reality is the likelihood in the short term of a federal minimum wage increase is probably somewhat remote.
We'll obviously watch it closely, but we don't expect that in the short term.
Gene Marks (7:48):
Yeah, you know, it's funny. Even under the Trump administration, I think they were pushing like an $11 to $12 an hour national minimum wage, but that didn't fly. On this podcast, I interviewed Rand Paul, who, you know, I mean, obviously some controversial views, but he is on the Senate Small Business Committee. He's against a national increase in the minimum wage because his position was, why should my constituents in Kentucky be paying the same minimum wage as somebody else in California? It's fair enough. I mean, there's good arguments both sides, but there is a lot of bipartisan support for doing it nationally.
Your take is, and what you're saying is, you're not seeing anything move, particularly in this election year. I can't imagine Congress doing something that would create that kind of an atmosphere, right?
Mike Trabold (8:31):
Yeah, I think you're right. You know, unfortunately, currently, there's just a difficult situation now where there's not a lot of collaboration.
So, this would not be one of the things that we would see. Things may change, but as of now, not really.
Gene Marks (8:48)
Meanwhile, a lot of states are moving forward with their own increase in minimum wages. What states have sort of stuck out to you or any states you want to mention that for any of our listeners that happen to be there?
Mike Trabold (8:59):
Yeah, and you're absolutely right. 22 states with 2024 increases. A lot of the really big states that you'd think, California, New York, Massachusetts, and so forth. So, it was certainly important to keep an eye on those. A lot of states have wrinkles. Some of them are going to index it to inflation. So, you're going to continually see that change. Some states have industry-specific changes. Some will have nuances based on how big or small you are, or do you offer health insurance or not.
So, that's always one of the things we tell all of our clients to keep an eye on, and we cascade a lot of information around that. Be aware of that minimum wage and then be aware of, again, what some of those cascading impacts might be.
So, if you do have folks at minimum wage, if that goes up, you're most likely going to have to make adjustments for people that might be earning slightly above that in your organization, as well, to make sure you don't have that issue of wage compression, too.
Gene Marks (9:59):
Yeah, I mean an increase in the minimum wage has this sort of knock-on effect on all wages, doesn't it? Because, you know, I mean it goes up to $14, $15 an hour, and you might have somebody that is making a few dollars more. They want a commensurate increase in their compensation, right?
Mike Trabold (10:13):
That's exactly right. That's one of the cause and effects we always tell people to be aware of whenever you have, for whatever reason, the need to raise wages. You're always going to have people then up the chain, they're going to want a commensurate increase, as well. So, got to look at the whole picture.
Gene Marks (10:30):
You had mentioned about certain industries and in certain states. You feel comfortable talking a little bit about what's going on in California in the fast-food industry?
Mike Trabold (10:36):
Very much so. We've watched it really closely, and as you know, there's been an awful lot of activity there. There was a proposed ballot initiative to vote on what had already been enacted as a very sweeping whole set of changes around the fast-food industry, not just to hire minimum wage but also the establishment of almost a government agency to oversee the industry from wage and hour law and the whole shebang really.
So, it was kind of a compromise measure. They did away with a lot of that infrastructure, but then made an across-the-board increase of $20 an hour gradually to the minimum to the fast-food industry, which again will have some ripple impacts. We've already had some of the CEOs, Chipotle CEO was just out last week, already telling Wall Street analysts, “Hey, we're going to do a commensurate increase in our menu prices of low single digits.”
As well as again, you're seeing a really clear cause and effect there since a lot of employers are effectively going for that same labor pool. So, if fast-food places are raising their minimum wage that much, if you're going to try to get talent, you're going to have to do something very similar, as well. So, really significant, broader impact type thing that you really need to think about.
Gene Marks (12:00):
Yeah, it's funny. I wrote about this. I forget if it was like The Hill a few months ago. So, the whole concept of what's going on in California is that they create this group, this outside group that's made up of some political employees, people from the industry and people from labor in that industry, and then they decide on safety and guidelines and workplace practices and wages for that industry. Sort of like, instead of the government just saying, “Oh, we're going to increase the minimum wage across the board,” you know, the entire state, we're going to break it down on an industry base, let the industry work it out between labor and management with a few political people in there.
And it's controversial, right? I mean, so a lot of people, how are these people getting on this board? You know, is this too slanted one way for labor as opposed to the businesses themselves? The bit like you mentioned, Chipotle, they're yelling and screaming because it's gonna raise prices. But it actually could be a model for other states to follow, for them to try and hand over some of that responsibility to the industry to figure out what wages and practices are.
So, I guess my question is to you, have you seen this moving into any other parts of the country? Can you see any other states, or have you heard of any other states replicating, or thinking about replicating what California is doing in the fast-food industry?
Mike Trabold (13:22):
We've heard lots of buzz in what I would call the bluer states to replicate that type of thing for all the reasons you just mentioned. And a lot of it is, and you mentioned this as well before, there's a lot of people saying industries are very different. And even regions within New York state's a great example. Upstate New York, Rochester where we're based. Very different than New York City.
And in New York, they recognize that a little bit by having a geographically tiered minimum wage as you know. We've absolutely heard other blue states kicking around those ideas conceptually about are there things, whether it's industry based, kind of a more micro geography based type thing to do that. Haven't seen a ton of really specific movement that, but what we're absolutely seeing is a trend is some of the more influential blue states, and we always kind of joke in Compliance Central that it's always a battle between California and New York-
As to who's going to be the trendsetter. But absolutely, California in particular, and there's certainly other things we're watching where they almost take it upon themselves. We're seeing the same thing with artificial intelligence. They have said very clearly we want to be the trendsetter in regulation for even at the federal and set the tone even for the federal government. So, we're watching that very closely because a lot of the things that a California will do, or New York will do will over time absolutely get adopted even to a partial degree by some of the other states, usually the bluer states, but you definitely see that trend.
Gene Marks (14:54):
So, I'm glad you said that. I mean that was sort of my conclusion from that, as well. You're validating that it's being considered and people are watching it closely, but nothing substantive yet. But, you know, the takeaway for me there is that if you're a business and you're operating in a blue state, whatever, you know, Illinois, New York, California, those states like that, those legislatures are watching what's going on in California, too. And this type of thing for the fast-food industry could be something that catches on in your industry in your state as well and could impact your business. So, that's really good.
So okay, so let's take a pause here before we move on to other topics. We've been talking about compensation, okay? Minimum wage and overall compensation. Mike, give me like two or three takeaways. What should I as a business owner be considering about how I'm paying my people in 2024?
Mike Trabold (15:40):
Well, one thing clearly is, and again, I speak to a lot of small business groups, is be aware of it and budget for it. It's a real expense and the war for talent might have reduced a little bit, but it's still very real. So, be aware of it and kind of come to grips with the fact you're probably gonna have to make some adjustments there.
Try to get information and we've mentioned a couple ways you can do that, but the more you can get around trending, what kind of competitive market is, that much more important. And then do the arithmetic, especially when you're looking at people that might be on the cusp of what might be impacted by a DOL overtime move, or things like that.
And then, again, look at the whole package, because a lot of small businesses have found that even if they're not exactly where they would want to be, ideally, from a wage standpoint, if you have a really compelling kind of companion benefits program, really look at that, as well, because a lot of times you can do that at a more cost-effective than just pure salary. But still, especially if you message it the right way and it's the type of things that really resonate with folks, you can really get a lot of competitive value from that as well.
Gene Marks (16:53):
Great advice. I also have to add as well that the, when people talk about compensation for employees, and I hear from a lot of my clients all the time arguing that, like, I can't afford to pay what a big company pays, or what the government pays, or whatever. But maybe you wouldn't be surprised because you're out there talking to a lot of small customers. But I go to a lot of my clients in the area, in the Philadelphia area, and they've got long-term loyal employees. And you think, well, why are these people not working for a bigger company or for the government? Because it's not always just about compensation.
