There’s a lot happening at the federal level right now, and many of these changes will impact businesses throughout the U.S.
Secure Act 2.0
Narrowly missing our December newsletter, the SECURE Act 2.0 (SA2) was included in the $1.7 trillion omnibus spending package signed into law on 12/29/22. If the acronym for the long-winded “Setting Every Community Up for Retirement Enhancement” sounds familiar, that’s because it’s an expansion of 2019’s SECURE Act. The 2.0 version contains laws intended to provide incentives to both employers and employees to grow retirement plans, and hopefully shore up savings for late starters or those whose retirement funds may have suffered losses in the market over the last couple of years. Unless otherwise noted, these changes will be effective January 1, 2024. Here are some of the high points on requirements:
- SA2 broadens eligibility for some small businesses to qualify for a credit that would cover the administrative costs of setting up a workplace retirement plan.
- Beginning in 2025, employers with retirement plans will be required to auto-enroll employees once eligible, at a minimum of 3% of the employee’s wages (no more than 10%) and will be increased by 1% each year (also no more than 10%). Employees can opt out of this automated enrollment if they choose.
- Catch-up limits: We talked about the initial changes back in December, but the SA2 will allow a second increase to participants ages 60, 61, 62, and 63 – effective plan years 2024 and later. Most plans will have a limit of a $10,000 catch-up, whereas simple plans will have $5000. Beginning in 2024, all catch-up contributions will be subject to Roth (after-tax) rules.
- Another increase in the required minimum distribution (RMD) age. Building on the first SECURE Act’s increase in the RMD age to 72, SECURE 2.0 will increase the RMD age to 73 starting in 2023 and then to 75 in 2033. This means an employee who turns 72 in 2023 doesn’t have to take an RMD for 2023 – instead they’ll be required to begin taking RMDs in 2024, the year they turn 73.
- Mandatory cash out limits will change from $5000 to $7000, which is the first adjustment since 1997.
- Long-term, part-time employees can begin participating in a plan after two consecutive years of 500+ hours worked per year. However, this two-year provision doesn’t take effect until January 1, 2025 – meaning the original SECURE Act provision still applies in 2023 and 2024.
original SECURE Act three-year provision still applies for 2024.
- Emergency withdrawals – Exceptions will be made to the 10% tax for certain emergency expenses. This is limited to once per year, at a maximum of $1000, with a three-year optional payback period.
- Annual paper benefits statements will now be required a minimum of once per year. E-Delivery will not count as an acceptable substitute. This will apply to plan years beginning on or after January 1, 2026.
If you have questions about what this changes for your company’s plan(s), please contact your retirement plan administrator.
PUMP & PWFA Acts
The Providing Urgent Maternal Protections for Nursing Mothers (PUMP) Act and Pregnant Workers’ Fairness ACT (PWFA) also made it into the omnibus bill. It contains protections for both new and nursing mothers, and extends ADA protections to pregnant workers. This means that companies with more than 15 employees will be required to provide reasonable accommodations to these workers.
It’s already illegal to discriminate against pregnant employees for hiring and advancement opportunities, but this provides additional protection for necessary accommodations. For expectant mothers, accommodations may include ergonomic items like different chairs, standing desks, or foot rests, and more frequent restroom breaks. For nursing mothers, FLSA already provided break time for employees who need to express milk while on the job – but it only applied to exempt (salaried) employees who were not to subject to overtime rules. The PUMP Act, however, provides this necessary time to all employees – with the additional caveat that the dedicated pumping space cannot be a restroom. It must be a private room (with a lock on the door), obscured from view of coworkers and windows, but doesn’t have to be used as a lactation room permanently. Businesses should also factor in things that aren’t necessarily required by the bill – like seating, a flat surface for the pump, available refrigerated space and access to electricity. The PUMP Act will apply to all businesses with over 50 employees.
These both bring up the concept of “reasonable accommodations,” which many employers find confusing. If you have questions about the PWFA and PUMP Acts, or any other ADA issues, we would suggest contacting an attorney that specialized in labor and employment.
OSHA doesn’t score their requested budget, but fines are still increasing
OSHA fines are tied to inflation – so even though they came up short on their requested budget, those penalties will still be rising. Fun fact: OSHA didn’t adjust penalties from 1990 through 2015. Through 2015, the maximum penalty for a serious violation was $7000. They’ve adjusted eight times since then, up to and including 2023. The maximum penalty for a serious violation is now $15,625.
