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Employers that had 11 or more employees at any point in 2022 are required to post Occupational Safety and Health Administration (OSHA) Form 300A from February 1 through April 30 unless they qualify as an exempt low-risk industry. The employee count is based on the number of employees in the entire company, not per establishment. A full list of exempt low-risk industries, ordered by North American Industry Classification System (NAICS) codes, can be found here.
All covered employers are required to post Form 300A even if they didn’t have any recordable incidents in 2022. (Recordable incidents are required to be maintained on the OSHA Form 300 Log of Work-Related Injuries and Illnesses.) OSHA Form 300A must be certified by a company executive and posted in a conspicuous location where notices to employees are customarily posted.
The OSHA Log of Work-Related Injuries and Illnesses (Form 300), Summary (Form 300A), and Instructions can be found in the Forms section of the HR Support Center by searching for OSHA Form 300.
Form 300A Electronic Submission Required for Certain Employers by March 2
Employers must submit their 2022 Form 300A data to OSHA if they have 250 or more employees or have 20–249 employees and are in certain high-risk industries. Employers must send this data electronically, using OSHA’s online Injury Tracking Application (ITA). The deadline to submit the report is March 2, 2023.
The electronic reporting requirements are based on the size of the establishment (how many employees are at the physical location), not how many employees are in the entire company.
Employers that are covered by a State Plan that has not yet adopted its own state rule must also use the ITA to send their data electronically.
Employers that meet any of the following criteria DO NOT have to send their Form 300A information to OSHA:
Additional information, FAQs, and the Injury Tracking Application can be found on OSHA’s ITA page.
On October 11, 2022, the U.S. Department of Labor released proposed rules rescinding current worker classification rules (2020 final rule) and reverting to prior guidance based on historic court rulings on the matter.
2020 final rule. As the administration changed hands, the 2020 final rule was placed under scrutiny. First, implementation of the rule was postponed and then later the DOL attempted to withdraw the rule. The 2020 final rule established a new standard for determining a worker's status based on two core factors. Those two core factors are: (1) the nature and degree of the worker’s control over the work, and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. Other factors would only be considered if the two core factors were not helpful in making a worker determination. The attempt to withdraw the rule was legally challenged and a federal court vacated the action on March 14, 2022, leaving the 2020 final rule in effect.
New proposed rules. The DOL's new proposed rules rescind the 2020 final rule, rejecting the use of two core factors, and opt for a multi-factor approach for worker classification. The proposed rule would return to a totality-of-the circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity. The factors to be considered are:
Legal insights on the proposed rules. Payroll on Checkpoint discussed the proposed rules with Todd Lebowitz, a partner at BakerHostetler. He leads the firm's Contingent Workforce Practice Team and runs the blog, WhoIsMyEmployee.com, which addresses issues of independent contractor misclassification and joint employment.
Additional relevant factors. While the DOL's proposed rules permit the consideration of "additional relevant factors" in worker classification, Lebowitz noted that the "additional factors" language in the proposed rule is "disappointingly vague." While the DOL did not provide any examples, he was able to shed some light on what might be considered "additional relevant factors." Based upon large body of case law, Lebowitz noted that these additional factors may include:
IRS worker classification rules vs. DOL worker classification rules. The IRS examines three main categories when determining independent contractor status. Those three main categories are: (1) behavioral control; (2) financial control; and (3) relationship with a total of 13 factors to be considered. Lebowitz described the IRS test as a "Right to Control" test. He explained with a "Right to Control" test, the determination hinges on "whether the hiring party retains the right to control the manner and means by which the work is performed." Unlike the IRS, the DOL uses an Economic Realities test where a determination is based on "whether the worker is economically dependent on the other party."
The IRS and DOL define the term "employ" differently. Under the FLSA, 29 USC 203(g) defines "employ" as "to suffer or permit to work." Lebowitz noted that the Supreme Court has held the definition is "intentionally broader than the common law definition." As a result, Lebowitz clarified that the same relationship may result in different interpretations under the Economic Realities test (DOL) vs. the Right to Control test (IRS).
Impact of a DOL worker reclassification on withholding tax. We asked Lebowitz, what impact, if any, on withholding tax, should the DOL classify an independent contractor as an employee under the FLSA. Lebowitz emphasized that the proposed rules only apply to FLSA requirements such as minimum wage, overtime requirements, and recordkeeping. Lebowitz explained that a DOL determination would have "no direct impact on tax withholding." Specifically, Lebowitz pointed out that it would be possible for a worker to be determined as an employee by one agency and independent contractor by the other. However, he stressed that the agencies do share information and a DOL worker classification may lead the IRS to examine that worker relationship more closely and trigger a classification audit.
Impact of the Memorandum of Understanding between the IRS and DOL. On December 14, 2022, the DOL and the IRS signed a Memorandum of Understanding (MOU) where the DOL agreed to refer classification cases as employment tax referrals to the IRS. The MOU specifies a list of conditions that must be met before the DOL makes an employment tax referral. For example, one of the conditions is that the business has an average dollar-volume greater than $500,000. This helps limit which cases are referred as well as helps the IRS set priorities for review. Lebowitz noted that the MOU simplifies enforcement efforts, while the respective tests remain different. It will make it "easier for the agencies if they can start by investigating businesses that have already been found to have misclassified workers under a different statute."
It is important to note that the DOL may also have a MOU in place with certain states. The DOL provides an interactive map on state enforcement and outreach.