That's good. Right? I mean, there's flexibility, there's a chance to make a difference in a small business, you're working with the owner of the company, you know? So to your point, you know, it's not, you have to gauge other factors besides just compensation.
Mike Trabold (17:38):
I totally agree.
Gene Marks (17:41):
Okay. Mandated sick time. This is another trend that has been sweeping the nation. Lots, and lots of states, and cities. I have a list of them in front of me. Of course, a bunch of places in California, Colorado, Michigan, Oregon, Vermont, New Mexico. I even know there are three states right now – Illinois, Nevada, and Maine – that mandate vacation time. It's not even just sick time. Employees can take any time off, and employers have to pay for that. Bring us up to date on where these mandated vacation, and sick time rules are and where they're going.
Mike Trabold (18:19):
Yeah. And again, when I talk to a lot of clients, this is one of those areas that is very, very difficult-
Especially for small business, because there's both that aspect of record keeping and needing to keep it all straight. It's very, very complicated a lot of times, and a lot of the, you know, I could do a whole hour on just all the nuanced rules that state-by-states have. So, it's that, plus it's very difficult if you're a small business and you're a landscaper with eight people working for you, and two of them wanna take their mandated sick time at once. You kinda have to give it to them. It's a real problem.
Gene Marks (18:59):
Can I, I'm gonna interrupt you. You mentioned about the nuanced rules, and you don't have to get that much into the weeds, but can you give me an example? Can you give me one state's rules, just generally what they are? I mean, normally it's something like an hour of time off for every 40 hours of work or something like that.
Mike Trabold (19:15):
Yeah, there's a bunch of states that will have exactly that. So, you actually have to be able to go through and do the arithmetic. So, it is that ratio. For every week, you get an hour of, so you have to have a system or some way to track all those types of things, and it gets very difficult, and it gets very difficult if you're fortunate enough to be in several states if you're a small business.
But you're in the New York metro area, not at all unusual, you're gonna have an office in Connecticut, New York, and New Jersey, all of whom have different rules in this regard.
Gene Marks (19:46):
And on top of that, only because I have some clients who have suffered through this, they are tracking this on a spreadsheet or something. So, you've got to track the time that these people are taking off. And then you always have that one or two employees that are like,”Oh no, I didn't take that time off back in February.” So, you have to have sort of like documentation that they sign off, that they did it, so you've got the support for it. It's a lot of stuff that a business owner has to do. And it's only getting more, it's only sort of growing in, I don't know if popularity is the right word for it, but it's happening all over the country.
Mike Trabold (20:16):
It's really happening all over the country. And again, this is one of those trends that we saw clearly emerge from the pandemic. So many people were adversely affected and had real difficulty with being in work and out of work and all those types of things. So many states, even states you wouldn't think might go in this direction, actually started to mandate much more in the way of paid sick and variations of that.
So, some states are saying, now you have to have more time off for bereavement, or if you have different types of family scenarios. So, this is one where there's many ways to go about it. Certainly, try to find some type of system, or support process that can accommodate all those, which is not always easy. A lot of communication, and we tell people, you know, work with your employees and try to say, you know, if any of this is not urgent, are there ways you can schedule a surgery or do something at a different time?
So, you know, half your workforce isn't necessarily out all at the same time. So, communication and, again, just making sure you're training people and letting them know what the requirements are. To your point, a lot of times people aren't always aware, and they'll come back subsequently and what. So, it's a lot of just communication.
Gene Marks (21:28):
It's an issue that I'm seeing more and more from my community, and readers, and clients around the country. And I want to warn you guys that are listening or watching this, it's potentially a form of wage theft. Like if you're not tracking this information the right way, then you've got some aggressive attorney that comes back to you and says, “Oh, you're stealing from your employees because you're not giving them the mandated time.” That's how serious this is. So, where do I go to learn about that? I mean, I guess you can go to your payroll company, obviously, or labor attorney. Okay, HR expert.
Mike Trabold (22:03):
Yeah, almost every state, again, it's certainly a place like Paychex, we have all this copiously out there; labor attorneys. Most states will just have all this, again, I would say most states, especially with an area like this, they're very, to your point, very committed on it, and they take it very seriously. So, most states, with very few exceptions, will have very comprehensive and pretty easy to understand stuff out on their state websites or DOL websites. So, you can go on and get this type of information.
But you're 100% right, they take it very, very seriously, and especially when they go through and do this. It is tempting to be a small business and say, sorry, can't do that. A lot of times you have to make it work and you just gotta get through it.
Gene Marks (22:47):
All of these things that we're talking about or about to talk about is, these are rules and regulations, whether it's at the state or the federal level, that just because we're ignoring them doesn't mean that they don't exist or go away. Our employees have the internet as well. They read, they know, and they can just as easily find out what their rights are. And it's a problem for business owners if they're not in compliance with these kinds of things.
Mike Trabold (23:12):
It really is so.
Gene Marks (23:14):
Okay. Next topic I want to talk about. Let's move to; before I even get off of the topic of mandated vacations and mandated time off, Julie Su is now the acting Secretary of Labor. So, she replaced Marty Walsh, who was there for a couple of years, and then had the very good sense to leave his job to work for the NHL.
So, kudos to him. But now she's taking over. And Julie Su was formerly Secretary of Labor, Assistant Secretary of Labor in the state of California.
Mike Trabold (23:47):
Labor Secretary in California.
Gene Marks (23:48):
Labor Secretary in California, right. So, we'll continue on with her pro-worker. You know, that's, you know, she's a very pro-worker person. Before I move on from the mandated sick time, are you, is there any, do you see this at a federal level anytime soon? Do you get any, hear any noises or any inferences from the Department of Labor, from Julie's office that they also support mandated time off and would be looking to do something on a national level or is that not something on the radar?
Mike Trabold (24:18):
Julie Su has absolutely put this out there. She's a really big supporter. Again, I think the general recognition is something like this, again, in the short term, in the current congressional environment would be a really, really difficult situation. So again, we continue to see, given kind of the gridlock, if that's the right word, at the federal level, states becoming even more and more aggressive and more and more ... not all states, but a lot of states are really taking that opportunity.
Now, if something were to happen federally in the next election, that might change things even more, so the other way. But to answer your question more succinctly, no, we don't see that anything definitive happening in that space in the short term.
Gene Marks (25:04):
I'm actually in agreement, only that I'm a Federalist. Like I do believe that some of these issues should be dealt with on a local level. I like the fact that states make their own choice, and the federal government stays out of it. And if the Department of Labor were ever to, you know, if she ever had the opportunity to issue regulations about mandating time off, to issue regulations about mandating time off. Is that, would that need, and again, if you don't know, but would that need congressional approval, or is that something that the Department of Labor could do independently?
Mike Trabold (25:33):
It's a really interesting point. And as you may know, there's actually a Supreme Court case that's going to be heard later this year, or in this term, where that's the sense of a lot of controversy; do the agencies have too much power, too much latitude to decide things. And that's exactly the context is can an agency go out and do something like that or set a very sweeping mandate that at least some would say that's really something of that magnitude really needs to be decided by Congress.
It needs to be legislative and it can't just be an agency edict now. And that's kind of the age old thing when you see gridlock in Congress, and you know the party in power wants to move the ball on things. It's kind of the oldest trick in the book to try to move through the agencies. That whole concept, and this will be in the compliance game a really big deal, how this plays out, is will agency's power potentially be reined in a little bit or won't it? So, that will be a very meaningful decision.
