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The 10 government regulations that every small business owner should be mindful of

Posted by Shivali Anand

February 1, 2022

The inexorable advance of the COVID-19 pandemic has not only unleashed a pervasive sense of uncertainty, but it has also reshaped the business world as we once knew it. 

But a January 2022 White House statement finds 71% of small business owners said they are optimistic about their performance in 2022, up from 63% a year earlier. And Americans are filing new business applications at a record pace, a jump of roughly 30% since the pandemic surfaced, the statement says.

The surge in new small business formations is cause for a reminder of some of the most important regulations that affect the sector. The years 2020, 2021 and now 2022 saw or will see considerably more regulatory changes than anticipated, largely due to the pandemic. Aside from new regulatory changes, some long-standing ones also bear review.

First, what qualifies as a small business?

Small businesses are privately owned corporations, sole proprietorships or partnerships that have lower revenue and fewer workers than larger businesses. But the U.S. Small Business Administration defines small businesses based on their industry. Depending on your industry, a small business could have a maximum of 1,500 employees or a maximum of 250 employees. For example, the SBA classifies businesses in the wholesale trade category as small if they employ 100 employees or fewer. 

10 key government regulations of particular importance to small businesses:

  1. The Affordable Care Act 
The ACA also often known as Obamacare, was signed into law in 2010 and continues to have a significant influence on small businesses. Any company with 50 or more full-time employees must offer minimum essential health insurance coverage to their employees. For many small businesses (fewer than 50 full-time employees), health insurance is not a requirement under the ACA. 

A persistent issue for small business owners is that health insurance rates continue to rise at a sharp pace, making them increasingly financially untenable. The expense can put a damper on business spending, as an increasingly higher share of their budgets go toward monthly insurance premiums.  The Affordable Care Act's Employer Shared Responsibility penalties may apply to employers who fail to provide reasonable and appropriate health care coverage to full-time employees and their dependents.

  1. Tax code changes
For most small business owners, the administrative aspect of the federal tax system is highly time consuming. Respondents to a National Federation of Independent Business study reported that federal income tax compliance was among their most burdensome tasks. For this reason, many small businesses use an outsourced service to manage the intricacies of payroll.

On another front, evolving state tax rules for businesses who have adopted work-from-home and hybrid arrangements but whose employees live in a different state have added to the complexity. 

  1. Worker classification
There are many federal, state and local laws that govern how you handle your payroll. Businesses must start by classifying their employees as full-time or part-time and determine who is an independent contractor, with the definition for each category defined by federal guidelines. 

Independent contractors are hired by a company to perform a specific job, but they aren’t employees and therefore aren’t protected by federal labor laws. Employers don’t pay payroll taxes on their earnings; rather, they usually send independent contractors a 1099-MISC form.

Further, some employees are classified as exempt, while others are nonexempt by their employers. This categorization is significant since it affects things like working hours and whether or not a small business must pay overtime. Exempt employee refers to a category of employees defined in the Fair Labor Standards Act who don’t receive overtime pay or qualify for minimum wage. Nonexempt employees are entitled to earn the federal minimum wage and qualify for overtime pay.

  1. Pay for overtime
As stated above, in the case of overtime compensation, federal regulations specify who is entitled to it and who is not. But be mindful that the local government can initially set requirements based on an employee's yearly pay and work responsibilities if they earn more.

  1. Equal pay for equal work
A fall 2021 report from the National Strategy on Gender Equity and Equality calls for greater accountability and participation on topics including wage equity. As per the Bureau of Labor Statistics, women earned just 82% of what men earned in 2020.

Some jurisdictions, such as Colorado and New York, have started to address the pay equality gap by requiring salary transparency, while others have enacted salary history bans.

Additional legislative action and court scrutiny are likely at the federal and state levels, so businesses should stay updated on any changes. Employers should also seek legal advice to verify that their salary packages, recruiting processes and retention initiatives align with pay equity.

  1. Minimum wage hikes 
As of January 1, 2022, the minimum wage has been increased in 21 states and 35 cities and counties. The minimum wage will climb to or exceed $15 per hour in 33 of them, according to the National Employment Law Project. A handful of other states may implement a $15 minimum wage for some or all companies by 2022’s end. In sum, a total of 81 jurisdictions — 25 states and 56 municipalities — plan to raise their minimum wage levels by the end of 2022.

  1. A new reporting threshold for small business transactions
Under the American Rescue Plan Act, individuals who sell goods or services on platforms such as Etsy, Uber, eBay and other sites that employ third-party transaction networks – like PayPal and Venmo – will be issued a 1099-K tax form for online sales that total $600 or more in 2022, with no minimum number of transactions. Previously, the reporting requirement was $20,000 in total payments and at least 200 transactions per year.

  1. Retirement funds
In 2020, just 53% of private-sector employees with 100 or fewer employees had access to a workplace retirement plan, per the Bureau of Labor Statistics. The enactment of the Setting Up Every Community for Retirement Enhancement Act in 2019 aims to simplify how workers save in their qualified retirement plans. 

The Securing a Strong Retirement Act and the Retirement Security and Savings Act, both nonpartisan proposals set to be introduced in 2022, include measures such as:

  • Tax benefits for small businesses that develop or sponsor retirement plans
  • Auto-enrollment in retirement plans for businesses having 10 or more workers.
  • An increase in the required minimum distribution age would allow individuals to save longer before being forced to withdraw funds from their retirement accounts.
  • Treating student loan repayments like 401(k) voluntary deferrals, allowing employers to contribute a matching contribution.
Currently, 14 states have approved legislation mandating some private-sector businesses to provide either a state-administered retirement plan or their own company-sponsored plan. The majority of these plans are structured like IRAs with payroll deductions. Employers gain from no charges, while employees benefit from low fees and the ability to opt-out.

Oregon was the first to implement an auto-enrollment program, OregonSaves, which has attracted about 109,000 employees and 7,500 businesses since its launch in 2017. By 2023, the U.S. could have 25 state-sponsored occupational retirement plans.

  1. Paid time off
COVID-19-related paid family and sick leave legislation, which began at the federal level but has since expired, has been adopted and is still in place in different versions in several state and local communities. At the time of publication, California Governor Gavin Newsom and state legislators were working to extend COVID-19 supplemental paid sick leave in the state.  

Although the measure must be passed by the U.S. Senate and signed by President Joe Biden, the Build Back Better Act in its current state would grant four weeks of paid leave to American workers for the following reasons:

  • Becoming a new parent.
  • Having a serious health condition. 
  • To care for a sick family member.
  1. Cannabis use at work
Although U.S. federal law still prohibits marijuana use, a number of states have legalized medicinal or recreational cannabis usage, and other states are contemplating doing the same. In 2021, New York, Virginia, Connecticut and New Mexico became the latest states to legalize recreational marijuana use.

Employers should review and update their workplace drug policies to ensure legal compliance, based on the worker’s location and whether the employee’s use is medical or recreational. Businesses should also consider how this might affect risk-mitigation policies, such as changing drug-testing policies to accommodate medicinal marijuana use.

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