Payroll and HR solutions firm Paychex, Inc., has identified the top 10 regulatory issues that small business owners should be aware of in 2018.
“With so many regulatory changes and legislative reforms either proposed or slated to take effect in the coming months, it can be challenging for busy small business owners to keep up with where things stand,” says Martin Mucci, president and CEO of Paychex.
“Our summary of the year’s most important regulatory developments is designed to help small business owners understand how new regulations will affect their businesses in 2018.”
The following list outlines the current regulations small business owners must follow and the anticipated changes that should be considered as they plan for the year ahead.
1. Tax Reform
In the last few weeks of 2017, the GOP passed the first major tax overhaul in decades. Legislation hurtled quickly through Congress, meaning businesses need to rapidly assess what this legislation means for them as many of the provisions go into effect in 2018.
The corporate tax rate will be streamlined to a flat 21%. For individuals, in general, rates were cut; some deductions, including personal exemptions and the deduction for state and local income tax, were removed; and the standard deduction was nearly doubled to mitigate the effect of broadening the base.
Employers will need to implement withholding changes once the IRS releases updated tables. The IRS has indicated that the information in the withholding tables will be designed to work with the current W-4 for 2018.
The changes to the individual tax code will expire in 2026 without additional Congressional action.
Additionally, pass-through entities, which account for most businesses in the U.S., generally use the individual tax code and are therefore directly impacted by these changes to the code.
To further reduce the tax burden for pass-throughs, Congress added a deduction of business income of up to 20% for those entities, but there are complex requirements and guardrails for the application of this deduction. Businesses should stay tuned as the impacts of this policy evolve.
2. State Reaction to Federal Tax Reform
State taxing authorities will face many challenges this year as they position themselves to handle changes brought on by federal tax reform.
Many states conform to federal tax standards and, as a result, will need to move quickly to get their systems and regulations in compliance with the new federal tax reform law when it takes effect.
Many states are also scrambling to come up with state laws to lessen the effect of federal tax changes on state taxpayers, particularly relative to tax and revenue impacts. In general, the bulk of the states conform to the Internal Revenue Code to some extent; some states directly conform, others conform with carve-outs, and some conform to the code on a specific date.
Based on the new tax law, date-specific conformity would require legislative changes if the states choose to conform to the code.
Along the same lines, each jurisdiction will need to assess the impact of decoupling or following the IRC on their budgets and their constituents, which may lead to withholding changes that could be implemented retroactively in some cases.
Other consequences from the federal tax overhaul may require state legislatures to examine how they support their healthcare markets.
States will be busy at the beginning of the year assessing how to best absorb the changes caused by the federal overhaul and implementing those changes within a condensed timetable.
3. The Affordable Care Act
The tax reform overhaul also addressed an unpopular component of the Affordable Care Act. Under the ACA, individuals must demonstrate they have qualified health insurance coverage or qualify for an exemption on their tax returns, or face a penalty from the IRS.
The tax reform bill negates the ACA's individual mandate penalty by reducing it to $0 by 2019. Although the tax bill does not repeal the provision, negating the penalty amount essentially has that effect.
The tax reform bill negates the ACA's individual mandate penalty by reducing it to $0 by 2019.
Additionally, other provisions in the ACA, including the employer shared responsibility provision, remain unchanged.
Employers should do their due diligence preparing for current year ACA filing obligations and gathering 2018 tax year data for next year's filing.
4. Paid Leave Laws
Over 40 different states and local jurisdictions have passed paid sick leave laws applicable to private employers.
And while there are far fewer paid family leave laws on the books, 2018 will bring the nation's most comprehensive paid family leave to New York State.
All the paid leave laws, passed or proposed, vary in their complexity, but the family leave laws are the most onerous.
Provisions related to employer coverage, employee eligibility, employee/employer notice requirements, recordkeeping, and penalties are found in all paid leave laws. Employee payroll deductions and employer taxes are also prevalent in paid family leave laws.
There is also often the need to coordinate these laws and their provisions with other applicable leave laws such as the federal Family and Medical Leave Act.
Also on the horizon, a recent proposal in Congress, the Workflex in the 21st Century Act. This legislation, if passed, could preempt many of the paid leave laws at state and local levels, where employers elect to voluntarily offer paid leave and flexible work schedules as prescribed in the legislative proposal.
5. Employee Verification
Form I-9, the Employment Eligibility Verification Form, which is used to meet the federal requirement to verify an employee's identify and eligibility to work in the U.S., was revised in 2017.
The changes to the form and supporting guidance were minor compared to previous revisions, but employers will still need to ensure use of the correct form and delivery of the separate instruction pages to all new employees on their first day of employment.