Gene Marks (26:38):
And to even add to that is Julie Su is still the acting Secretary of Labor. She has not been confirmed by the Senate. And do you have any thoughts on whether or not she will receive that confirmation? And if she does not, does she have the power as the acting Secretary of Labor to put forth some of the regulations that we haven't even talked about yet, but regulations that the Department of Labor is putting out?
Mike Trabold (27:01):
All are tremendous questions that a lot of people are absolutely asking is, you know, I think …
Gene Marks (27:04):
I'm asking you this in advance of your appointment to the Supreme Court, so that you can start thinking about this.
Mike Trabold (27:08):
You know, I think, again, Acting Commissioner Su is relatively, has a very, very pro-employer, employee. Employee orientation based on her days in California, and I think that's made some of the GOP members of Congress a little bit nervous, so that's why her nomination's been not moving along very quickly. So, will that eventually come to fruition? To be seen.
And then I think that question is a really real one if somebody is an acting commissioner how much latitude and power do they really have to make some of these changes? So, all really good questions that I'm not sure there's a definitive answer to yet.
Gene Marks (27:57):
All right let's turn to the NLRB, the National Labor Relations Board, they've been very, very busy this year. Mike, tell us what we need to know.
Mike Trabold (28:06):
They have indeed been very, very busy. And some have said and would say that President Biden is the most pro-union president in history. In fact, he has made a lot of news. He was the first, I believe the first acting president, sitting president to actually appear on a picket line with the UAW a couple weeks ago. So, and in that vein, much more NLRB and kind of pro-union orientation.
You know, a lot of the things that had kind of gone away in the Trump administration are really back with a vengeance. Much easier to hold union elections, much easier to actually get access to a workplace. Whole things like that that are really, really noticeable. So, we really try to make sure that clients are aware of, even if that was not anything you ever considered in the past. The likelihood of a potential union drive is very real right now, especially when we see, you know, at a grander scale, you know, some of the really big unions like the UAW get some pretty significant successes there.
So, a lot of the barriers that were there to kind of suppress union activity a little bit are really going away under the current NLRB. So, even things like that ability to hold elections and have an impact, more difficult.
One of the things that was interesting is another area that's getting a lot of scrutiny, or a lot of increased enforcement and increased activity at the federal level is OSHA.
And one of the things that was interesting is recent change that OSHA made was they said, you can have a have a third-party inspector come in with an OSHA inspector and look at a workplace, and you could have that third-party inspector actually be a union official, which has made a lot of employers anxious because you're essentially like a union employer, or a union representative come in to a non-unionized shop.
Gene Marks (30:18):
Mike Trabold (30:19):
And have a look around, and talk to employees and so forth. So that's an example, a little bit more nuanced, but an example of some of the things that really weren't out there to begin with. Even things like severance packages-
Gene Marks (30:32):
Tell us about, yeah, contingent severance is a big, is another thing with the NLRB.
Mike Trabold (30:36):
Yeah, one of the changes that kind of the Trump administration made was you were able to put some contingencies in a severance package.
Gene Marks (30:45):
Contingencies like what?
Mike Trabold (30:47):
Like, hey, you can't go out You can't disparage the company. If you accept the severance agreement. You can't talk about the details of the severance agreement. Really, the NLRB has now flipped those around, taken away a lot of those barriers. So, a lot of really significant things that just the whole focus around the unionization aspect is a really significant aspect of it as well.
Gene Marks (31:15):
And very recently, again, National Labor Relations Board's Joint Employer. So, tell us about that.
Mike Trabold (31:21):
Joint Employer, really, really big. And again, it's gotten a lot of, especially, you know, we have a lot of partnerships at Paychex with the franchise industry and so forth. So, you know, historically, if you were a franchise owner, you didn't necessarily have liability for the regulatory compliance, employment wage and hour type compliance.
Gene Marks (31:43):
By the way, I have to interrupt you. I mean, I know that this does significantly affect the franchise industry, but for any of you that are listening or watching right now, this also affects a lot of other businesses that are not just franchises, correct?
Mike Trabold (31:55):
It absolutely does.
Gene Marks (31:56):
So, pay attention.
Mike Trabold (31:57):
Yeah, just franchise as an example. But it's really very, very sweeping. So, what, again, with the NLRB just changed is really, it made it much, much more difficult to not be designated as a joint employer, meaning that if you have family companies, or other companies you're associated with, you can very much be considered jointly employing those. Meaning importantly, that you're gonna have liability potentially for their regulatory compliance items. So, franchise, it's very relevant, but to your point, very applicable across the board.
Gene Marks (32:30):
I mean, if you're a subcontractor of a contractor, and a perfect example. So, my business, Mike, we have 10 employees, and we do a lot of development work. I outsource development work for my clients, okay? And I use an outsource development firm to do this. And it's a smaller company, but two of their employees are pretty much dedicated to projects for my company. And I'm pretty much telling these employees when they can work, where they can work, what they need to be doing, even though they're not my employees, they're part of it, whatever.
Because of this ruling by the NLRB, I'm exposed as a business of saying that those employees are actually, I'm a joint employer of those employees because I'm dictating a lot of their work rules, and that concerns me. And I think there are a lot of other contractors and subcontractors that have those same issues. Staffing firms have very same issues, as well. Tell us what that means. If I'm a business, what should I be thinking about? And tell us, as well, what are the penalties here? What are the repercussions? What does joint employer mean if I'm considered to be a joint employer.
Mike Trabold (33:41):
Yeah, what it means is exactly that. So, if you're hiring, and we see it a lot, like a lot of even software development firms will say, gosh, it's hard for us to hire as many as we need. So, they'll bring in contractors that will work and be that. But it's like to say, well, while you might be working in our office, you're not our employee per se. Well, now you very well may be considered to do that. So that means you have to have the same level of diligence, and the same level of rigor over what are those folks doing, and all the same rules around, that everybody's familiar with, that we're talking about right here, around wage and hour, all those employment type rules.
Gene Marks (34:24):
Benefits, workers' rights.
Mike Trabold (34:25):
Benefits, workers' rights. The whole series. You have to have, potentially, have the same liability. So they really, again, what a lot of these agencies are looking to do is take away what a lot of companies have done and say, hey, if I just set people up as contractors, all those regulatory things, even if de facto they're still doing kind of the same thing that everybody else is doing for me, then you're still on the hook for all those types of things. So, employers really need to be aware of that.
Certainly make sure that if you're making distinctions to insulate yourself from that, you're really enforcing those and being very diligent about making sure that you're aligned in that way. And then if you're hiring them from a staffing firm or something, make sure it's crystal clear who's setting the tone, who's making the rules, all those types of things. It's an area where there really is a lot of exposure and we're seeing you have to be extremely crisp and extremely definitive on how you run that, or it's gonna be very easy to run a follow that.
Gene Marks (35:25):
I was just gonna ask you for some takeaways, but you just gave them to me because that's exactly what you need to know to make sure that you're not exposed to these joint employer rules. Okay, so that's the NLRB.
Let's move on to our friends at the EEOC, the Equal Employment Opportunity Commission. Mostly for the main part dormant during the Trump administration, now fully staffed with President Biden's appointees and quite busy. So, tell us what we need to know about the EEOC this year.
Mike Trabold (35:56):
Yeah, the EEOC, again, when we look at all the agencies and you just hit the nail on the head, is one of the ones that's become much more active. Was very, dormant is probably a good word, in the Trump administration, is very, very active right now and is really looking at, again, some areas of discrimination in a very active way, whether it's age discrimination, or certainly the one that's probably the hottest right now is gender identity discrimination.
And we're seeing the EEOC being very aggressive in terms of examinations, in terms of really taking complaints that are coming in and acting on those. And they've gotten, again, some additional resources, some additional firepower at the top. So, that whole area of being diligent, and thoughtful around discrimination, and making sure you're doing the right things is even more acute right now.