Impact of state worker classification on DOL determinations. States also have laws regarding worker classification for withholding, wage and hour, unemployment, and even workers' compensation purposes. In particular, California utilizes the ABC test for worker classification, which begins with the presumption that a worker is an employee, a higher standard that the DOL declined to employ in the proposed rules. Lebowitz explained, however, like the IRS, a worker determination by the state has no bearing on how the DOL would determine. Particularly, he noted that states may have differing laws on worker classification that impact different areas from tax to unemployment to wage and hour. It is important that businesses comply with both federal laws and the state laws where workers are located.
Standard ABC test vs. strict ABC test vs. common Law test. Worker classification is a complex topic. The differences from agency to agency and from federal to state laws further complicate things for employers. Lebowitz explained that the ABC test comes in two varieties, standard and strict. In general, the ABC test starts with the presumption that the worker is an employee unless the hiring party can prove three items (A, B, C). However, the ABC diverges at the second prong of the test (Prong B) into a strict version versus a standard version. The strict version of the ABC test presumes an employee status unless:
Lebowitz explained that the standard test is "a bit more forgiving." Prong B can be satisfied if the work is performed outside all the places of business of the enterprise for which the service is performed. For example, he noted that California uses a strict ABC test while New Jersey and most states use a standard ABC test. Lebowitz cautioned "No matter where your business operates, determining a worker's classification is no simple task!"
The IRS has issued a news release reminding employers that the due date for filing 2022 Forms W-2 (Wage and Tax Statement) and Forms W-3 (Transmittal of Wage and Tax Statements) for employees, as well as Forms 1099-MISC (Miscellaneous Income) and 1099-NEC (Nonemployee Compensation, is January 31, 2023.
Automatic extensions not available. The IRS notes that automatic extensions of time to file Forms W-2 are not available. Extensions may be granted for very specific reasons, which are set forth in the general instructions on Form 8809, Application for Time to File Information Returns.
Preparation is the key. The IRS emphasizes the importance of preparation, and that filers should make sure to have everything prepared to file timely. Specifically, employers should verify or update employee information. This includes: (1) names; (2) addresses; and (3) Social Security numbers or Individual Taxpayer Identification Numbers. Employers should also verify that their company's account information is current and active with the Social Security Administration. Paper Forms W-2 should be ordered if needed.
Helping to detect fraud. The IRS explains that the filing date for Forms W-2 and other wage statements is designed to allow the IRS to detect refund fraud more easily by verifying income that individuals report on their tax returns. Employers can help (and avoid penalties) by filing the forms on time and without errors. E-filing is recommended as the quickest, most accurate and convenient way to file these forms [IR 2023-8, 1/18/2023].
American Payroll Association Notes Concerns With Labor Department's Proposed Worker Classification Rule
The American Payroll Association (APA) has shared its comments to the U.S. Department of Labor regarding concerns to its proposed worker classification rule that have to do with conflicting definitions of the term employee at the federal, state and local levels.
Proposed rule. On October 11, 2022, the U.S. Department of Labor (DOL) announced the publication of a proposed rule to revise the Department ’s guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
The proposed rule would rescind an earlier rule on this topic that focuses on a two part "economic realities test" and replace it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by long standing judicial precedent.
The DOL said its proposed rule is not using “core factors” but instead aims to return to a totality-of-the circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity.
More than 55,000 comments. The DOL received more than 55,000 comments on its proposed independent contractor rule as the comment period closed on December 13, 2022. The proposed rule faces opposition, particularly from the gig industry, technology sector, and small businesses. Many note that the proposed rule does not acknowledge the changing landscape of work.
A common refrain in the comments of support noted that worker classification occurs most commonly in low-wage occupations where misclassification is common such as delivery services, janitorial services, agriculture, transportation, and home care and housekeeping, as well as gig work.
APA's concerns. The APA's primary concern is about the conflicting definitions of an employee and of an independent contractor that exist at the federal level. Specifically, the APA is concerned with the conflicting definitions of employee and independent contractor between the proposed rule by the DOL's Wage and Hour Division (WHD) and the common law definition used by the IRS.
The current definitions and the different tests used to determine whether a worker is an employee or an independent contractor can result in different answers, so the APA asked the WHD to better align the FLSA definition of an independent contractor with the IRS.
The APA is also concerned with conflicting definitions between the federal government and state and local jurisdictions. The APA explains that it is possible for the same worker to be classified as an employee at the federal level and an independent contractor at the state level.
DOL/IRS employment tax referral. On December 14, 2022, the DOL and IRS signed a Memorandum of Understanding (MOU) for employment tax referrals related to worker misclassification. Under the MOU, the DOL and the IRS agree to collaborate and share information to aid employment tax compliance. While the DOL and the IRS use different factors to determine a worker's status, the DOL's Wage and Hour Division (WHD) agrees to refer worker classification cases to the IRS's Small Business/Self Employed Specialty Employment Tax (SB/SE) that meet certain criteria.
DOL Recovers $1.1M for Unpaid Foreign Forestry Workers
An investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) disclosed that two forestry companies located in Wisconsin (Northwoods Forestry Inc. and A&C Forestry Services LLC) violated several H-2B visa program requirements, including improper job classification and employing workers outside the area of intended employment.
The companies hired H-2B forestry workers for jobs in Maine, Minnesota, New Hampshire, and Wisconsin, but the investigation found that the workers were placed in non-forestry occupations in Wisconsin. The workers were actually placed in jobs involving: (1) meat processing; (2) concrete finishing; (3) painting; (4) roofing; and, (5) landscaping. The companies also failed to pay the prevailing wage rates and overtime per the job order, and made illegal deductions for transportation and safety expenses.
WHD investigators determined that the companies paid most workers straight time for all hours worked at rates between $12 and $14 per hour, which was well below the required prevailing wage rate. These pay practices violated the H-2B agreement.
