The 2023 costly regulatory wave

OPINION:

The midterms are over, and the expected “red wave” of Republican victories never materialized. But that doesn’t mean there isn’t another wave coming. There is, and it’s a big blue one of regulations on businesses. That’s because various agencies of the Biden administration, along with a number of other left-leaning states and localities, are passing rules and regulations that will create many headaches — and costs — for businesses of all sizes next year.

For starters, the Department of Labor is now accepting comments for a proposed change to worker classification rules that affect independent contractors and freelancers (normally referred to as 1099 workers after the tax form required to report payments to them).

A key part of this rule will require employers to determine that a worker “performs work that is outside the usual course of the hiring entity’s business” or is otherwise not in a revenue-generating capacity. When this new rule come into effect — which is expected to happen in early 2023 — many businesses will find themselves having to reclassify drivers, service people, developers and other contractors they use to generate income from independent contractor to employees who can then unionize, are entitled to benefits and will incur employer payroll costs.

The Labor Department is also expected to propose an increase in overtime wages in the coming months, which will require employers to pay more to many salaried employees earning as much as $80,000 per year for any hours they incur above 40 in a week. The agency is also supporting a number of states that are increasing their minimum wages to as high as $15 per hour this year.

The National Labor Relations Board will continue to flex its muscles. It’ general counsel announced in October that the agency “was intent” on going after employers that monitor employees electronically, which could mean that tracking an employee’s productivity while working remotely could put you in the agency’s crosshairs.

In September, the NLRB also moved to make it easier for employees and unions to go after big employers if their smaller franchisers and contractors allegedly violate labor laws under a “joint employer” strategy that assumes that the big companies have “indirect control over working conditions such as scheduling, hiring, firing and supervision.”

Case filings at the NLRB by emboldened workers have “soared” in recent months, and even the Occupational Safety and Health Administration is joining in the regulatory party, with plans to tag more firms as “severe violators” under its expanded rules in 2023. The Equal Employment Opportunity Commission, now fully staffed with President Biden’s appointees, is also planning a party of its own over the next year, with more focus on the hiring and recruiting practices of employers.

But it’s not just the federal government that’s burying employers in new regulations.

In New York, officials forced an ice-cream business to pay more than $112,000 in fines because it was not complying with the city’s new rule that all businesses must accept cash. Also, in an attempt to push more businesses out of the region, legislation in New York City now requires its employers to post salary ranges publicly when seeking employees in order to be “transparent,” which has prompted some employers there to hilariously comply with the law by posting ranges of anywhere from $0 to $2 million (thank goodness someone has a sense of humor). California and a number of other states either have or are proposing similar rules. I’m sure the Labor Department won’t be far behind.

Speaking of California, a new law passed by the state Legislature that goes into effect in 2023 will create a politically controlled “committee” to determine rules over working conditions and wages in the state’s fast-food industry. It is expected that, as a result, minimum wages in the state could go up as high as $22 an hour, prompting Chipotle’s CEO to reconsider its store openings and business operations in the state going forward and the state’s Franchising Association CEO to warn that the law “will raise prices on lower income Californians and will accelerate business leaving the state.”

California also recently passed new laws prohibiting employers from testing for cannabis, reporting on pay to the state and expanding medical and bereavement leave. But hey, it’s California, right?

Wrong. Other blue states are jumping on the regulatory train in 2023.

For example, in Maine, Oregon, Illinois and other states, employers there are now limited in how they use “non-disclosure” agreements with employees. Washington, D.C., and many states now limit the use of “non-compete” agreements that employers have traditionally relied on for years to help discourage employees from leaving to work at competitors. Business owners in Chicago and other locations are now required to provide sexual harassment training.

Employers in Colorado are now kicking in an extra tax to pay for family and medical leave. The state also recently passed legislation requiring employers to report additional hiring and termination data, provides more ammunition to employees that file discrimination claims, expands penalties around “wage theft” and gives whistleblowers more protection.

Quite the regulatory party, right?

Sadly, a stronger showing by Republicans in both congressional and statewide elections may have put a stop to — or even reversed — some of the more egregious and costly regulations that are adding to the many headaches business owners already have in this upcoming year of inflation, supply chain challenges and labor shortages. But that didn’t happen. My recommendation to all those employers? Buy some Advil.

And wait for 2024.

• Gene Marks is a CPA and owner of The Marks Group, a technology and financial management consulting firm specializing in small and medium-sized companies.