We always tell clients, be extremely explicit on policies and make very clear to your employees what you can and can't do. Train the heck out of it. Make sure that people know that they are, if there is an issue, that they should feel at ease or even obligated to report that up the chain. And then train, train, train.
Gene Marks (37:16):
Train, train, train.
Mike Trabold (37:17):
And train, that's an area that we see you almost can't train too much. Because a lot of times if you are diligent and thoughtful around training and you do have somebody that's a rogue employee do something inappropriate, a lot of times you do get a lot of credit and a lot of goodwill by saying, hey, we're trying to do the right thing here. We can't control everybody every day. We had an aberration here.
So, document, train, and really continue to reinforce it and make sure that people feel comfortable about raising an issue and communicating it if one does arise.
Gene Marks (37:50):
So, a couple other points on that. So, the EEOC recently just updated their rules on harassment in the workplace. It was, they're clarifying like the 1965 Civil Rights Act and there are employees of ours, maybe they're LGBTQ employees, work-from-home employees, employees that are pregnant, employees that might want to come to the office and express their religious sentiment. Can you talk a little bit about what those new rules are and what the status of those are? Because I think they've become effective in 2024, right?
Mike Trabold (38:25):
They have become effective. And again, they've really have expanded the kind of the scope of what can consider to be harassment. So, you really have to be just above reproach on those types of things. And you mentioned even things like, hey, is there even explicit or implicit discrimination by somebody working from home, somebody that is taking advantage of one of these paid leave rules that we're talking about.
So, you just have to be, and we just continue to preach to clients, even if you're a small business, you need to really train your leaders and make sure your leaders know what the appropriate approach is and all these things and anything that you know doesn't feel right, or does and take things seriously. Where we see a lot of businesses get in trouble is if somebody complains and then they just get lip service, or get ignored.
You have to really take things seriously, and if something has escalated, see it through, have a process, and make sure that you're giving all those types of things the attention they deserve.
Gene Marks (39:35):
That is such great advice. I mean, people on this podcast have heard me say a thousand times that the average age of the U.S. small business owner is 55 years old, according to the Small Business Administration. So, it's a different generation. So, if you have an employee saying, like, hey, I don't like the way this other employee has been talking to me, or I feel uncomfortable because of this situation over in our work area, you can't just be blowing it off. I mean, you cannot be saying, like, oh, you know, go back to work, don't worry about it, or just ignoring it. Those, like you just said, there has to be a process for reporting this stuff and then addressing it. And your managers need to be trained to see this. You can report stuff right now, or your employees can report stuff directly to the EEOC now, right? I mean, it doesn't even have to be to you.
Mike Trabold (47:17):
They sure can. And again, we're seeing more and more employees do that, go directly to the EEOC because again, as we said, the EEOC is making it easier and easier to say come directly to us and they have more resources, so they are actually diligently looking at a lot of these things. And again, we try to emphasize, as well, you have to have a process. It doesn't mean that if you have a frivolous thing come in.
Then you have to make some kind of inappropriate change. But you need to evidence that you have a thoughtful, diligent way to really look at these types of things and manage them, as opposed to, you said, just blowing them off and saying, ah, that's just a young guy blowing off steam or whatever.
Gene Marks (40:54):
And one final thing, it's making employers responsible, potentially, for employees' behavior, both in the office and out of the office. You had mentioned about your remote employees. Because I was reading examples of this. Say somebody is working from home and they've got behind them on their bookshelf something that's offensive to some other employee on the call, right? And it's a work call and that employee reports it. You might think, oh, that's ridiculous. It's just a book on the person's bookshelf. But you can't ignore that, right?
Mike Trabold (41:26):
You cannot ignore it, and I can tell you, dealing with the experience of things we've heard from clients and situations we're aware of that absolutely happens. So, it's that ability to be aware of the changing work environment and all the things that go along with that are really, really important. Again, not easy to be a small-business person all the time, but again, doing, again, a little bit of investment in training and making sure, you know, clarity and accuracy around the rules, and what the requirements are goes a long way.
Gene Marks (41:58):
Good. So, before we move on, we'll pause and I'm going to ask you for, given that the EEOC has updated their rules on harassment, both for your employees, their behavior, both in the office and out of the office. Mike, give me some takeaways. What should I be doing as an employer to make sure I'm in compliance with those rules?
Mike Trabold (42:17):
Yeah, you know, training is, and we've mentioned it a billion times. You know, we always, one of the things we're trying to tell a lot of clients when I go and speak to small businesses; this is really, and year-end's a really difficult time, but it's also a really intuitive time to go and do what we call kind of regulatory hygiene. And say, what things do you want to do that, given a little bit of investment, can get you a lot of return on investment.
So, if you do some training, and there's lots of off-the-shelf type things, we provide them a lot of other places that will give you that ability to just make sure you've got that right message. And do a training both for your employees and maybe for your leaders. Different.
A lot of the types of things right there. And then look at your policies. Be really crisp, really clear. If you've got an employee handbook, make sure you've got, it doesn't have to be voluminous, but make sure you've got really definitive, precise language around this is what we expect, this is the requirement. If you have an issue, report it in this defined way. And then make sure you act on those and follow up on those.
Gene Marks (43:24):
Perfect. All right, that is great. All right, The Federal Trade Commission is also busy this year. They have done a couple of things regarding non-competes, and consumer reviews, and testimonials. Talk a little bit about what I need to know about the FTC's activities and how they're going to impact my business.
Mike Trabold (43:41):
Yeah, the FTC is another agency that is ...
Gene Marks (43:45):
Everybody's getting in on the game.
Mike Trabold (43:46):
Has really gotten a lot of notoriety for being very aggressive in the new administration. You mentioned non-competes. That's a really, really hot item that is really, and the FTC is not alone. A lot of states are going this way, but at the federal level, they've kind of set the tone. Now, will they be able to kind of see that through? There's some difference of opinion as to whether they are an agency that's really empowered to push on non-competes.
Gene Marks (44:15):
Give us just, give us, dig down a little bit more. So when you say non-competes, what is the FTC saying?
Mike Trabold (44:20):
Yeah, that basically says if I work for Gene, then I can't go work for a competitor within X number of-
Gene Marks (44:29):
Which is a standard thing in most employment agreements, or if you hire anybody. Sometimes people have standalone non-compete agreements. So, is the FTC saying no more non-competes across the board? Is it limited to certain types of employees? Are those details available?
Mike Trabold (44:44):
Yeah, and again, they're still defining exactly what it's gonna look like, but usually it's gonna be different for, if you've got really senior executive types of folks, or people that have access to intellectual property. So if you're out there developing a specific software tool, or product, a lot of times you can't take that over to the next highest bidder and do it that way. But really, a lot of it's to protect less highly compensated or less senior employees, where even in some cities, even you can't go from restaurant A to restaurant B, or it can be that basic, even accountants or things like that, really doesn't come into play. So, it's really seen as affecting that ability for people to progress and take advantage of their expertise and so forth. So, watching that really closely, you know, there's-
Gene Marks (45:41):
It's still proposed, correct?
Mike Trabold (45:42):
That's still proposed.
Gene Marks (45:42):
That's not finalized, right?
Mike Trabold (45:43):
That is not finalized. You know, there's different aspects to that as well. There's also non-solicitation, so that means you can't go and either, if you do go to another place, you can't take all your co-workers with you necessarily, or you can't take your client book of business. So, there's different aspects of that as well, but the really big one is the non-compete items. That's really what it means. Not quite sure if the FTC's evolving example will get through as planned, but without a doubt, any employer is going to have to be aware of that as a trend, both at the federal level and, again, in many of the states, as well.
Gene Marks (46:20):
Yeah, you just mentioned, some states already have this, like California. The list of usual suspects, right?