As a result of the investigation, the WHD determined Northwoods owed the $1,144,693 in back wages to the affected workers. The WHD also assessed $210,696 in penalties and required the company to provide it with contact information for the workers so that they receive their back wages.
The DOL also made a criminal referral to the U.S. Attorney in Wisconsin and the owners entered in a guilty plea agreement to one count of fraud. They also agreed to make restitution for the back wages owed. Sentencing is scheduled for April 19, 2023. Furthermore, they agreed to not participate in the H-2B program for five years [Wage and Hour Division, Release No. 23-62-CHI, January 17, 2022].
Hot on the Hill: Proposed Legislation as of January 18, 2023
Several pieces of proposed legislation introduced in the 118th Congress' first session could significantly alter the American payroll landscape. Bills in committees in the House of Representatives and Senate aim to: (1) expand the definition of a tipped worker; (2) create a federal retirement savings plan; (3) provide whistleblower protections to certain workers; (4) impose a tax on large employers whose workers receive federal benefits; (5) expand tip pools to include other workers; (6) provide a calculation method for federal minimum wage rate; (7) provide a preemption of state overtime laws for agricultural workers; and (8) gradually phase-in mandatory e-Verify use by all employers.
Senate Bills in Committee:
S5241, the Tipped Employee Protection Act, mirrored by HR9523, introduced on December 13, 2022 by Sen. Mike Braun (R-IN) and Rep. Steve Womack (R-AR-3), seeks to amend the Fair Labor Standards Act by amending the definition of a tipped employee by removing the requirement that the employee is "engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips." Instead, the proposed legislation would define a tipped worker as one who receives tips and a cash wage that meets the minimum wage. Duties would not be relevant under the Act. The bill is currently under review by the Senate Committee on Health, Education, Labor, and Pensions and House Committee on Education and Labor.
S5271, the Retirement Savings for Americans Act of 2022, seeks to establish the American Worker Retirement Plan to provide a portable, tax-advantaged retirement savings accounts. The bill would allow full-time and part-time workers of employers who do not offer a retirement plan to be eligible for a retirement savings accounts. The program would feature automatic enrollment at 3% of income with the ability for workers to increase or decrease the amount or opt out of the program. The program would be available to independent contractors, including gig workers. The bill proposed an automatic 1% contribution for low- and moderate income workers and up to 4% matching contributions via refundable federal tax credit. The accounts would be portable for the lifetime of the worker. The accounts would feature investment options from which participants may choose. The legislation is a bipartisan effort. The House version of the bill (HR9462) is currently under review by the House Committee on Education and Labor, and in addition to the Committee on Ways and Means
House Bills in Committee:
HR9403, the Offshore Oil and Gas Worker Whistleblower Protection Act, has been introduced in the current session and has been introduced every single session, beginning with the 111th session (2009-2010). The bill seeks to provide protection to certain workers in the offshore oil and gas industry that provides information on a potential violation of the Outer Continental Shelf Lands Act.
HR9629, the Corporate Responsibility and Taxpayer Protection Act of 2022, currently under review by the House Committee on Ways and Means, and the Committee on Education and Labor, seeks to impose a tax on large employers (those with 500 or more full-time employees) whose employees receive certain federal benefits. Such benefits include SNAP, free school lunch, subsidized housing, or Medicaid. The tax would be equal to 100% of the federal benefits received. The bill was introduced by Rep. Ro Khanna (D-CA-17).
HR67, the Small Business Flexibility Act, introduced January 9, 2023, proposes to amend the FLSA to permit tip pooling among all employees, including those who do not customarily and regularly receive tips.
HR122, proposes to amend the FLSA by calculating the federal minimum wage based on the Federal poverty threshold for a family of four, as determined by the Bureau of Census. According to the 2021 data from the Census Bureau, the poverty threshold for a family of four is $27,575 (approximately, $13.26 per hour). The 2022 data is not available. The bill has been referred to the House Committee on Education and the Workforce.
HR353, introduced January 12, 2023 by Rep. Brandon Williams, (R-NY), seeks to provide a preemption of certain state overtime laws for agricultural employees. The legislation is in response to recent state legislation that phases out the overtime exemption for agricultural workers. For example, New York Department of Labor (DOL) Commissioner Roberta Reardon recently issued an order accepting the recommendation of the Farm Laborers Wage Board to lower the overtime threshold for farm laborers to 40 hours per week (currently, 60 hours per week) by January 1, 2032. Several states have a maximum number of hours worked for agricultural workers such as Colorado, Oregon, and Washington.
HR319, the Legal Workforce Act, introduced January 12, 2023, by Rep. Ken Calvert (R-CA), proposes to require all U.S. employers to verify the employment eligibility of all workers through e-Verify. It also repeals the paper I-9 requirement and replaces it with an electronic process. The mandatory use of e-Verify would be through a gradual phase-in process. Within 12 months of enactment, businesses having 500 to 9,999 employees are required to use E-Verify. Eighteen months after enactment, businesses having 20 to 499 employees must use E-Verify. And 24 months after enactment, businesses having 1 to 19 employees must use E-Verify. Allows a one-time six-month extension of the initial phase in. It also requires that employees performing “agricultural labor or services” are subject to an E-Verify check within 30 months of the date of enactment. Finally, the bill proposes to increase penalties for employers who hire individuals who do meet employment eligibility requirements. Safe harbor is provided to employers who use the e-Verify system in good faith.
Other legislation:
An investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) resulted in the recovery of $5.6 million for 1,398 drivers who had been improperly classified as independent contractors by a national auto parts distributor and an Arizona logistics company.
