Each year, about 3,000 to 4,500 new federal regulations are issued. They touch on numerous matters; not all affect small businesses, but many do. Ten Thousand Commandments 2023; An Annual Snapshot of the Federal Regulatory State found that the regulatory cost was nearly two-thirds of corporate pretax profits of $3.138 trillion and exceed the estimated corporate income tax revenue3s of $382 billion. The takeaway: businesses have a lot of regulations to watch and learn about and there’s a significant cost for doing so.
Here’s a roundup of 5 federal regulations that may affect you.
1. DoL’s independent contractor rule
Deciding whether to treat a worker as an employee or as an independent contractor is not always clear cut, but the classification of the worker has significant consequences. The U.S. Department of Labor (DoL) issued a final rule on worker classification for purposes of the Fair Labor Standards Act (FSLA), which governs minimum wage and overtime rules. The new rule took effect on March 11, 2024.
The new rule uses a 6-factor economic reality test to determine worker status. The new rule displaces the rule that had been in effect since 2021. These factors are:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the potential employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the potential employer’s business; and
- Skill and initiative.
More things you need to know:
- There is no small employer exemption.
- It’s up to a business to make a determination, weighing all the factors. No single factor is determinative.
- The IRS uses a 3-factor test for determining worker classification for purposes of federal employment taxes.
- Many states use an ABC test for worker classification.
2. NLRB’s joint-employer status rule
The National Labor Relations Board (NLRB) issued a final rule that requires a joint employer to collectively bargain with employees. Under the rule, an entity is considered a joint employer of another employer’s employees if the two share or codetermine the employees’ essential terms and conditions of employment. The rule had been scheduled to go into effect on December 26, 2023, but was postponed to March 11, 2024. Before it went into effect, the the rule was vacated. The previous rule continues to be in effect for the moment. It 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).
More things you need to know:
- The district court decision could be appealed.
- The U.S. Senate agrees with the repeal of the NLRB rule.
- The DoL’s joint employer rule continues to apply for FLSA purposes.
3. FTC’s rule banning on non-compete agreements
Non-compete agreements have been used by companies to keep departing employees from working with competitors or starting competing businesses. The FTC’s final rule bans the use of non-compete agreements on the grounds that it’s an unfair method of competition. Existing agreements for all but senior executives become void beginning 120 days after the rule’s publication in the Federal Register, which is any day now. Employers are required to provide notice to workers (other than senior executives who are bound by an existing noncompete) that they will not be enforcing any noncompete against them. The FTC has a fact sheet on the final rule.
More things you need to know:
- A non-compete agreement may still be used in conjunction with the sale of a business.
- While this is a final rule, it may not be the final word. There are already lawsuits challenging the authority of the FTC to make this rule.
4. DOL’s rule for overtime pay threshold
For a worker to be exempt from the overtime pay rule under the FSLA, a bona fide executive, administrative, or professional employee must earn more than a threshold amount. The DoL released a final rule aimed at expanding overtime pay protection for millions of workers. Effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888 and increase to $58,656 on January 1, 2025. The July 1 increase updates the present annual salary threshold of $35,568 based on the methodology used in the 2019 overtime rule update. Starting July 1, 2027, the salary thresholds will be updated every 3 years.
More things you need to know:
- Implications of a hike in the threshold was covered in a previous blog that posted last year when the threshold increase was proposed.
5. EEOC final rule on Pregnant Worker’s Fairness Act
The Pregnant Worker’s Fairness Act (PWFA) went into effect in June 2023 and now there’s a final rule explaining what employers must do to comply. In general, employers must provide reasonable accommodations for conditions including miscarriage and stillbirth, migraines, lactation, and pregnancy-related conditions (e.g., morning sickness). Examples of reasonable accommodations: additional breaks; temporary reassignments; telework; time off for recovery from childbirth or a miscarriage. The final rule is effective on June 18, 2024.
More things you need to know:
- The law and the final rule apply to employers with 15 or more employees; smaller employers are exempt but probably should make accommodations nonetheless.
- No reasonable accommodation is required if it would impose an undue hardship on the employer.
- Check state law on accommodations for pregnancy; most states have their own rules. For example, Massachusetts requires reasonable accommodations by employers with 6 or more employees. The PWFA does not replace state laws that are more protective of workers.
Final thought
If any or all of these rules affect your business, be sure to adjust your policies and prepare to implement them so penalties can be avoided. Stay tuned!
Find more blogs concerning federal regulations published here.