Mike Trabold (46:26):
The usual suspects, California prominently. New York is in the midst of working through what their proposal is, awaiting the governor's signature. Again, we think that one will be, again, a little bit of a compromise. The legislative bill is very sweeping.
We're hearing that the governor may soften a little bit to really be focused on, again, executive level or really high-earning people, or people that had access to intellectual property, things like that.
But without a doubt, the other interesting thing that the FTC is looking at is some guidelines around online testimonials and things like that.
Gene Marks (47:05):
Consumer reviews, like Yelp or Amazon or whatever.
Mike Trabold (47:09):
Because there's a lot of fake ones out there. A lot of fake ones. We just, one of the things that you just came out with is some unbelievable statistics that over half or even more of the online reviews are fabricated. Either made up by a business, or even now generated through AI. So, they're really looking at that with that being such a prominent way now that people are deciding what business they're going to patronize. So that's interesting, and even a lot of small businesses.
Gene Marks (47:36):
So, are they targeting small businesses? Is that who the FTC's target is? If say I'm a business and I've got an e-commerce site and there's, I don't know, there's a bunch of, you know, fake reviews on my site for my, you know, the products I'm selling, is that who the FTC is looking at going after?
Mike Trabold (47:52):
I wouldn't say they're going after small businesses, but they're not excluding small businesses. So, I'd say, you know, they're probably primarily going to be looking at those big conglomerates. But they've also said, we are aware that a lot of even local restaurants will go on and post fake reviews on their competitors' sites. So, they basically put the word out there, make sure you're not doing this, because we're going to include this in our arsenal of things we're going to be looking at.
Gene Marks (48:21):
All right, so OSHA, you had mentioned earlier before about the DOL getting involved, or the NLRB, actually, we were discussing prior about how they can attach a union representative to an OSHA inspection. OSHA joins the list of agencies in the federal government that has also been very busy. Another agency. They've had, I forget what their budget increase was this year, but it was in the double digits, and they're hiring more inspectors, and they're expanding the definitions. Tell us what we need to know about OSHA, so we're running a safe business.
Mike Trabold (48:42):
Yeah, OSHA, again, just like you said.
Gene Marks (48:43):
The Occupational Safety and Health Administration, is that?
Mike Trabold (48:44):
Very good. That's a very good acronym there. So yeah, that's exactly it, Gene. It's one of those, again, another kind of cascading impact from the pandemic; a significant increase in funding, significant increase in enforcement activities.
Like you said, they've very recently expanded their roles to be more specific and kind of prescriptive around individual industries. They just come out with warehouses. Any business that is a warehouse-based business is one of the more current areas of focus. So, you've gotta be on guard for more potential enforcements. They could just show up and come and look at it. Much more reporting.
They've expanded the roster of industries that have to give very specific reporting on safety incidents, and injuries at work and all those types of things, so your businesses that didn't previously have to report some of this stuff very well may start having to now.
The real focus based on kind of the weather this past summer is on heat-related type things. So, you have to be ready, especially if you're in an area that does experience some really tough temperatures. By the time next summer rolls around, you can almost expect very prescriptive rules on water breaks, and temperatures and all those types of things. And then be ready for enforcement. And that's, again, another area where a lot of the enforcement activities they do are predicated on an employee coming and saying, I have an unhealthy situation at work, so ...
Gene Marks (50:36):
Fines have increased as well.
Mike Trabold (50:37):
Fines have increased as well.
Gene Marks (50:38):
Inflation, of course.
Mike Trabold (50:39):
Inflation. Yes, inflation. Yeah, so that's an area, again, that I know we've really helped a lot of businesses because we can give some direction there, as well. But it's something that businesses, especially businesses in certain industries, those more manual-type things, are really going to have to take seriously.
Gene Marks (50:55):
Besides talking to your payroll company, I have been recommending to clients also to talk to their insurance companies, as well. Is that good advice? What would you recommend to businesses besides their payroll company for recommendations?
Mike Trabold (51:07):
Insurance companies are great because obviously, they have a vested interest, as well. And a lot of them have come up with really, especially in some of the industries or some of those geographies that are potentially problematic, have really been very helpful with coming up with programs, and walk-throughs that they can do well in advance to help you make sure you've got a safe plan.
So, there's lots of help that you can do there. It's just one of those things, again, that if you're a small business, not always necessarily the type of thing you're thinking about when you start every day, but it's an area where a minimal amount of investment and pre-planning can pay big dividends.
Gene Marks (51:44):
All right, let's move on to the Department of Labor. We've kind of touched a little bit on some of those topics, but there's a lot of things that we have not talked on. I see that the Department of Labor is working on at least three big issues; one being worker classifications, that means independent contractors. I know they have a proposed rule for overtime, waging the cap on overtime. Potentially, you said child labor enforcement, as well, something that's out there.
So, let's jump into this, okay? Let's start first of all with worker classification. Many of my clients have been concerned about changes to the definition of 1099 workers. The proposed change was actually, I think it's over a year old, but it hasn't been finalized. Give us a recap on what's going on with 1099 workers regarding the Department of Labor, what they want to do.
Mike Trabold (52:42):
Yeah, it's really, again, it's a really important question for a lot of our clients. We touched on a little bit already. So again, the Trump administration, again, made it easier to classify a worker as a 1099 worker – an independent contractor. So, basically, there was traditionally a very comprehensive list, you know, that was often called kind of this kind of economic standard list that was really based on a much broader set of rules. The Trump administration, DOL, really narrowed it down and said, it really it's only contingent on a couple factors. It's really slid back to a much broader, you know, you really that bar is really high, proposed really high, to be able to classify somebody as an independent contractor.
So, it's one of the things that hasn't come through definitively yet. A lot of pushback in the business community, as you can imagine. But it's one of those things that you're really gonna have to be aware of.
Gene Marks (53:49):
I thought there was like a, one of the biggest rules of thumb was, and the change the Department of Labor made was whether or not an independent contractor was integral to your business. Can you talk a little bit about that? You know, what integral means?
Mike Trabold (54:07):
Yeah, integral, and again, it makes sense. Maybe we'll use your example. So, if you have an accounting shop, and you're gonna bring in an accountant to say, okay, I'm gonna bring in another, I need more accounting firepower.
Gene Marks (54:22):
Yeah, for my clients.
Mike Trabold (54:23):
It's tax season starting for my clients. So I'm going to bring in three, but I'd like to consider them to be independent contractors. They're integral to your business, so your business is accounting, if you're bringing in accountants, it's gonna be pretty hard to say that they're not integral to your business.
Gene Marks (54:40):
Yeah, and I'm billing them out to my clients, so that sounds kind of integral to me.
Mike Trabold (54:44):
Right, so that, again, gets to that kind of economic standard and saying, hey, these folks are really crucial to how I run my business. And they're really just, again, same if you're a software development firm and you're bringing in programmers.
Gene Marks (54:56):
I think of like truckers. and they have these 1099 people that are delivering, you know, I think of people that run training businesses. Like we were talking about the EEOC getting out training for harassment or whatever. All their companies are running training and then they have contractors and they're billing them out. It's a lot of people that are affected.
Mike Trabold (55:14):
Exactly right. So, it's different if you're saying, hey, I'm going to bring in my janitorial staff. And obviously, they're not accountants. And you'd have a better rule. Again, but then a lot of it is, how much control do you have over what they come in and do? Even if you're janitorial staff, you're like, well, you gotta adhere to our dress code and be in these hours.
Gene Marks (55:34):
Use these equipments to clean our office.
Mike Trabold (55:37):
Use the equipment we dictate versus, hey, we're just coming in and we're doing our thing. So, a lot of it is that. A lot of it is, again, makes, it's things that would seem to make a lot of common sense, but it can be very, very beneficial for a business, for all the reasons that we've already talked about, to classify somebody as an independent contractor.