A U.S. District Court in Arizona signed a consent judgment requiring Parts Authority Arizona LLC and Arizona Logistics (operating as Diligent Delivery Systems) to pay $2.8 million in back wages and $2.8 million in liquidated damages to the misclassified employees. Pursuant to the judgment, Parts Authority and Diligent Delivery Systems (as well as its owner Larry Browne) must also pay $150,000 in civil penalties. Furthermore, the drivers must now be treated as employees.
The WHD investigation determined that as a result of misclassifying drivers, the company failed to pay minimum wages and overtime and failed to keep required records. Additionally, the company made employees use their personal vehicles for delivery without any compensation.
Principal Wage and Hour Administrator Jessica Looman stated that: "Parts Authority, Diligent Delivery Systems and Larry Browne misclassified nearly 1,400 delivery drivers as independent contractors, denying them of their rights to minimum wage, overtime pay and other benefits and protections. We will continue to identify and address misclassification that not only hurts the workers who are deprived of their wages, but also puts responsible employers at a competitive disadvantage.”
NTA Says Biggest Short-Term Opportunity to Improve E-Filing Exists With Business Tax Returns
According to the National Taxpayer Advocate's (NTA) 2022 Annual Report to Congress, the biggest short-term opportunity to improve e-filing exists with business tax returns – especially employment tax returns.
E-filing of employment tax returns is lagging. The report explains that although the number of e-filed business returns is "good," it has lagged in comparison with individual tax returns. For the 2022 filing season, individuals had an e-file rate of 92%. Business income tax returns were e-filed at a lesser rate with 70% of taxpayers. However, only 58% of businesses e-filed their employment tax returns.
Potential barriers. The NTA believes that the barriers with employment tax returns are both behavioral and structural. According to research by the IRS's Small Business/Self-Employed Division, some of the main reasons why companies file their employment tax returns on paper are because: (1) it appears cheaper and easier, (2) they have always done so, and (3) they have been advised to file on paper by their tax return preparers.
Lack of options. The NTA notes that an important factor in this behavior can be traced to the circumstance that businesses are only able to e-file employment tax returns through the use of payroll software providers. This dependence has a number of downsides, explains the NTA, including increased costs and security concerns.
Continued obstacles unless direct IRS e-filing option. The NTA concludes that until businesses can e-file directly with the IRS, these obstacles will remain, and many businesses will continue to opt to file on paper. However, the NTA believes that if the IRS developed this capacity and made strong educational efforts about the benefits of e-filing, behavioral barriers – such as habit – would likely quickly reverse themselves.
Congressional involvement. To achieve significant improvement in the e-filing of employment tax returns, continued determination on the part of the IRS and the allocation of additional long-term resources by either the IRS or Congress is required.
NTA recommends. Some of the NTA's recommendations include: (1) making all IRS forms and schedules compatible with e-filing, (2) implement necessary information technology upgrades to enable business taxpayers to more easily e-file information and employment tax returns (including amended employment tax returns), and (3) use lessons learned from the Congressionally funded e-filing study to begin the development of a comprehensive, direct e-file system that encompasses many of the attributes already adopted by other countries.
IRS response. The IRS responded to the recommendations by stating that the electronic filing of employment tax returns remains a priority. It notes that the Inflation Reduction Act (IRA; P.L. 117-169) affords it the funding and opportunity to implement digital initiatives and that its Strategic Plan FY 2022-2026 includes an objective to "increase digitalization to streamline processes, improve access to digital data, and lessen our environmental impact." The IRS said it is also working to add more forms to the e-file platform, building on paperless capabilities.
Mandate may be the key. Although employment tax returns continue to experience organic growth of approximately 2% to 3% each year, absent any legislative mandate requirement to e-file employment tax returns, companies have the choice to mail the return. The IRS said that the lack of mandate is affecting the growth of e-file rate for employment tax returns, which means the Service receives more than 14 million paper employment tax returns each quarter.
The IRS has issued a January 12, 2023 draft version of the instructions for the March 2023 Form 941 (Employer's Quarterly Federal Tax Return) along with the draft instructions for Schedule B (Form 941) (Report of Tax Liability for Semiweekly Schedule Depositors) and the instructions for Form 941-SS (Employer's QUARTERLY Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands).
IRS draft notices. For all of these drafts, the IRS notes that they are early releases and should not be relied upon for filing. The Service notes that it does not release draft forms until it believes all changes have been incorporated (except when explicitly stated). However, unexpected issues or legislation may result in the need to make changes, in which case the IRS will post a new draft to alert users of the new revisions. The IRS also explains that drafts of instructions and publications usually have some changes before their final release.
Draft Form 941 instructions. The draft instructions for Form 941 say to use the March 2023 version of Form 941 to report taxes for the first quarter of 2023. Employers should not use an earlier version of the form to report taxes for 2023. The IRS adds that it expects the March 2023 Form 941 and its instructions to be used for the second, third, and fourth quarters of 2023. However, if there are changes in the law that may require additional changes, the IRS will revise the form. The instructions also explain that Form 941-SS and Form 941-PR (Planilla para la Declaración Federal Trimestral del Patrono) will no longer be available after the fourth quarter of 2023. Instead, employers in the U.S. territories will file Form 941 or the new Spanish version of the form.
Schedule B (941). Semiweekly federal employment tax depositors file Schedule B (Form 941). The IRS uses this form to determine if employers that are semi weekly federal tax depositors have paid their employment tax liabilities on time. The draft instructions caution semi-weekly depositors of the potential imposition of an "averaged" federal tax deposit penalty if they do not properly complete and file Schedule B (Form 941). The draft instructions also caution filers not to reduce their total liability reported on Schedule B (Form 941) by the refundable portion of the credit for qualified sick and family leave wages. Employers total liability for the quarter must equal line 12 on Form 941.