While documentation audits and worksite inspections seemed to level off in 2017, Immigration and Customs Enforcement has warned that it will quadruple the number of worksite inspections in the coming year, consistent with President Trump's pre-election platform and post-election agenda regarding immigration reform.
Additionally, if passed, the Legal Workforce Act introduced in 2017 could eventually phase out the Form I-9 in its current form. Under the proposed legislation, mandatory use of the E-Verify system would be phased in for all private employers.
6. Overtime Regulations
A review of 2017 includes steady developments related to the Final Overtime Rule released by the Department of Labor under the previous administration, the latest of which was the invalidation of the rule in a Federal District Court. Activity related to federal overtime regulations will continue in 2018.
Over the summer, the Wage and Hour Division of the U.S. Department of Labor released a Request for Information soliciting public comments on the existing overtime regulations that define and delimit exemptions from the federal Fair Labor Standards Act's minimum wage and overtime requirements for certain white-collar employees.
New federal overtime regulations could be adopted and in place by early 2019.
While employers are reminded to continue their compliance with the existing federal overtime regulations, as well as applicable state requirements that may incorporate salary levels that exceed the federal level, new federal overtime regulations could be adopted and in place by early 2019.
7. Pay Equity
Originally scheduled to take effect in 2018, the controversial revisions made to the EEO-1 Form, which would have required covered employers to submit wages and hours worked data on the form, were stayed by the Office of Management and Budget during the summer of 2017.
Employers should note, however, that the changes made to the submission date of the EEO-1 (March 31, 2018) and the "workforce snapshot period" (4th calendar quarter of 2017) are in effect for 2018 submissions.
It remains to be seen if the EEOC, with its newly appointed members, will choose to revisit the collection of employer wage data as they move forward with their Strategic Enforcement Plan for Fiscal Years 2017-2021, which includes a focus on gender-based pay discrimination enforcement.
Pay discrimination based on gender also continues to be an area of great concern for states looking to more aggressively address recognized and documented gender pay gaps and to ensure pay equity in the workplace.
States, and even some local jurisdictions, will likely continue to push through legislative proposals in 2018 to ban or limit the collection and use of salary and benefits history information in the hiring process.
With the ever-growing cybersecurity threats inherent in a globally connected digital society, today's small- to medium-sized business owners must fortify their information security programs.
Businesses that fail to adequately protect sensitive information with security and privacy safeguards face regulatory, reputational, and litigation risks, as well as crushing remediation expenditures.
States' attorneys general and federal regulatory agencies, such as the Federal Trade Commission and the Consumer Financial Protection Board, readily use their legal authority to investigate and bring enforcement actions against businesses for data security failures that lead to data breaches.
Recent comprehensive cybersecurity rules enacted by state agencies in New York and Colorado may prompt other states to regulate and enforce data security standards against businesses in the financial services and insurance industries.
Additionally, with the increased adoption of biometric technology in the private sector, privacy laws regulating the collection and use of biometric data, such as those in Illinois, Texas, and Washington, may become nationwide industry standards.
9. State and Municipality Retirement Plans
The fact that a large percentage of private sector workers are not saving enough for retirement, combined with the forecasted shortcomings of the Social Security program, have caused many states to consider implementation of state-run retirement savings plans.
Currently, nine states have enacted laws that allow the development of these programs. Each state's program is structured as a Roth IRA, a multiple employer plan, or a marketplace whereby users can comparison shop for plans.
Employer requirements vary by state, with some requiring employer participation based on employer size and others keeping employer participation voluntary. Auto-enrollment of employees is also a state-specific provision.
Illinois, Connecticut, California, Maryland, Vermont, and Washington anticipate rollout in 2018 or 2019.
Illinois, Connecticut, California, Maryland, Vermont, and Washington anticipate rollout in 2018 or 2019, and New Jersey and Massachusetts have yet to specify rollout dates. Another 22 states and municipalities have introduced legislation supporting the creation of state-run programs.
Businesses not currently offering their employees a retirement plan will need to watch individual state developments closely.
10. Payment Evolution
In September of 2017, the second phase of Same Day ACH, permitting debits up to $25,000, became a payment option, giving cash flow management a boost.
Faster payment options will continue to expand and become easier for small businesses to leverage in 2018.
In March of 2018, financial institutions will be required to meet a strict 5 p.m. local deadline for Same Day ACH funds availability.
As faster payment capabilities will be crucial for the gig economy (temporary, flexible jobs performed by freelancers), near real-time payment solutions are also expected to be available in 2018.
In addition, demand for faster and more convenient options for paying out tips to employees is expected to grow in 2018.
Small businesses should work closely with their financial institution, payment processor, and vendors to identify opportunities as the availability of faster payments develops.
View a slideshow of 2018’s top 10 regulatory issues for small business owners.