So, that's why it has become more difficult, or is proposed to become much more difficult. That's an area that we absolutely expect will come to fruition. So, our message across the board and you know this is one of those areas that different agencies have slightly nuanced different interpretations, but it's all pretty much the same thing. You've got to be really, really sure and probably get a professional opinion, or get somebody that can really help you make that determination for that specific circumstance to make sure that you can really classify somebody as an independent contractor.
Gene Marks (56:34):
I've been really avoiding doing that.
Mike Trabold (56:36):
Because even though it can be very beneficial, it's increasingly difficult to do.
Gene Marks (56:41):
What's the exposure? What happens to an employer if they're misclassifying somebody who should be an employee, but you're calling them an independent contractor?
Mike Trabold (56:49):
Fines, penalties, and even a lot of back. You could say, hey, this person should have been paid at that rate. So, there's all the back pay, back make somebody whole, as well as fines, penalties.
Gene Marks (57:04):
Okay. So, give me three takeaways on worker classifications, Mike. What should I know going into 2024? Is this real or not?
Mike Trabold (57:11):
I'd say it's real because, again, even though the DOL one is still kind of coming to fruition, you're going to have a really difficult time, whether it's with other agencies doing the same thing. All the agencies, all the states are with other agencies doing the same thing. All the agencies, all the states are coalescing around the same more difficult set of requirements. So, be really cautious and work with a professional. If you really want to go down that path and classify some of your workers as independent contractors, make sure in your state or at the federal level you really dig into what those requirements are and make sure you've got a really airtight business case for classifying them in that way.
Gene Marks (57:52):
All right, also, on the Department of Labor's agenda for 2024 is raising the amount of wages that we're paying people for overtime. Tell us what's going on there.
Mike Trabold (58:01):
Yeah, this is, again a really potentially significant one, as well. Right now, if you have somebody that you don't have to pay overtime for, someone if you're paying them at least currently $35,000 and change, and they meet either administrative, professional, or technical and there's definitions of what all those things mean.
Gene Marks (58:28):
Yeah, there's more nuance. There's definitely nuances, but basically if they're not managerial, they're not supervising anybody, right? And if they work more than 40 hours a week, you don't have to pay them overtime.
Mike Trabold (58:38):
You don't have to pay them overtime. So, the Biden DOL has proposed a significant increase to that threshold from $35,000 and change to $55,000 and change.
Gene Marks (58:50):
By the way, it is significant, but there was talk of it going up to what size, $85,000 at one point, right? Yeah, and that was really rolling some eyes.
Mike Trabold (59:00):
They kind of came back a little bit. So, that's a really significant impact. And actually, when President Obama was in, he, his administration recommended a similar move, which ended up not going anywhere in the courts. But even at that time, a lot of businesses went and made adjustments.
So, basically, if you're looking at that, you need to go in and kind of do an analysis and say, is it better for me to raise all those folks, people that would be in that definition, up to that new salary threshold? Or is it better for me to then change our classification and say okay, you're not exempt, essentially an hourly worker, and I can manage that that way and pay you overtime if I have to, but then not if I'm not necessary to do that.
Gene Marks (59:46):
But you can't just monkey around with the titles. You can't just like magic, wave a wand and say, oh, you're now not exempt, you don't have to, you know, we're not gonna have to pay you over time anymore because we've changed your role. And meanwhile, the person's still supervising 10 other people, right?
Mike Trabold (1:00:00):
Absolutely, you need to be very diligent about that. You know, a lot of, like a lot of retail places get in difficulty because they say, hey, I'm gonna call everybody an assistant manager and take advantage of this exemption, but then I'm still going to make them do all the hourly worker type things. So, that's where you really run into trouble. So, the title needs to match the actual, or the actual duties need to match the actual title.
The other thing we found a lot that we still hear from a lot of clients is, you know, it's almost a little bit of a psychological and morale thing to say if somebody is currently an exempt employee, to say, okay, now we're switching you to hourly. They don't like that, even if it's, even outside the financial aspect of it.
Gene Marks (1:00:44):
Yeah, I get it.
Mike Trabold (1:00:45):
But again, and that's one of the things, again, is as you get to year end and you start budgeting for this coming year, be aware of that and almost do the arithmetic and find out what's better, what's better for you, what's better for your employees.
Gene Marks (1:01:58):
I also, I know when it comes to these rules, everyone, that it just, if you're not... This gets back to wage theft again because I'm writing about this so it's been high of mind. If you're not paying your employees overtime and they should be getting overtime, it's another form of wage theft. So, that is a big issue. And your employees know this, right? I mean, this is not news to a lot of employees. Again, they have the internet.
So, I don't think you should be sitting around waiting for the Department of Labor to knock on your door, or audit you. They're not gonna do that, but I think it is a very, very real possibility that if your employees are not getting the overtime they're entitled to, they're gonna report you to your state or to the Federal Department of Labor.
Mike Trabold (1:01:43):
It's really well said. You know, in the current era, it's so visible. It's out there, everybody, it's available at the click of a button. And it's serious. I know we're not digging into a lot of the state stuff, but New York just changed its wage theft laws to make it a criminal offense. So, if you're a business owner, and you engage in wages knowingly, purposely.
Gene Marks (1:02:08):
Like overtime wages for example.
Mike Trabold (1:02:09):
Like what you just talked about, there could be, you could be going to jail. There's criminal penalties for that. And states are very serious about it.
Gene Marks (1:02:18):
So, give me a couple of takeaways for overtime rules.
Mike Trabold (1:02:21):
Yeah, this one, really it's time well spent. You gotta really look at your, this one, really, it's time well spent. You got to really look at your, and again, this is one where there's state rules as well, so it's very nuanced, it's very technical. Get some help if you need, talk to a labor attorney, go to a payroll company or somebody that has some knowledge in this regard.
And again, it's very nuanced, it's very specific on what your people are actually doing, how you have them, what their duties are. But then it's almost a little bit of a finance exercise. If you think you're gonna need to bump folks up to that amount, then figure out what is the best path to take and how you might want to proceed. Do you want to bump everybody's salary up to that degree? Do you want to switch people to non-exempt and pay them an hourly basis? There's a lot to it, but you need to bump everybody's salary up to that degree?
Do you want to switch people to non-exempt and pay them an hourly basis? There's a lot to it, but you need to, again, not ignore it because there could be budgetary considerations and, again, some ramifications if we don't comply. The DOL appears serious on this. They actually, like in the other big reg, they have a public comment period. On this one, they said there's a lot of conjecture they're going to extend because they're getting so many comments in on this. They said we are not extending the public comment period on this, which is a sign to us and others that they're serious about it and they're getting ready to proceed, so ...
Gene Marks (1:03:37):
And where does it stand right now? It's not officially been released yet, but you expect this in 2024?
Mike Trabold (1:03:42):
We expect this in 2024, where there'll be some legal action around it, potentially, strongly potentially. But this is one that we would recommend you really look at, and at the very least, lay out what it would look like for you if you don't yet take action until it's final, final. But we think this one's probably going to have some legs.
Gene Marks (1:04:04):
In our notes before we spoke, I was writing down notes of the Department of Labor changes and we've talked about them, but you actually added in about child labor enforcement for migrants, which I'm not aware of that one. Can you elaborate?
Mike Trabold (1:04:19):
Yeah, one of the areas that, and this is again, is an interesting one. There's a little bit of a dichotomy between states and locals. One of the areas again that the DOL has, federal DOL has identified as a enforcement priority is enforcing child labor laws. And again, very recently, they just came out and said, we're going to even magnify that closer on the migrant communities because a lot of folks that are coming in, these migrants that are coming into the country, they're saying; Children get taken advantage of and they said, hey, there's 13-, 14-year-olds, we're gonna get those folks to work right away.
