Welcome to a new era of compliance uncertainty for employers.
When it comes to federal and state laws and regulations affecting the world of work, such as the Fair Labor Standards Act (FLSA), Social Security, employment tax withholding and many others, compliance predictability has been the norm. Once signed into law, these mandates tend to stay for decades.
However, based on legislative developments in Washington D.C., as well as initiatives in key states, compliance changes in 2018 will not simply fine-tune long-standing regulations. Emerging trends point to change and complexity, making it more difficult for employers to manage compliance uncertainty.
Here are five regulatory issues that reflect this new era, and an outlook on the potential impact they will have on the workplace in 2018 and beyond.
No issue has greater potential to transform employer compliance, and create new compliance uncertainties for millions of employers, than tax reform. The Tax Cuts & Jobs Act of 2017, signed into law on Dec. 22, will have dramatic – and unpredictable – effects on employer compliance.
The good news is that tax reform cuts individual and business tax rates. It simplifies and makes the tax code more fair, and can boost the economy. The bad news is that U.S. Treasury revenue lost to tax cuts must be “offset” by other sources of revenue, from abolishing or curtailing favored tax breaks, preferences and deductions.
President Trump and congressional Republicans campaigned for years on a promise to “repeal and replace Obamacare.” While the Trump administration failed to win legislation that would completely overturn the health care reform law, Congress did include in the Tax Cuts & Jobs Act a de facto repeal of the mandate that individuals enroll in health coverage or pay special penalty taxes, one of the pillars of the 2020 health care reform law.
Ending penalties for people who fail to enroll in health coverage as required by the ACA will have far-reaching consequences for individuals and employers. For one, health providers could shift some costs associated with uncompensated care to employer-sponsored health plans. Also, fewer employees may enroll in employer health plans. Most important, repeal of the ACA individual mandate could ultimately lead, perhaps in 2018, to relief from the ACA employer mandate as well.
A rule that was scheduled to take effect in December 2016 called for an important change in overtime compliance: a doubling of the “white collar exemption” salary threshold from $23,660 ($455 a week), to $47,476 ($913 a week).
However, on Nov. 22, 2016, days before the final rule was to go into effect, a federal court judge in Texas issued an injunction blocking the Department of Labor from enforcing the rule.
The net effect of the federal court decision was to suspend the Obama Administration’s final overtime rule, leaving U.S. employers that had come into compliance with the final rule uncertain about which workers were overtime-eligible and which were not.
In August, U.S. District Judge Amos Mazzant struck down the final rule, re-establishing the status quo ante, including the $23,660 salary threshold, and leaving the nation’s employers in compliance limbo.
The Department of Labor is expected to start all over in 2018 with a brand new proposed overtime rule. A new final rule is anticipated to be effective sometime in late 2018, with a salary threshold in the mid-$30,000 range and possibly some of the variations outlined in the Request for Information.
While federal policy on employee leave has been stable for a quarter-century, many states and localities have enacted or proposed new paid leave mandates – creating a national compliance hodgepodge for employers.
At the federal level, two paid leave initiatives have the attention of employers. First, Society for Human Resource Management (SHRM) supports legislation introduced by Rep Mimi Walters (R-CA), the Workflex in the 21st Century Act (bill H.R. 4219). The bill would offer employers a way to escape the hodgepodge of state and local mandates by instead complying with a national paid leave standard that would take precedence over state and local laws.
The other important paid leave initiative that has emerged from the Trump White House is for paid family leave. President Trump’s budget for FY 2018 included a proposal for up to six weeks of paid parental leave for new mothers and fathers. Under the plan, states would be required to provide leave payments through their existing Unemployment Insurance programs at an estimated annual cost of $25 billion when fully implemented.
While employers monitor federal paid leave developments, they are preparing to comply with an ever-widening scope of state and local paid leave mandates. They understand that the D.C. government and New York State laws could become templates for additional state and local ordinances. Staying ahead of this curve promises to be an ongoing compliance challenge.
While not on the Capitol Hill or White House radars right now, employers understand that sooner or later the President and Congress will need to act to “save Social Security.” Congress will need to make difficult decisions about the taxable wage base, employer and employee payroll tax rates and, of course, the pace of benefits growth and the eligibility ages for reduced and full benefits.
Social Security solvency is a longer-range employer compliance concern and, however solvency is assured, Social Security will have compliance implications for employers.
State Auto-IRAs are becoming a growing requirement for employers. Oregon, California, Illinois and others have enacted laws requiring employers who do not offer employee retirement benefits to participate in the state’s “Auto-IRA” plans that would enable their employees to save for retirement.
While the courts ultimately will decide the fate of state government Auto-IRA mandates, employers that do offer retirement plans must cope with a new compliance uncertainty – whether these state government mandates apply to them too.
The compliance message to employers is clear: worker retirement security, relatively quiet as an issue since the 1970s, is emerging once again as a state and national priority.
With more than 30 years of experience in federal legislative and regulatory affairs, Jim O’Connell focuses on HR and PAYROLL POLICY ISSUES, keeping customers informed about fast-changing and complex compliance regulations and workforce trends. Follow him on Twitter JOCWashDCView Collection