The top 10 small-biz regulatory issues for 2018

January 25, 2018 4:49 PM

Legislative and regulatory challenges often hit small businesses the hardest, as they have fewer resources in terms of staff, money, time and management attention to handle them.

With their needs in mind, Paychex Inc. put together this handy list of the current regs that will affect business owners the most in the coming year, and the anticipated changes they – and their advisors – should keep an eye on.

“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,” said Martin Mucci, president and CEO of the payroll, HR, insurance and benefits solutions provider. “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.”

President Trump speaks during a tax bill passage event with Republican congressional leaders.

President Donald Trump speaks during a tax bill passage event with Republican congressional members of the House and Senate.

Zach Gibson/Bloomberg

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Legislative and regulatory challenges often hit small businesses the hardest, as they have fewer resources in terms of staff, money, time and management attention to handle them.

With their needs in mind, Paychex Inc. put together this handy list of the current regs that will affect business owners the most in the coming year, and the anticipated changes they – and their advisors – should keep an eye on.

“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,” said Martin Mucci, president and CEO of the payroll, HR, insurance and benefits solutions provider. “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.”

abstract digital background with money symbol

lolloj - Fotolia

No. 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 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, 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.

No. 9: State and municipality retirement plans

Many states considering implementation of state-run retirement savings plans. At present, 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 (MEP), 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.

The State of Oregon’s OregonSaves program is furthest along with implementation, including registration deadlines that started in November 2017 for the largest employers. 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.

No. 8: Privacy

With the ever-growing cybersecurity threats inherent in a globally connected digital society, 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.

No. 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” (4^th 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.

Keep paying overtime, for now. Image: Fotolia.

JohnKwan - Fotolia

No. 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. This optional step in the formal rulemaking process is expected to be followed by a notice of proposed rulemaking later in 2018 and then a final rule revising the overtime regulations.

No. 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. 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.

No. 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 21^st Century Act: This legislation, if passed, could pre-empt 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.

Demonstrators outside the Supreme Court in advance of the court's rulling that the ACA was constitutional

A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

No. 3: The Affordable Care Act

The tax reform overhaul also addressed an unpopular component of the ACA. 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.
And while the IRS has said that it will not hold up individual tax returns that don’t include information the taxypayer’s health insurance coverage, 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.

A printout of Congress's tax reform bill, "The Tax Cuts and Jobs Act," alongside a stack of income tax regulations

No. 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.

U.S. President Donald Trump signs a tax-overhaul bill into law in the Oval Office of the White House in Washington, D.C., U.S., on Friday, Dec. 22, 2017. This week House Republicans passed the most extensive rewrite of the U.S. tax code in more than 30 years, hours after the Senate passed the legislation, handing Trump his first major legislative victory providing a permanent tax cut for corporations and shorter-term relief for individuals. Photographer: Mike Theiler/Pool via Bloomberg

President Donald Trump signs the tax reform bill into law on Dec. 22, 2017.

Mike Theiler/Bloomberg

No. 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 percent. 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 the withholding changes in the Internal Revenue Service’s updated tables.

Additionally, pass-through entities, which account for most businesses in the U.S., generally utilize the individual Tax Code and are therefore directly impacted by these changes to the code. To further reduce the tax burden for these entities, Congress added a deduction of business income for pass-through entities of up to 20 percent, but there are complex requirements and guardrails for the application of this deduction. Businesses should stay tuned as the impacts of this policy evolve.