Draft Form 941-SS. As mentioned earlier, Form 941-SS will be discontinued by the IRS at the end of 2023 and filers can use either Form 941 or the Spanish version of the form. The draft instructions include a tip for filers if both an employer and a Code Sec. 3504 authorized agent (or a CPEO or other third-party payer) paid wages to an employee during a quarter. The draft instructions say that both the employer and the Code Sec. 3504 authorized agent (or CPEO or other third-party payer, if applicable) should file Form 941-SS reporting the wages each entity paid to the employee during the applicable quarter and issue Forms W-2 (Wage and Tax Statement) reporting the wages each entity paid to the employee during the year.
Qualified small business payroll tax credit. All of these draft instructions note that, for tax years beginning before January 1, 2023, a qualified small business may elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. The Inflation Reduction Act of 2022 (IRA; P.L. 117-169) increases the election amount to $500,000 for tax years beginning after December 31, 2022. The payroll tax credit election must be made on or before the due date of the originally filed income tax return (including extensions). The portion of the credit used against payroll taxes is allowed in the first calendar quarter beginning after the date that the qualified small business filed its income tax return. The election and determination of the credit amount that will be used against the employer’s payroll taxes are made on Form 6765 (Credit for Increasing Research Activities). The amount from Form 6765, line 44, must then be reported on Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Related drafts. In December 2022, the IRS released drafts for Form 941 and Schedule R. These forms have not yet been finalized.
By Jeff Carlson
Representatives Darin LaHood, Republican of Illinois and Washington Democrat Suzan DelBene, members of the House Ways and Means Committee, on January 11 reintroduced their legislation, the Small Business Tax Fairness and Compliance Simplification Act (HR 45).
The legislation would extend the Federal Insurance Contribution Act (FICA) tax tip credit, which is currently available to the food service industry, to "employer-based salon and beauty service" establishments where tipping is also customary.
"Our bipartisan Small Business Tax Fairness and Compliance Simplification Act will level the playing field and provide direct relief to millions of salon and beauty care professionals who rely on tips," said LaHood in a statement. "I am proud to continue to champion this bill with Congresswoman DelBene, to strengthen small businesses, improve reporting of tip income, and help businesses navigate IRS administrative rules and procedures."
Tips are paid as a gratuity by a client directly to the worker providing the service. Employers are required to pay FICA taxes on these tips even though they are the sole property of the worker and the employer is not involved in the tip transaction.
Currently, over 80% of the 1.2 million beauty industry businesses employ fewer than ten employees; these businesses are predominantly owned and operated by women and minorities. The FICA tax tip credit is part of an integrated compliance system that has been effective in ensuring the accurate reporting of tip income and reducing the tax gap, the lawmakers said in a fact sheet. The credit acts as a reimbursement for the costs employers incur in accounting for tip income.
Extending the FICA tax tip credit to the beauty industry would reduce tax burdens and improve reporting of tip income, as it did in the food and beverage industry. It would also grant equal treatment to the beauty industry, allowing employers to support their employees and grow their businesses, the lawmakers said. DelBene and LaHood first introduced their legislation during the 115th Congress. It was reintroduced in February 2019.
In the January 13, 2023 edition of the Federal Register, the U.S. Department of Labor (DOL) has published a final rule that revises the civil penalties for several violations of federal labor laws, including certain violations of the Fair Labor Standards Act (FLSA) and the Family Medical Leave Act (FMLA). The rule takes effect on January 15, 2023.
Background. The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 directed federal agencies to adjust civil penalties for inflation each year. As a result, the DOL has made inflation adjustments to the following penalties, beginning with penalties assessed on January 15, 2023.
Minimum wage and overtime violations. The maximum penalty for repeated or willful minimum wage and overtime violations increases to $2,374 (previously, $2,203) and the maximum penalty for retaining employees’ tips increases to $1,330 (previously, $1,234) [29 CFR 578.3(a)].
FMLA violations. Employers subject to the Family and Medical Leave Act (FMLA) that fail to comply with its posting requirements are liable for a maximum penalty of up to $204 (previously, $189) [29 CFR 825.300(a)(1)].
Child labor law violations. The updated rule also provides increased penalties for employers violating child labor laws. For 2023, the penalty is a maximum $15,138 for each violation (previously, $14,050) [29 CFR 579.1(a)(1)(i)(A); 29 CFR 570.140(b)(1)].
H-2B visa workers. For 2023, the maximum penalty for violations regarding workers employed in the H-2B visa program increases to a maximum penalty of $14,960 (previously, $13,885) [29 CFR 503.23(b) through (d)].
H-1B visa workers. Civil money penalties may be imposed for the following violations: (1) pertaining to strikes, lockouts, displacement of U.S. workers, notification, misrepresentation of material facts, etc. (maximum penalty of $2,232); (2) pertaining to wages, working conditions, misrepresentation of material facts, etc. (maximum penalty of $9,086); and (3) that caused the displacement of a U.S. worker (maximum penalty of $63,600) [20 CFR 655.810(b)(1) through (3) and 20 CFR 655.801(b)].
H2-A visa workers. Civil money penalties may be imposed for the following: (1) violation of work contract (maximum penalty of $2,045); (2) willful violation of work contract or violation for failure to cooperate in an investigation (maximum penalty of $6,881); (3) violation of a housing or transportation safety and health provision of the work contract that causes death or serious injury of any worker (maximum penalty of $68,129); (4) repeat or willful violation of a housing or transportation safety and health provision of the work contract that causes death or serious injury of any worker (maximum penalty of $136,258); and (5) violation for laying off or displacing any US worker employed in work or activities that are encompassed by the approved Application for Temporary Employment Certification for H-2A or violation for improperly rejecting a US worker who is an applicant for employment (maximum penalty of $20,439) [29 CFR 501.19(c)].