So that is, again, we're telling employers, clients, be very diligent around child labor laws. The flip side of it is because there's in many industries and in geographies a real labor shortage, some states have loosened their child labor laws. So, they've said, hey, whereas 16- or 17-year-olds couldn't work adult work conditions, they said in certain conditions, we are gonna allow people, whether it's to work longer hours, work nights, work in areas like construction, or roofing that could be a little bit more dangerous.
Gene Marks (1:05:30):
Yeah, my neighbors in New Jersey just did that as well. They lowered the age for children to work, particularly for summer help.
Mike Trabold (1:05:36):
Exactly right, so that's one again that we're saying, it's complicated, but be aware of it. And again, don't do things, don't hire minors, start putting minors to work, unless you're really cognizant of what the requisite requirements are.
Gene Marks (1:05:52):
All right, so Mike, so we talked about a bunch of different things that lap and overlap into taxes, obviously. We haven't talked about my favorite agency of the government, the Internal Revenue Service.
So, the IRS has some things happening that are going to impact employers in 2024. Let's talk. I'll give you a few – just a few things to note. First of all, the employee retention tax credit, right? As you and I are recording this, it's suspended. Give us a status of what this is.
Mike Trabold (1:06:24):
Yeah, and everybody's probably read all about this and heard about this right now. Federal government's super concerned about fraud and a lot of these stimulus programs. Everybody heard the stories about PPP and some of the other things. So, they were getting increasingly anxious with ERTC. You know, we'd heard, or actually been in meetings with the IRS commissioner where they were really surprised. Most stimulus programs start out really with heavy participation then plummet.
Gene Marks (1:08:01):
Those are the opposite. ERTC opposite.
Mike Trabold (1:08:06):
Yeah. As it went on and on, more people were going back and retroactively claiming it. Everyone knows the story. There was a lot of companies out there that started up and saw an opportunity or out there and really robustly going after it. It's really complicated and involved, as you know, credit to claim. So, the IRS is really getting behind because they felt they really had to go in and kick the tires on these. So, they said, as everybody knows by now, we're going to suspend it, not end it, but we're going to suspend processing that. So, to give us time to catch our breath, really go and look at it and make sure that we've got a good methodology to look at the propriety of a lot of these credits.
So, the important thing that we're telling our clients, because it could be a really valuable and appropriate credit for a lot of businesses, is it's not stopped, it's not eliminated, so you could still file, they're just not going to look at them in the near term. But you have to also be really diligent, and thoughtful on are you meeting the criteria because there's a lot of, and we've heard a lot of anecdotal information.
It's a complicated formula in some cases as to whether or not you meet it, and sometimes subjective. It's a complicated and subjective, so you need to really be thoughtful with it. And they're actually giving businesses the opportunity to go back in and kind of claw those back if they, upon further analysis, believe that they shouldn't have claimed it in the first place.
So, you know, there's probably some impact on the quality of who you're going through. I know I could tell us and a lot of our big mainstream competitors are very diligent, and thoughtful around making sure that people are going through the right steps, others maybe less so. So a lot of it is who are you aligning with to help you do this. And again, making sure that you are aware of what the criteria are and you're aligning with that. And again, these are still available, you can still do it. Might be an extended horizon for you to actually get that money at some juncture, but as long as you're following the rules and being compliant and appropriate around it, there's no reason not to go in and look to get that credit because again, it's set up by Congress, it was specifically set up to help businesses, mostly small businesses, for a very legitimate purpose and there's really no reason not to claim it if you meet the criteria.
Gene Marks (1:09:21):
The IRS is also going after higher-wage or higher paid taxpayers. Tell us what they're doing.
Mike Trabold (1:09:30):
Yeah, without a doubt, you know, we've had a lot of really … I wish I was in trouble, but, you know, everybody's heard it the tax gap. You know that the difference between what the IRS should be collecting in taxes. What is actually owed what it actually does is getting bigger and bigger and is actually quite daunting now. So, a lot of interest in really going and saying are we looking at getting the money that we're owed. So, everybody has seen the IRS has gotten some incremental funding, some of that's still held up in a little bit of political morass, but they still do have a lot of money and they're getting much more savvy around artificial intelligence and using algorithms, and things like that to find where they can really focus their attention and time.
So, we're without a doubt their enforcement, both attention and efforts, and savvy are going up exponentially, and that's particularly acute with employment taxes, an area obviously of great interest to us, that they have recognized there sometimes is a relatively high degree of non-compliance there as well, as well as just individual taxpayers, high-earning taxpayers.
Gene Marks (1:10:42):
How do they define like a high-earning taxpayer? Is it like the $400,000 a year married filing joint? Or is it just this innocuous high-earning?
Mike Trabold (1:10:52):
It's kind of high-earning. I think they're cautious about it. I mean, the $400,000 was a little bit of a political slogan. They're pretty discreet about not saying exactly what their criteria are, or what their guidelines are when they go in and do their programming. But it's, you know, certainly, without a doubt, you know, a lot of affluent folks use pass-through type structures, S-corps, partnerships, things like that.
One of the really interesting things, and some of those pass-through structures, you know, it's easy to pay, you're getting your profits out through the structure themselves, but you also, in some, like an S Corp, you have to pay yourself a salary, so a reasonable market salary. So that's one of the things that, you know, again, we're having some clients that come and say, what is a reasonable market salary for an accountant, or an architect or a hedge fund manager and so forth.
So, there is some intersection with us in those types of things. So, without a doubt, you know, you'd be somewhat foolhardy for people to not be aware of the potential for increased enforcement coming forward.
Gene Marks (1:11:59):
You also put on your list of concerns with the IRS for business owners in 2024 is the R&D credit. I'm curious why you included that. And also, we're not talking about the R&D tax deduction because that was affected in 2022 and is still being argued. Was that the same issue or something with the tax credit?
Mike Trabold (1:12:22):
This is the issue where you used to be able to expense R&D right off the bat and take it fully and never seeing it.
Gene Marks (1:12:29):
So, I read it wrong, so it's the R&D tax deduction. You could just write off your R&D expense in the year that they were incurred.
Mike Trabold (1:12:34):
Gene Marks (1:12:35):
And now you've got, it's me the accountant, so here we go, okay? Everybody listen up, because I'm the accountant.
Mike Trabold (1:12:39):
He's the accountant.
Gene Marks (1:12:40):
Right, but now you have to capitalize it and then amortize it over the life of whatever the project is, whatever that term might be, right?
Mike Trabold (1:12:48):
That's exactly right. So again, we have a fair amount of clients that do, you know, do not obviously not a lot of pizza parlors, landscapers, but a lot of clients are doing research and expending, incurring those expenses and used to be able to write them off, expense them immediately, very beneficial from a tax standpoint.
Now, to your point, you have to amortize those fully, which can make a material, a negative impact on your tax situation. So, a lot of buzz around, you know, are there ways for that to kind of get changed again through the political channels, but just again, awareness and making sure that people are doing that pre-thinking and that planning to make sure that they aren't adversely affected.
Gene Marks (1:13:30):
All right, let's move on from the IRS because nobody likes talking about the IRS, Mike. So, it's, you know, but these are important issues that we need to know. Just, but before we do, just a couple of takeaways for any of our business owners when we're talking about issues with the IRS. What should they be aware of that the IRS is doing this year?
Mike Trabold (1:13:49):
Yeah, the IRS, again, they're playing hardball, without a doubt. And they have much more firepower at their disposal than they ever did. So, again, it sounds funny coming from us, obviously, we think this, but comply with the tax rules. Make sure if you're going to go in a way that could be a little edgy or could use a loophole that's already out there, make sure you're talking to tax counsel, people that can give you really good advice. Don't be overly aggressive. That would be our take on it.
