MANAGING COMPLIANCE WITH A HYBRID WORKFORCE 

In recent years employers have been left to deal with an unprecedented business environment. There are currently more hybrid and remote employees than ever, yet the implications of employee migration across state lines are not well understood by many employers.

KEEP AN EYE OUT: NEW DATA PRIVACY RULES

The bottom line – if you have not updated your CCPA notices since 2022 or earlier – or if you have never provided such notices – you should act quickly to implement new notices and stay compliant with the ever-changing law.

PAY TRANSPARENCY CONTINUES TO GAIN MOMENTUM IN 2024

Focus on pay transparency is showing no signs of slowing down. The pay transparency movement, which started with a couple of states, continues to steadily spread across the country and is now a focus at the federal level. PEOs and their clients must remain vigilant of current and proposed laws and developing trends.

WHEN IT RAINES IT POURS

The California Supreme Court’s recent decision in Raines v. U.S. Healthworks Medical Group could create additional exposure for PEOs under California’s employment discrimination laws.

SECURE 2.0 ACT UNPACKED: EXPLANATION OF PROVISIONS FOR 2023 AND BEYOND

The SECURE 2.0 Act was passed as part of the larger Consolidated Appropriations Act of 2023. The SECURE Act itself was over 350 pages containing a myriad of retirement-focused provisions. The 2.0 Act impacts all of the most commonly used retirement vehicles (think 401K, 403b, 457 and IRAs) and does so with provisions correcting the previously passed SECURE Act, some taking effect immediately in 2023, others in 2024 and 2025 and still others as late as 2033.  Not every provision will apply toward PEOs or even your clients, but many of them can have far-reaching changes that will require PEOs and the plan sponsors to be informed. 

 

2023 PROVISIONS 

The most publicized change for 2023 was to the required beginning date for required minimum distributions (RMDs) from qualified retirement plans and IRAs. Prior to the passage of both SECURE Acts, the date had been April 1st of the year after someone attained the age of 70½. This half-year “rule” caused much confusion and headaches for individuals and plan administrators. The first SECURE Act changed this to age 72 and now the SECURE 2.0 Act has moved it further to age 73. This will go even further in 2033, to age 75. 

The SECURE 2.0 Act has come to be known as the “Rothification” Act. Many retirement funding options have now been opened to being done on a post-tax basis (similar to Roth IRA contributions).  Beginning in 2023, Roth contributions can now be made to SEP and SIMPLE IRA accounts as well as being available for employers to make Roth matching contributions for 401(k), 403(b) and 457(b) plans. The overall goal was to provide a short-term influx of tax dollars to the government due to post-tax treatment and to provide tax-free growth and distributions in the future for individuals. While a welcome change to many, the IRS will need to issue further guidance so employers, employees and individuals will know how to report these contributions.   

Tax credits available to small employers to cover start-up expenses for a new plan were enhanced under the SECURE 2.0 Act. The credit percentage increases to 100% for employers with less than 50 employees for the first three years of a new plan. SECURE 2.0 also implemented a new credit available for employer contributions to a new small employer pension (SEP) plan. The credit is the employer contribution amount, up to $1,000 per employee, for a five-year period. The full credit applies to employers with 50 or fewer employees and prorated up to 100 employees.  The credit also reduces each year going from 100% in the first two years to 75% in year three, 50% in year four and finally 25% in  year five. This small employer pension credit was also made applicable to an employer joining a multiemployer plan (MEP).  SECURE 2.0 corrects wording from the first SECURE Act allowing an employer to retroactively apply this credit back to 2020 (an amended tax filing will be required). 

 

2024 PROVISIONS  

Beginning in 2024, catch-up contributions made to eligible employees who had compensation exceeding $145,000 in the prior year will need to be made on a Roth (post-tax) basis. The IRS pumped the brakes on this provision on August 25, 2023, to provide a two-year transition period for employers to make this switch. The IRS also clarified that high-paid self-employed persons (i.e., partners in a partnership) won’t be required to make catch-up contributions on a Roth basis even if they exceed the income threshold. The IRS also indicated that further guidance will be forthcoming once public comment has been received and reviewed. 

Employers will have the option to adopt a plan provision to allow for employer matching contributions to be made for employees who are making student loan payments. The employer effectively treats those payments as the employee’s “deferral” and makes corresponding match contributions. Similar to some of the other provisions, further guidance will be needed from the IRS to determine what levels are to be used and how the amounts are referenced/supported. 

Starter 401(k) plans can be offered by employers who wish to provide the ability for employees to defer a part of their wages without having all the added administrative testing requirements applicable to traditional 401(k) plans.  These plans would only allow for employee deferrals at a level between 3-15% of compensation. 

Roth 401(k) accounts will no longer be subject to RMD rules. Prior to SECURE 2.0 Act, Roth 401(k) balances were included in RMD computations for those employees who were taking or were required to take RMDs from their qualified retirement plans. Whereas Roth IRA accounts were not subject to RMD rules, their 401(k) brethren are now treated the same way. 