Home workers. The civil penalty for violations against home workers is $1,240 per worker per violation (previously, $1,151) [29 CFR 530.302].
Contract Work Hours and Safety Standards Act. Contractors who violate the overtime pay requirements are liable for liquidated damages of $31 per day (previously, $29 per day) for each worker employed in violation of the Act [29 CFR 5.5(b)(2) and 29 CFR 5.8(a)].
Walsh-Healey Public Contracts Act. For any breach of the Act's requirements, a contractor is liable for liquidated damages of $31 per day per person (previously, $29 per day per person) knowingly employed in violation of child labor or convict labor provisions [41 CFR 50-201.3(e)].
Penalty for failure to file Form 5500 (Annual Return/Report of Employee Benefit Plan). The maximum civil penalty for each day a plan administrator fails or refuses to file a complete an accurate report (Form 5500) increases to $2,586 (previously, $2,400) [29 CFR 2575.1-3].
Effective date. These increases apply to penalties assessed on or after January 15, 2023.
Alabama—Federal Tax Relief Available to Storm Victims
The IRS has provided tax relief to storm victims in parts of Alabama. Victims in the disaster area now have until May 15, 2023, to file various federal individual and business tax returns and make tax payments, the IRS has announced. This tax relief applies to taxpayers that reside or have a business in the following counties: Butts, Henry, Jasper, Meriwether, Newton, Spalding, and Troup. The tax relief postpones various tax filing and payment deadlines beginning on January 12, 2023. Taxpayers will have until May 15, 2023 to file quarterly payroll tax returns that are normally due on January 31 and April 30, 2023. Penalties on payroll and excise tax deposits due on or after on January 12, 2023, and before January 27, 2023, will be abated as long as the tax deposits are made by January 27, 2023 [IR 2023-9, 1/9/2023].
Alabama—State Issues 2023 Withholding Tax Tables and Instructions for Employers/Withholding Agents
The Alabama Department of Revenue (ADOR) has issued its 2023 Withholding Tax Tables and Instructions for Employers and Withholding Agents. On or before the last day of January each year, every employer that has withheld tax during the preceding year must file Form A-3 with the ADOR together with a copy of each wage and tax statement (Form W-2) issued for that year. Employers submitting 25 or more statements or who have filed and paid electronically during the year must submit this information through the ADOR's website. For Alabama withholding tax purposes, the terms “employer,” “employee,” and “wages” have the same meaning as defined in the Internal Revenue Code except when the Alabama law is in conflict with federal law. An employer that is a resident of Alabama must withhold tax from the wages of its employees who are residents of Alabama, regardless of whether the wages are earned in Alabama or outside the state; except when the employer is withholding tax for the state in which the employee is working. There are two methods for computing Alabama withholding tax. Tax can be computed using the tables provided in this booklet or tax can be computed using the withholding tax formula which is also provided in this booklet. The formula should be used by employers that are computing withholding tax using a computer program. The formula must also be used if the dependents claimed by an employee exceed the number of dependents provided in the tables or if an employee's salary exceeds the amounts provided in the tables.
Arizona—Reminder of Form W-2/1099 Due Date
The Arizona Department of Revenue (DOR) reminds employers that copies of all the W-2s issued to their employees, and the 1099s (except 1099-S) that include Arizona withholding, along with the annual Arizona Withholding Reconciliation Return – Form A1-R, and Arizona Annual Payment Withholding Tax Return – Form A1-APR, are due on January 31, 2023, for the 2022 tax year. Employers must submit all withholding returns electronically, Form A1-R, W-2s and 1099s, except for Form 1099-S. Form 1099-S began being accepted on December 16, 2022, with a filing deadline of March 31, 2023. Employers can also electronically submit federal Forms W-2, W-2c, W-2G, and 1099 to the DOR [Less Than 2 Weeks for Employers to File W-2s and 1099s, Ariz. Dept. of Rev., 01/17/2023].
California—FAST Act Could Be Paused Until November 2024 Election
California's Fast Food Accountability and Standards Recovery (FAST) Act could be on hold until the November 2024 election following a January 13, 2023 court ruling. The FAST Act establishes a Fast Food Council until January 1, 2029, comprised of fast food employees, worker advocates, franchisors, franchisees, and government officials within the DIR that would set industry-wide standards for wages, working hours, and other working conditions related to the health, and safety of fast food workers. The legislation was to take effect on January 1, 2023. However, the National Restaurant Association and International Franchise Association want to get a measure on the state's 2024 ballot to reverse the FAST Act. At the end of 2022, a court granted a temporary injunction against the California Department of Industrial Relations (DIR) from implementing the FAST Act. A couple weeks later, the court granted a preliminary injunction for implementing the FAST Act until: (1) it is determined that the proposed referendum for the 2024 ballot contains the required number of valid signatures; or (2) the FAST Act is approved by voters on the November 2024 ballot. If it is determined that the referendum meets the valid signature requirement, the FAST Act will be on hold until November 2024. If not, it can be assumed that the implementation of the FAST Act will be allowed to resume [Save Local Restaurants v. Hagen, California Superior Court, Sacramento County, No. 34-2022-80004062, 01/13/2023].
California—FAQs Issued Clarifying State's New Pay Transparency Law
Recently, the California Labor Commissioner issued some Frequently Asked Questions (FAQs) that discuss the interpretation of the state's new pay transparency law. Beginning January 1, 2023, California Senate Bill 1162 requires an employer with 15 or more employees to include the pay scale for a position in any job posting. If an employer with 15 or more employees engages a third party to announce, post, publish, or otherwise make known a job posting it must provide the pay scale to the third party and the third party must include it within the job posting. The FAQs interpret this to mean that the pay scale must be included within the job posting if the position may ever be filled in California, either in-person or remotely. Also effective January 1, 2023, an employer must keep records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment. The records are open to inspection by the California Labor Commissioner in order to determine if there is still a pattern of wage discrepancy.
