March 24, 2022 | 6-minute read (1203 words)
The COVID-19 pandemic has changed the business world as we know it, but according to a White House statement dated January 2022, 71% of small business owners were optimistic about their performance versus 63% a year before. Americans are also filing new business applications at an all-time high, with the number up nearly 30% since the pandemic broke out, the statement said.
The spike in new small business formations serves as a timely reminder of the changing regulatory landscape. Because of the pandemic, 2020, 2021 and now 2022 have seen or will likely witness more regulatory changes than expected. Aside from possible changes, there are nine existing regulations that need to be periodically revisited by business owners.
To begin, what is considered a small business?
The U.S. Small Business Administration categorizes small businesses by industry. A small business might have a maximum of 1,500 employees or 250 employees, depending on its sector. Businesses in the wholesale trade sector, for example, are classified as small by the SBA if they employ 100 or fewer people.
The following are nine essential government rules that are particularly important to small businesses:
1. The Affordable Care Act
The Affordable Care Act was brought into law in 2010 and continues to have a major impact on small businesses. Any firm with 50 or more full-time workers must provide employees with qualifying health insurance. Under the ACA, health insurance is not required for many small businesses with fewer than 50 full-time employees.
At the same time, health insurance costs continue to climb, making policies increasingly financially unsustainable for small business owners. As a growing percentage of company budgets goes toward monthly insurance premiums, the cost can hold businesses back and discourage them from hiring full-time employees. But employers who fail to offer adequate and appropriate health care coverage to full-time employees and their families may face penalties under the Affordable Care Act's Employer Shared Responsibility provisions.
2. Changes to the tax code
The administrative part of the federal tax system takes up a lot of time for most small business owners. According to research conducted by the National Federation of Independent Businesses, federal income tax compliance is one of the most challenging duties small business owners face. As a result, many small businesses enlist the help of an outsourced payroll agency to handle the complexities of payroll.
On the other hand, changing state tax regulations for businesses that use work-from-home and hybrid arrangements yet have workers who live in another state are becoming more complicated.
3. Classification of workers
A slew of federal, state and municipal rules regulate how you manage payroll. Businesses must first categorize their personnel as full-time or part-time and establish who is an independent contractor, with government criteria defining each type.
Independent contractors are contracted by a business to do a specific function, but they are not employees and are not covered by federal labor regulations. Employers don't pay payroll taxes on independent contractors' earnings; instead, they issue them a 1099-MISC form.
Furthermore, some employees are classed as exempt by their employers, while others are classified as nonexempt. This employee classification is essential because it influences things like working hours and whether a small business is required to pay overtime. Exempt workers are those who do not earn overtime compensation or are not eligible for minimum wage, as mentioned by the Fair Labor Standards Act. Employees who are not exempt are entitled to the federal minimum wage and overtime compensation.
4. Overtime compensation
As previously stated, federal regulations outline who is eligible for overtime compensation and who is not. But keep in mind that local governments may impose additional criteria.
5. Equal pay for equal work
Wage equity is one of the subjects addressed in a 2021 report from the National Strategy on Gender Equity and Equality. As per the US Department of Labor, women earned only 82% of what men earned in 2020.
Some states, including Colorado and New York, have begun to address the wage disparity by demanding compensation transparency, while others have implemented salary history bans.
Further legislative action and legal scrutiny are inevitable at the federal and state levels, so businesses must be updated about any developments. Employers should also obtain legal guidance to ensure that their compensation packages, recruiting procedures and retention programs are compliant with pay equity.
6. Changes in the minimum wage
The minimum wage has been raised in 21 states and 35 cities and counties as of January 1, 2022. As per the National Employment Law Project, the minimum wage will rise to or surpass $15 per hour in 33 of them. By the end of 2022, a handful of other states may have implemented a $15 minimum wage for some or all businesses. By the end of 2022, 81 jurisdictions — 25 states and 56 municipalities — intend to boost their minimum wage levels.
7. A new threshold for reporting small business transactions
Businesses that sell products or services on online platforms like Etsy, Uber, eBay and other sites that use third-party transaction networks like PayPal and Venmo will be issued a 1099-K tax form in 2022 if their online sales are total $600 or more, with no minimum number of transactions, under the American Rescue Plan Act. Previously, $20,000 in total payments and at least 200 transactions per year were required for reporting.
8. Retirement funds
As per the U.S. Bureau of Labor Statistics, only 53% of private-sector employers with 100 or fewer employees had access to a workplace retirement plan in 2020. The Setting Every Community Up for Retirement Enhancement Act, signed into law in 2019, intends to make it simpler for workers to save for their qualifying retirement plans.
The Securing a Strong Retirement Act and the Retirement Security and Savings Act, both nonpartisan proposals, feature provisions like:
• Small businesses that create or sponsor retirement plans are eligible for tax incentives.
• Auto-enrollment in retirement plans for employers with 10 or more employees.
• Raising the mandatory minimum distribution age would allow people to save for longer before taking money out of their retirement accounts.
• Treating student loan repayments in the same way that 401(k) voluntary deferrals are treated, allowing employers to make a matching contribution.
Currently, 14 states have passed laws requiring some private-sector businesses to offer either a state-administered or a company-sponsored retirement plan. Most of these plans are set up similarly to IRAs, with payroll deductions. Employees benefit from cheap fees and the flexibility to opt out, while employers benefit from no fees.
Since its introduction in 2017, OregonSaves, the first auto-enrollment program, has attracted around 109,000 employees and 7,500 businesses. By 2023, there could be 25 state-sponsored occupational retirement programs in the U.S.
9. Cannabis in the workplace
Even though marijuana usage is still illegal under federal law, several states have legalized it for medical or recreational purposes and others are considering doing so.
Employers should examine and update their workplace drug policies to ensure legal compliance, depending on the employee's location and whether the person is using the medication for medicinal or recreational purposes. Businesses should also consider how this may affect risk-mitigation measures, such as modifying drug-testing rules to accommodate medicinal marijuana usage.