Regulations in Limbo

Regulations in Limbo: What This Means for Small Businesses

Regulations in LimboOn his first day in office, President Biden issued an executive order freezing for 60 days various federal proposed regulations as well as those finalized but not yet in effect. The purpose of the freeze is to allow the new administration time to review, and perhaps, change the rules. Some of these freezes impact small businesses. Here are some to consider…and what to do about them.

Independent contractor definition

The U.S. Department of Labor (DOL) had finalized a rule defining independent contractor for purposes of the Fair Labor Standards Act, which affects minimum wage and overtime rules for employees. The rule was supposed to go into effect on March 8, 2021, to provide greater clarity on worker classification.

What to do:

Companies must make decisions about worker classification impacting various rules. The DOL rule would apply only to the FSLA. The IRS rules for income and employment tax purposes continue to apply. Also, state law, such as California’s ABC test, are also still in effect. Determine whether workers are or are not employees and be consistent (i.e., treat all workers doing the same tasks in the same way).

Tip-sharing

A DOL rule scheduled to become effective on March 1, 2021, would allow “back-of-house” restaurant workers, such as chefs, cooks, and dishwashers, to benefit from gratuities. The rule was created to increase compensation to such workers who have previously been barred from tip-sharing. However, the District of Columbia and 8 states have challenged the rule in court, arguing it would effectively lower the pay for such workers (tipped employees are subject to a lower minimum wage). Changes to the rule may depend on the outcome of the case.

What to do:

Restaurant owners must follow federal and state rules on minimum wage payments to tipped employees. Until the tip-sharing rule is settled, it’s as if it hadn’t been created.

Crowdfunding

An SEC rule adopted in November that was set to take effect on March 15, 2021, would have enhanced equity crowdfunding. The rule, which would amend existing crowdfunding parameters, would “simplify, harmonize, and improve certain aspects of the exempt offering framework [crowdfunding] to promote capital formation while preserving or enhancing important investor protections.” For example, as the SBE Council explains, the amendment would increase the maximum that could be raised from $1.07 million to $5 million and would ease the rules on who could invest through crowdfunding.

What to do:

The rule is an amendment to existing guidance for crowdfunding, so businesses can still raise capital under this framework. However, businesses that would benefit from the new rule (e.g., need to raise $4 million) may want to wait and see what the outcome of the freeze will be.

Foreign workers

Some small businesses hire employees from abroad under U.S. visa programs. The freeze impacts:

What to do:

Watch the calendar for the end of the freeze and monitor developments. The rules may simply be postponed.

Other regulatory review

In addition to the freeze, many other federal regulations are under review. These impact the environment, agriculture, energy, and more. You can find a list here.

What to do:

Your trade associations and chambers of commerce likely will be monitoring developments impacting your industry and your business. Stay alert.

Final thought

The freeze does not automatically mean rules in limbo are negated. They could become effective after the 60-day freeze ends on March 21, 2021. Other regulations under review (not subject to the freeze) may be modified or left as is. Again, it’s up to you to know what rules apply to your business and then follow them to avoid penalties and other problems.

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