California—Employer's Overtime Calculations Comport with Both Federal and State Law
The California Court of Appeal, Second Appellate District, Division Five has ruled that the method by which an employer used to calculate overtime pay on a nondiscretionary bonus paid to an employee complies with both federal and California law. A nonexempt sales manager for Ecolab regularly worked more than 12 hours a day and more than 40 hours a week. His compensation consisted of hourly wages and a nondiscretionary bonus. Cal. Lab. Cd. § 510 and Wage Order No. 5 require an employer to pay an overtime premium of 1.5 times the regular rate of pay for work in excess of eight hours in a day, 40 hours in a week, or for the first eight hours worked on the seventh consecutive day of work. An employer is obligated to pay twice the regular rate of pay (double time) for any work in excess of 12 hours in one day. The Fair Labor Standards Act (FLSA) requires an employer to pay overtime compensation at 1.5 times an employee’s regular rate of pay when an employee works over 40 hours in one week. The employee relied on Section 49 of the California Division of Labor Standards Enforcement (DLSE) for his formulation, while his employer relied on 29 CFR 778.210 to calculate the overtime (percentage bonuses paid as a percentage of gross earnings that have already incorporated straight time, overtime, and double time wages for each bonus period). The Court explained that 29 CFR 778.210 addresses the precise issue presented in this case because the terms of the employee's incentive compensation plan expressly provide for the simultaneous payment of overtime compensation due on the monthly bonus by way of a percentage increase to his straight time and overtime earnings. The Court adds that the employee's adoption of the Section 49 formulation, without taking into account that the bonus attributable to the workweek already includes overtime on overtime, contravenes Cal. Lab. Cd. § 510 and Wage Order No. 5, which require an employer to pay an overtime premium of 1.5 times the regular rate of pay, not some greater amount. Therefore, Ecolab's calculation complies with both federal and California law [Lemm v. Ecolab Inc., Cal. Ct. of App., 2nd App. Dist., 5th Div., 01/03/2023].
Colorado—Public Health Emergency Leave Now Only for COVID-19
The Colorado Healthy Families and Workplaces Act (HFWA) requires Colorado employers to provide two types of paid sick leave to their employees: (1) public health emergency (PHE) leave; and (2) accrued leave. From November 11, 2022 until January 8, 2023, the PHE leave included COVID-19 and similar respiratory illnesses. Effective January 8, 2023, PHE leave only includes COVID-19.
Delaware—Legislation Would Provide Post-Pandemic Unemployment Relief for Employers and Claimants
Legislation (House Bill 49), currently assigned to the Labor Committee in the Delaware State Senate, would provide post-pandemic related relief to both employers that are assessed unemployment taxes and claimants receiving unemployment benefits. As such, the bill would increase the maximum weekly unemployment benefit amount from $400 to $450, beginning April 2, 2023. The funds necessary to pay the increased weekly benefit amounts would be paid from the state's unemployment trust fund. According to the bill's description, Delaware Governor Carney's agreement to allow federal pandemic funds to be used to replace the funds in the state's unemployment trust fund that were depleted from the surge of COVID-19 pandemic related claims resulted in solvency of the fund to permit unemployment tax relief measures for Delaware employers for a one-year period during calendar year 2023. As such, this bill would provide temporary relief to employers who pay unemployment tax assessments by reducing the new employer tax rates, reducing or holding constant overall employer tax rates, and reducing the maximum earned rate. In addition, the bill would temporarily simplify the tax rate schedules that are used to calculate unemployment assessments paid by employers. Estimates say that these unemployment tax assessment changes would reduce the tax obligation of employers by an estimated $50 million in 2023. Provisions impacting employers would take effect retroactively to January 1, 2023.
Georgia—IRS Offers Tax Relief to Storm Victims
The IRS has provided tax relief to storm victims in parts of Georgia. Victims in the disaster area now have until May 15, 2023, to file various federal individual and business tax returns and make tax payments, the IRS has announced. This tax relief applies to taxpayers that reside or have a business in Autauga and Dallas counties. The tax relief postpones various tax filing and payment deadlines beginning on January 12, 2023. Taxpayers will have until May 15, 2023 to file quarterly payroll tax returns that are normally due on January 31 and April 30, 2023. Penalties on payroll and excise tax deposits due on or after on January 12, 2023, and before January 27, 2023, will be abated as long as the tax deposits are made by January 27, 2023 [IR 2023-9, 1/9/2023].
Illinois—Proposed Paid Leave for All Workers Act Awaiting Governor's Signature
The Paid Leave for All Workers Act, L. 2023, S208, passed by the legislature on January 10, 2023 and set for signature by Governor Pritzker, establishes a program of earned paid leave to all employees in the state to be used for any reason. Private employers must provide up to 40 hours per year of accruable paid leave, accrued at a rate of one hour of leave for every 40 hours worked. Employers must pay employees for the leave at the employee's regular rate of pay. Accrual begins on the date of hire, and unused hours may be carried over annually up to a limit of 40 hours per year.
Illinois—Withholding Income Tax Payment and Filing Requirements Publication Revised
The Illinois Department of Revenue has revised Publication 131, Withholding Income Tax Payment and Filing Requirements. The publication guides an employer or payer in reporting and paying Illinois income withholding tax. The publication explains when and how to make payments and file returns, and the different payment schedules [Publication 131, Withholding Income Tax Payment and Filing Requirements, Ill. Dept. of Rev., 01/01/2023].