New ruling expected on classification of “Independent Contractors”
Expect DOL to issue a formal/updated ruling on the classification of independent contractors. This proposed rule will rescind and replace the current rule, and would implement the multi-faceted “totality of circumstances” tests.
Minimum wage was adjusted in several states, including Ohio
A number of states increased their minimum wage for 2023 – some as a one-time adjustment, and some as part of a plan to elevate the state’s minimum wage by several dollars over the course of a few years. Ohio’s minimum hourly wage is now $10.10 for non-tipped employees, and $5.05 for tipped employees. The only exception to this new rate is for small employers (defined as having gross receipts less than $372,000 per year), which are still permitted to pay the federal minimum wage of $7.25 per hour.
The IRS increased standard mileage rates halfway through 2022 to account for rising fuel costs, and they’ve raised it yet again for 2023. Effective January 1, 2023, the standard rate is now $0.655 cents per mile and applies to all vehicles, including all-electric and hybrid. Be sure to update your expense reports and expense reporting software to reflect this change.
FTC proposes ban on non-competes
In January, the FTC proposed a new rule prohibiting non-compete clauses in employment agreements and contracts, and invalidating existing ones. Don’t panic just yet. There are pros and cons to the general idea, but we expect this to be met with a flurry of litigation. The rule passing as a full-out ban seems unlikely, as the FTC has not historically had the scope of authority to make such a sweeping change. If that’s not enough reason to breathe easier about it, the United States Chamber of Commerce (the country’s largest business trade association) issued a statement calling the proposal “blatantly unlawful,” and insinuating they would file suit against the FTC over such a rule. Public commentary was open through 3/20/23, so stay tuned for updates on our LinkedIn page.
NLRB Rules Severance Can’t Be Contingent on NDA
In the realm of HR, both severance pay and non-disclosure agreements (NDAs) are subjects that come up often. Employers are permitted utilize both – but they can’t be mutually exclusive, according to a recent ruling by the National Labor Relations Board (NLRB) in McLaren Macomb.
Employers tying NDAs to severance packages may need to make some adjustments. Offering severance in exchange for sweeping confidentiality and non-disparagement clauses that silence former employees will now be considered a violation of federal labor law. NLRB determined on 2/22/23 that the practice specifically violates sections 7 and 8 of the NLRB Act. The 3-1 decision comes after a Michigan employer laid off 11 employees when businesses closed early in the COVID-19 pandemic. The company required such agreements to be signed as a condition of being offered a severance package. This ruling overturns two previous decisions made within the last decade that allowed employers to continue utilizing these tactics. NLRB said in their decision that an agreement of this type is “unlawful if it precludes an employee from assisting coworkers with issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”
All US employers are subject to NLRB policies, with the exception of the railroad and airline industries. The window for an appeal is still open, but this rule is considered effective immediately.
Anticipated Updates to Overtime Rule
We’re expecting an update soon on the proposed changes to the U.S. Department of Labor’s (DOL’s) overtime rule. The expectation is that the salary threshold will be raised on the white-collar exemptions, making more people eligible for overtime…we just don’t know how much. DOL announced nearly a year ago that they planned on issuing an update to the rule, but it fell off the radar shortly after that announcement.
If you’re new to dealing with wage & hour compliance, we’ll explain why this is important. There’s an exemption to paying overtime wages to certain types of employees working over 40 hours per week, usually referred to as the “white collar exemption.” That doesn’t mean that employers don’t have to pay any white-collar employees overtime – there are benchmarks that should be met before making that call. The employee in question (performing administrative, professional or executive duties) must pass a three-part test to be considered exempt: employee is paid a fixed salary, performs certain types of job duties, and is compensated at or above a minimum salary threshold. There’s been some speculation that this “duties test” will also be modified along with the new monetary limits, making it increasingly more difficult to qualify an employee as exempt from being paid overtime.
In April of 2004, DOL set the threshold to $23,660. In 2016, the Obama administration proposed a new threshold that more than doubled the white-collar wage threshold to $47,476, but a federal judge blocked it just before its effective date. The Trump administration successfully raised it to $35,568, which is where it sits currently. Employment law experts seem to think the new proposal will inch closer to the 2016 proposed amounts, in order to keep up with inflated costs of living and generally higher salaries across the board. The 2016 proposal that didn’t make it also included an auto-escalation of the minimum salary amount, so it’s possible the new rule could include something similar.