The New Year Brings New Laws For Employers
Anyone having trouble remembering to write "2020"? Even though you know it's coming, that's one New Year's change that never ceases to catch people by surprise. Just as you can count on having to scribble through the errant "2019" for the next few weeks, employers can count on a flurry of new employment laws and regulations to trip them up in this year's first few weeks.
Let's ring in the new calendar year with a couple of new laws employers should expect to encounter in early 2020:
New W-4 Form
Last year, the Trump administration pushed through the Tax Cuts and Jobs Act. While this new legislation resulted in many filers owing less in federal taxes, it also resulted in taxpayers getting much smaller refunds than expected.
Smaller refunds aren't necessarily a bad thing – it usually means you're getting the benefit of keeping and using your hard-earned money rather than allowing Uncle Sam an interest-free opportunity to hold onto your money for the tax year. In other words, the amount of taxes withheld should generally match the amount owed.
The problem with the new tax law really came into play when people thought they'd gotten their tax withholding amount correct, only to unexpectedly owe money on Tax Day (along with penalties for not withholding enough).
The IRS has introduced a new form to help correct this problem by ensuring employees have the right amount withheld from their paychecks. Though your employees are not required to fill out W-4 unless you're starting a new job, there's no harm and no penalty in completing a new W-4 form in order to adjust withholdings.
At first glance, the new form looks tricky to navigate – so much so that the American Payroll Association has created a sample letter to help employers explain the change to employees.
The big difference between the old W-4 and the new W-4 is how each handles allowances. Allowances are personal exemptions claimed based on the number of dependents a taxpayer has. The Act eliminated personal exemptions in favor of increases to both the standard deduction and child tax credit.
The new form calls for filers to multiply the number of dependents claimed by the amount of the federal tax credit. By taking taxpayers through five steps which account for all income sources, the new form should provide a more accurate picture of how much employees should withhold and eliminate any underpayment surprised come April 1st.
New 1099-NEC Form
The W-4 isn't the only IRS form getting a makeover – the IRS is reintroducing Form 1099-NEC. The last time Americans saw the 1099-NEC, Ronald Reagan was in the White House, Michael Jackson's "Thriller" was dominating the Billboard charts, and "E.T. – the Extra-Terrestrial" was box office gold (that was 1982 for those of you playing at home).
Why should employers care about the 1099-NEC?If you have independent contractors, then you've used the 1099-MISC to report nonemployee income. The 1099-MISC is given to nonemployees and show payments of $600 or more made to those nonemployees for the performance of services during the tax year. It's also used to report rents, prizes and awards, medical and healthcare payments, payments to an attorney, or direct sales of at $5,000 of consumer products for resale anywhere other than a permanent retail establishment.
Beginning with the 2020 tax year, nonemployee compensation must be reported separately using the revamped 1099-NEC form. The new form comes with new filing dates too, so employers will need to pay attention to the mandatory reporting dates for the 1099-NEC. For now, nonemployee compensation should still be reported on the Form 1099-MISC.
New Overtime Rule
Because it can't be stressed enough, the U.S. Department of Labor's new overtime rule went into effect January 1stand calls for a significant increase to the minimum salary threshold for overtime eligibility under the Fair Labor Standards Act ("FLSA"). Under the new rule, employees must be paid at least $684 per week (or $35,568 per year for a full-year worker) on a salary basis and must meet one of the DOL's eight job duties tests in order to be exempt from both minimum wage and overtime pay requirements. The old rule mandated that employees made at least $455 per week, or $23,660 per year.
In order to get to this new salary standard, employers may credit non-discretionary bonuses, incentives, and commissions toward an employee's salary, as long as those bonuses are paid at least annually. However, those bonuses, incentives, and commissions may only account for up to 10% of the employee's salary.
Employment law is one of the most rapidly changing areas of law. With all of the changes that come each January, employers should use the New Year to review and revise HR-related policies. Well-written, easy-to-read employee policies go a long way in setting employee expectations and preventing issues that might land your company in front of the EEOC, the DOL, or a jury of twelve.
And if that's not enough motivation, remember – spending the time and money now to update your policies could save you money in the long run. So pull out that employee handbook and make sure that your policies and procedures comply with the most current federal, state, and local laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.