 

FUTURE PROVISIONS TO KEEP ON YOUR RADAR 

In 2025, all 401(k) and 403(b) plans will be required to adopt automatic enrollment features that start initial deferral elections at 3% for employees becoming eligible to participate in the plan. The employee can elect out and/or request a refund of any deferrals within 90 days of eligibility. Exclusions will be allowed for employers with 10 or fewer employees. 

Catch-up contributions will increase to $10,000 (or 50% more than the level computed for 2024) for employees who are at least 60 years old. They will also be indexed for inflation going forward (for those age 50 or older as well). 

Part-time workers (those with at least 500 hours per year) will be allowed to participate in a 401(k) plan one year earlier than what was passed under the original SECURE Act. If an employee meets the 500-hour rule for two consecutive years, they can be eligible to participate in the plan (assuming they meet the other eligibility rules – age). Any employer contributions made can be placed on a vesting schedule. 

There are numerous other provisions of the SECURE 2.0 Act that may impact PEOs and their clients. This article outlines several of the likely provisions that will impact most PEO plans. But as with most bills passed by Congress, there are still many rules that will require further guidance from the IRS and substantial updates to be made by plan administrators. Additionally, new language will need to be worked on to allow employers to adopt the necessary plan amendments imposed by the SECURE 2.0 Act. 

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs. 

NAPEO ADVOCACY DAY IS A HOME RUN

There’s an energy around the PEO industry this year that’s palpable. Nowhere is that more true than in Washington DC, where we are starting to make our mark as a strong contributor to the vitality and success of the backbone of the economy: small and mid-size businesses. We’ve got a great story to tell. Help us tell it.

NAPEO ADVOCACY DAY IS A HOME RUN

There’s an energy around the PEO industry this year that’s palpable. Nowhere is that more true than in Washington DC, where we are starting to make our mark as a strong contributor to the vitality and success of the backbone of the economy: small and mid-size businesses. We’ve got a great story to tell. Help us tell it.

PRESIDENT BIDEN’S PROPOSED RULE ON RESTRICTIVE COVENANTS

Restrictive covenants, also known as non-compete agreements or post-employment restrictions, are contractual clauses that limit an employee’s ability to work for a competitor or start a competing business after leaving their current employer. These covenants have sparked considerable debate and controversy.

MEET CONGRESSWOMAN ERIN HOUCHIN

Voters in Indiana’s 9th Congressional district elected Congresswoman Erin Houchin to serve in the United States House of Representatives in November 2022. In doing so, Rep. Houchin became the first woman elected to Congress from her district. She also holds the distinction of being the only person elected to Congress who has worked for a PEO.Rep. Houchin spoke to PEO Insider about her decision to seek public office, her experience working for a PEO, and the policies she champions.

SUPREME IMPACT: SCOTUS DECISIONS TO AFFECT PEOS THIS YEAR

The U.S. Supreme Court’s (SCOTUS) current term is already well underway, and there are several cases on the docket that will have important implications for PEOs. SCOTUS has already decided one workplace law case this term, and there are several remaining cases that will surely shape labor and employment law in 2023 and beyond. What do PEOs need to know about these recent and pending decisions and their impact on your clients?

TO TEST OR NOT TO TEST: WORKPLACE DRUG TESTING RULES VARY BY STATE

Over the past few years, state and local governments have materially expanded the legalization of medical and recreational use of marijuana. While it remains illegal under federal law, most states have legalized marijuana use in a number of circumstances, presenting several practical problems for PEOs and staffing agencies— especially those that conduct workplace drug testing. Employers should become familiar with these laws to avoid legal claims from employees in 2023 and beyond.

MY CLIENT MOVES TO A NEW STATE: WHAT ARE MY NEXT STEPS?

The rise in remote work has brought new challenges. Sometimes, a client notifies its PEO that they are hiring an employee in a new state where the PEO might still need to be licensed. So, what should you do? Below are some key points to consider when a PEO does business in a new state.

PAY TRANSPARENCY LAWS SWEEP THE NATION:

An increasing number of states and localities across the country have enacted laws expanding pay transparency requirements to even the employment playing field for women and persons of color. Up from several years ago, over 25 states and localities have enacted some form of pay transparency law that: (i) prohibits  an employer from requesting or relying on salary history; (ii) requires employers to report salaries across different job descriptions; or (iii) requires an employer to disclose a salary range for any given position in a job advertisement or at various points in the application process or upon a reasonable request by the applicant. 

THE KENTUCKY PEO BILL: A GRASSROOTS STORY

A core mission of our state government affairs efforts is passing the NAPEO Model Act in every state. In states with the model act on the books, PEOs enjoy the benefit of operating in a fair regulatory environment that does not disadvantage PEOs and our small business clients simply because of the unique nature of the PEO business model. Kentucky is the latest state where NAPEO successfully worked to pass a Model Act thanks to the efforts of many members.

VICTORY IN NEW MEXICO

In recent years, NAPEO has seen growing threats to a PEO’s ability to offer large group health plans in Democratic-led states. For example, in New Mexico, this started in 2019 with PEOs receiving “a cease and desist” letter from the New Mexico Office of Superintendent of Insurance (OSI) for operating an illegal multiple employer welfare arrangement (MEWA).