The start of any new year brings a flurry of activity for HR professionals. Unfortunately, as they attempt to juggle hiring plans, health insurance changes, and fresh professional development budgets, changes in employment law often fall through the cracks.
I get it. Reviewing new and updated employment laws can feel like just another task on a long to-do list. However, compliance is absolutely critical to HR strategy. To stay ahead of the game, here are several federal and state rules you need to know about in 2020.
New Federal W-4 Form
The Internal Revenue Service’s (IRS) W-4 form has received its first major redesign since 1987. The updated form, which took effect on January 1, reflects tax code changes from the Tax Cuts and Jobs Act. The makeover includes fewer worksheets and greater transparency to the withholding system.
The biggest change is the removal of the allowances section from the W-4 form. Withholdings are now calculated through a series of questions that account for all sources of additional income, like a spouse’s job or freelance opportunities. Employees wary of disclosing that information to their employer can also use the IRS tax withholding estimator and simply enter the amount on the “extra withholding” line.
New employees hired in 2020 are required to complete the updated form. Additionally, existing employees who want to adjust their withholdings, often due to life changes like having a baby or getting a second job, must fill out the new form as well. To ease the transition, the American Payroll Association drafted a sample letter employers can share with their workers.
Department of Labor Overtime Exemption Rule
Last September, the US Department of Labor (DOL) amended the Fair Labor Standards Act (FLSA), making an additional 1.3 million American workers eligible for overtime pay. The final rule, which took effect on January 1, raised the minimum annual salary cutoff for exempt employees from $455 per week ($23,660 per year) to $684 per week ($35,568 per year).
The new rule also increased the minimum annual salary threshold for highly compensated employees from $100,000 to $107,432. Additionally, the rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test, as long as these payments are made annually or more frequently.
Employers should immediately audit their current compensation plans and open job descriptions to determine if any salary adjustments are needed. If employers have any nonexempt workers, now is the time to evaluate internal time-keeping systems.
California Assembly Bill 5
The California Assembly Bill 5 (AB5), colloquially known as the “gig worker bill,” codifies a Supreme Court of California case that ruled most workers are employees and the responsibility for classifying individuals as independent contractors falls on the employer. The bill, which went into effect on January 1, aims to better control the gig economy by requiring California employers to reclassify independent contractors as employees unless they can meet specific requirements.
To classify employees as independent contractors, California companies must be able to prove each of the following:
- The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Though AB5 only affects California employers, the Golden State is widely recognized as a leader in employment law. It’s only a matter of time before other states follow suit, so HR professionals should familiarize themselves with the bill and its repercussions now.
For more expert HR insights, check out the latest issue of Recruiter.com Magazine:
Federal 2020 Inflation Adjustments to Contribution Limits
Last fall, the IRS announced its annual tax inflation adjustments for tax year 2020. The adjustments, which took effect on January 1, include several changes to employee and employer benefits contributions:
- Healthcare savings account (HSA) contribution limits: The annual contribution limit for a self-only HSA is $3,550, and the family contribution limit is $7,100.
- Qualified transportation fringe benefit plan limits: Employees can contribute up to $270 per month toward commuter and transit benefits and $270 per month toward qualified parking benefits. This is a $5 increase for both types over 2019 amounts.
- Qualified small employer health reimbursement arrangement (QSEHRA): Employers will be able to reimburse up to $5,250 for single coverage and $10,600 for family coverages under a QSEHRA. This is a $100 increase for single coverage and $150 increase for family coverage.
HR teams should also note the adjustments include contribution limits for qualified adoption assistance, dependent care assistance (including flexible spending accounts), and qualified retirement plan limits. Review the full list of adjustments for more information.
The California Consumer Privacy Protection Act
The landmark California Consumer Privacy Protection Act (CCPA), which went into effect January 1, gives Californians more control over their personal data. Consumers under its protection have the right to know, delete, and opt out of the use of their personal information, as well as the right to nondiscrimination should they exercise their privacy rights.
The CCPA applies to any for-profit business that collects and controls Californians’ personal information, does business in the state, and meets at least one of the following thresholds:
- Has annual gross revenues in excess of $25 million
- Buys or sells the personal information of 50,000 or more consumers or households
- Earns more than half of its annual revenue from selling consumers’ personal information
Employers are exempt from many of CCPA’s provisions until 2021. However, employers are still required to furnish notice and disclosures to California employees effective January 1, 2020. Even if your business isn’t physically located in California, some companies might find it easier to roll out widespread changes that give all US residents the same data protection rights. Plus, other states are already using the CCPA as a model for their own privacy bills. If you haven’t already done so, develop a strategy around how your organization uses consumer data and provides transparency.
Regular Rate of Pay Final Rule
The DOL’s final rule on the regular rate of pay under the FLSA, which went into effect January 15, is the first major change to the law in more than 50 years. The update is intended to clarify employee benefits that are included or excluded from the regular rate of pay.
The regular rate includes wages, most bonuses, commissions, and other forms of compensation. The regular rate excludes health insurance, certain parking benefits, wellness programs, holiday and discretionary bonuses, paid leave, and some gifts.
Violations of employment laws can result in fines, criminal prosecution, and even imprisonment. HR teams should carefully review their compensation and benefits programs to ensure they comply with these updates. Compliance not only protects your organization legally, but it also establishes your HR team as leaders on the pulse of industry changes.
Corinne Tirone is director of government relations at Paylocity.