Keeping Up with Federal Employment Law Regulations


Federal regulations are intended to be an interpretation by administrative agencies of laws enacted by Congress. To say that regulations are out of control is an understatement. According to the 2023 Ten Thousand Commandments report, in the previous year, Congress enacted 247 laws, while agencies issued 3,168 rules. For small businesses that must comply with many of these rules, the regulatory burden is onerous, to say the least. And this doesn’t even take into account regulations at the state and local levels, which also affect small businesses. Here are some recent regulatory developments to note.

DoL’s independent contractor rule

In January 2024, the U.S. Department of Labor (DoL) issued a final rule that rescinded a rule on independent contractor status that was in effect since 2021 and replaced it with a new rule. The new rule uses a 6-factor test for the purpose of determining whether a worker is an employee (and not an independent contractor) subject to federal minimum wage and overtime pay rules. The rule took effect on March 11, 2024.

Some things to keep in mind:

  • The DoL rule does not apply for purposes of federal employment taxes.
  • There are state-level rules used to determine worker classification according to state wage and hour laws.
  • There are a number of lawsuits challenging the DoL’s independent contractor rule.
  • There’s a small entity compliance guide on the new rule.

NLRB’s joint-employer status rule

The National Labor Relations Board (NLRB) implements rules that relate to workers to enable them to form and operate unions. One rule (“final rule”), which had been set to take effect on March 11, 2024, is a new joint-employer rule that requires a joint employer to collectively bargain with employees.

A federal district court enjoined the NLRB’s joint employer final rule from taking effect. Under this rule, an entity would be considered a joint employer of another employer’s employees if the two share or codetermine the employees’ essential terms and conditions of employment.

Some things to keep in mind:

  • The NLRB may appeal the decision and things could change in a higher court.
  • In the absence of the final rule that’s been vacated by the district court, the old standard (“2020 rule”) applies. The 2020 rule requires a “substantial direct and immediate control” over the essential terms and conditions of employment to exist for joint-employer status (i.e., it’s more difficult to find joint-employer status under the old rule).

IRS’s voluntary program for ERC

During the pandemic, employers may have been able to claim the employee retention credit (ERC) to help them pay wages during closures and business downturns. However, some promoters “sold” the notion that every small business could qualify for the credit and submit refund claims for it. Of course, this was untrue. The credit expired on September 30, 2021 (December 31, 2021, for startups), with the ability to file amended returns essentially for three years.

The IRS has been looking closely at ERC claims that have been paid and those still awaiting payment. To facilitate getting right with the IRS for erroneous claims, the IRS said that employers that were ineligible for the employee retention credit but received payment before December 22, 2023, were able to participate in the Voluntary Disclosure Program (VDP). It meant repaying the ERC minus 20%. This program ended March 22, 2024.

Some things to keep in mind:

  • A different procedure applies for those who received payment after December 21, 2023; they can’t use the VDP.
  • The IRS is continuing civil and criminal investigations against promoters, and small businesses that used their services may get caught up in these investigations.
  • Find more about the ERC from the IRS.

Conclusion

Small businesses don’t have in-house legal departments or employment law attorneys on retainer. It’s up to owners to follow regulatory developments in order to comply with new requirements and avoid penalties or other unpleasant consequences. How to do this? Follow developments through your trade associations as well as small business advocacy groups, such as NFIB and the SBE Council.

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