Certainly, make sure you're aware of what opportunities are out there from a credit standpoint, whether it's ERTC or anything else. Don't go too far the other way. As long as there's things out there that you're legitimately entitled to, go out and take them. Just make sure you're doing it the right way.
And again, the more you can align with, there's a lot of parties out there, and some of the things like PPP, and ERTC have made it pretty clear. There's some folks that are really good stable players, and some folks that are much less so. It's worth the attention and time. And, you know, even if it costs a little bit more to align with somebody that's a really, somebody you could feel good about and have that peace of mind aligning with to help you in this area.
Gene Marks (1:15:02):
Okay, as we head into 2024, we as business owners are going to be getting communication from the Department of Treasury. We've talked about all the other agencies and departments and here we are with the Department of Treasury is going to be informing us that we need to be disclosing to the government the beneficial owners of our companies. It's under the Corporate Transparency Act. Tell us more.
Mike Trabold (1:15:27):
Yeah, this one is getting a lot of activity, a lot of buzz in our world right now.
Gene Marks (1:15:33):
And yet nobody else knows about it, right? Because to my word, none of my clients have heard of this.
Mike Trabold (1:15:36):
And it's one of those things that I'm not sure, and I think they admit it, the Department of Treasury and FinCEN, more specifically, that's kind of an agency that looks at money laundering and all that kind of stuff, would probably admit that this has gone a little bit under the radar. But starting next year, Jan. 1 of 2024, any new business has to report information on their beneficial owners, which means that both you own a significant part of the company or you have a lot of ability to manage and impact the activities of that business. You have to report that information through FinCEN's Database to the Department of Treasury, and the rationale behind that is a lot of businesses that might be a little bit nefarious set up under a shell company-type things, they wanna be very anonymous with who owns the companies. That's very beneficial if you're looking to do tax evasion, or money laundering or things like that.
Even in some cities, a lot of apartment houses are set up under these shell companies. So, you can avoid some of the real estate requirements that you have to as a landlord and so forth. So, they're trying to address that. So, what you have to do is again report some of that information, name, address, some of your social security number, passport information and so forth. So, they know for this entity who the beneficial owners are. If there's changes of that you need to go ahead and report that, as well.
The problem is there's just, as Gene said, a lot of lack of clarity or even understanding that this is coming.
Gene Marks (1:17:36):
But I hear the form is gonna be really easy to fill out, right, like just one or two lines.
Mike Trabold (1:17:19):
And still, the form and a lot of the supporting information is still, as of this taping is you know early, November is still not out yet, so a lot of growing interest in how is this going to happen, and how is this going to get taken care of. The one thing that they did do is extend for again with the Jan. 1, ‘24 implementation date for new businesses, new startups. You used to have to do this reporting within 30 days of establishing your company. They've made that to 90 days, but it's still a lot of stuff you're going to have to do. For existing companies, you have till the end of ‘24 to actually do this reporting. But again, there's a lot of still confusion around what's required and what has to happen.
So, a lot of buzz around it. We're trying to certainly from our standpoint, make sure there's some recognition and some information out there for businesses, so they can get ready for whatever requirements they have.
Gene Marks (1:18:17):
Great. All right, Mike. So, SECURE 2.0 was passed in December of 2022. So, it's a year ago. Still amazingly, the lack of awareness of some of these things, it just blows my mind. But enormous impacts on businesses and individuals, how they can be saving money for retirement, or helping their employees save money for retirement. So, it's been a year. There are some proposed changes to it, as well, which I think will benefit smaller businesses. Give us a recap of SECURE 2.0. Say you're talking to me; I don't even know what it is, and why do I care about it? Does it help me in my business? Tell me why?
Mike Trabold (1:18:59):
Yeah, it's a great question. It's something we spend a lot of time on here. Lots, again, a complex regulatory situation. Again, the genesis, a lot of policymakers are correctly surmising Americans generally aren't saving enough for retirement, building enough of a nest egg. Lots of studies have shown that the best way to do that is do it right at work, have it taken out of your pay. It's proven to be the easiest and most effective way to get that, to build up a retirement nest egg.
SECURE Act 2.0, the whole premise of it was to make it easier and more beneficial generally for businesses to offer retirement plans to their employees. So, very sweeping on a lot of different levels, you know, very generous tax credits, tax benefits for establishing a plan, and just a lot of things, auto enrollment, a lot of things that are out there and there's many, many aspects to the SECURE Act 2.0 that are being phased in over a series of years that are just gonna, in aggregate, really make it much more efficient, more streamlined, and much more beneficial for business to offer retirement plans to their employees.
Gene Marks (1:20:16):
So, more part-timers can participate in these plans, which is good for retention. I like the student loan part now, right? I mean, if you have an employee who's a student and they show evidence that they were paying down their student loans, which now obviously restarted again recently, me as an employer can match their student loan contributions to a 401(k). That was never allowed before.
I'm curious, and again, without getting too much into the weeds, whatever, but there's another part of the 401, of the SECURE 2.0 that was gonna be like a matching program for employers who matched their employees' payments, right? It was like very small employers, like less than 50 employees or something. If they matched 50% up to like $2,000 of their employees' contribution, the government would give them tax credits. Can you talk anything about that? And again, I don't wanna throw a curveball at you, but …
Mike Trabold (1:21:07):
No, it's not a curveball at all. That's, again, one of the things that has been very recently proposed as an addendum to that is to even help it further is for folks that are very, again, low earners, is to have a matching contribution made by the federal government. Again, will that politically get the legs to be determined? But that's something that's getting a lot of attention, again, as a real way, especially it's very difficult for people at the lower earning end of the spectrum to really build that substantial nest egg. It's a fascinating conversation.
We've been in a ton of like even think-tanky type things because they're like, hey, the government doesn't do this now, they're going to have to do it later because if you've got a lot of folks that don't go into retirement without adequate funding, you're going to have to somehow bridge the gap for them anyways. So, if you can do it in a way that, again, is thoughtful and kind of in line with a broader policy, there's a lot of benefit there. So really interesting development. We're watching closely.
Gene Marks (1:22:02):
And, also, SECURE 2.0 made some changes to Roth, as well. Now, I think we can roll over any of our Roth savings to a 520 … oh, sorry, from a 529 to a Roth. We're now allowed to do that. And employers can make Roth contributions now, right?
Mike Trabold (1:22:17):
Yeah, which never used to be the case. But again, that was attractive because it was one of all the kind of tax benefits, this is a way to kind of pay for it because with the Roth, now you're paying at the front end as opposed to later on. So if you're a high earner, if you're making catch-up contributions, stuff like that, now they're gonna be done Roth, through a Roth type of amount and you're gonna be paying the tax at the front end. So again, some significant changes, certainly stuff we've had to do from a programming standpoint, but makes a lot of sense from a policy standpoint.
Gene Marks (1:22:48):
Great. Mike, it's been great speaking with you. It is always a pleasure. I always learn so much from our conversations. So, I just want to thank you, so much for taking the time with us. It's been very, very important. And I want to wish you the best of luck.
Mike Trabold (1:23:02):
Likewise, Gene. Thanks. It's always great to talk to you.
Gene Marks (1:23:05):
Mike Trabold is the Director of Compliance here at Paychex. We have been talking about all sorts of things that are going to be impacting your business regulatory-wise in 2024. Thank you so much for listening and watching. My name is Gene Marks. You have been watching or listening to the Paychex THRIVE Podcast.
Gene Marks (1:23:18)
Do you have a topic, or a guest that you would like to hear on Thrive? Please let us know. Visit payx.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR payroll benefits, or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx. That's w-o-r-x. Paychex can help manage those complexities, while you focus on all the ways you want your business to thrive. I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.
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