Illinois—Withholding Tax Payment and Return Publication Updated
The Illinois Department of Revenue has released an updated version of Publication 131-D, which identifies all Illinois withholding payment and Form IL-941 (Illinois Withholding Income Tax Return) due dates for the current calendar year. Payments are made electronically or with Form IL-501 on either a monthly or semi-weekly payment schedule. All Forms IL-941 must be filed electronically. Publication 131-D is a supplement to Publication 131 (Withholding Income Tax Payment and Filing Requirements) [Publication 131-D, Withholding Income Tax Payment and Return Due Dates, Ill. Dept. of Rev., 01/01/2023].
Louisiana—DOR Issues Bulletin on 1099-NEC Filing Requirements
Beginning January 1, 2023, all service recipients (i.e., businesses) who are required to file IRS Form 1099-NEC (Nonemployee Compensation) with the Internal Revenue Service (IRS) must transmit copies of Form 1099-NEC to the Louisiana Department of Revenue when issued for services provided in Louisiana or for services performed by an individual residing in Louisiana at the time the services were performed. Forms 1099-NEC filed for tax year 2022 are due on or before February 28, 2023. Service providers are required to file IRS Forms 1099-NEC directly with the Department when the service provider did not timely electronically file all IRS Forms 1099-NEC with the IRS and, if prompted, authorize sharing of the information provided with the Department. Service providers are not required to file IRS Forms 1099-NEC directly with the Department when the service provider timely and electronically filed all IRS Forms 1099-NEC with the IRS, either through commercial third-party tax software, the IRS Filing Information Returns Electronically (FIRE) system, or other IRS approved electronic filing software. Businesses filing 50 or more IRS Forms 1099-NEC are required to file electronically or penalties may apply. The bulletin provides filing guidance and information regarding frequently asked questions [Louisiana Revenue Information Bulletin No. 23-006, 01/12/2023].
Maine—Employment Tax Increment Financing Rule Amended
The Maine Department of Economic and Community Development has revised Code Me. R. §400, Employment Tax Increment Financing (ETIF), to incorporate recent statutory changes so that the ETIF payments are based on a fixed percentage of qualified employees' gross wages instead of state income tax withholdings. The amended rule was effective January 11, 2023.
Michigan—2023 Withholding Tables Released
The Michigan Department of Treasury has issued its 2023 Income Tax Withholding Tables (Form 446-T). The state personal exemption amount increases to $5,400 and the state's flat withholding rate remains at 4.25% [2023 Michigan Income Tax Withholding Information, 1/1/23].
Michigan—Withholding Information for 2023 Released
The Michigan Department of Treasury has issued its 2023 Income Tax Withholding Guide. The state personal exemption amount increases to $5,400 and the state's flat withholding rate remains at 4.25% [2023 Michigan Income Tax Withholding Guide, 1/1/2023].
Minnesota—Conformity Bill Extends Statute of Limitations
Recent legislation (L. 2023, HF31) updating Minnesota's conformity with the Internal Revenue Code has also extended the statute of limitations for necessary amended returns resulting from the updates to conformity. Amended returns needing to be filed due to changes in liability following the conformity updates may be filed by December 31, 2023 without penalty.
Minnesota—Tax Fact Sheets Updated
All Withholding Tax Fact Sheets provided by the Minnesota Department of Revenue have been updated as of December 2022 online. Effective September 2022, the DOR announced that its Tax Fact Sheets would be available in webpage format only.
Missouri—Updated Guide to Starting a New Business Now Available
The Missouri Department of Revenue (DOR) has updated its Form 5755, Starting a New Business in Missouri? What You Need to Know. The publication goes through the basics of registering a business, and basics of taxes business owners may be subject to (including withholding taxes and how family members who are employees should be treated). It adds that the DOR offers services to help new businesses, including: (1) registering a new business online; (2) filing and paying business taxes online; and (3) filing requirements/guidelines. It directs news business owners to its website for additional information.
Ohio—Potential Temporary Amnesty Program for 2023
On January 6, 2023, Ohio Governor Mike DeWine signed House Bill 45 that, before November 1, 2023, permits the Director of Management and Budget to determine if a temporary tax amnesty program should be conducted in 2023. The program would be created if the Director finds that the General Revenue Fund will require additional proceeds from the amnesty program in order to meet obligations required to be paid from that fund in calendar year 2023. If necessary, the Director will certify the findings to the state government, including the Tax Commissioner. The Tax Commissioner would then establish and administer a tax amnesty program for two consecutive months in 2023, issuing forms and instructions as necessary. Under the program, applicable interest and penalties will be waived or abated if taxpayers delinquent taxes in full. Taxpayers will be required to file returns, including amended returns. The state last ran a tax amnesty program back in 2018 [L. 2022, H45].
Puerto Rico—Puerto Rico Fair Internship Act Requires Paid Internships With Some Exceptions
The Puerto Rico Fair Internship Act, effective immediately, sets out requirements for paid internships of students and recent graduates. Internships that are covered by Act are those that: (1) are for 10 hours or more per week; (2) have a defined duration; (3) have a direct supervisor; (4) receive periodic evaluation; (5) include educational and mentoring for skills and professional development; and (6) do not displace paid employees. Internships and research experience must be compensated at least at the greater of the federal or local minimum wage ($8.50 per hour in Puerto Rico, to increase to $9.50 per hour on July 1, 2023) or a global stipend that satisfies minimum wage requirements. The following internships are exempt from compensation: (1) work in exchange for university credit; (2) volunteer work of no more than 20 hours per week, (3) internship for certain non-profit entities as authorized by the Department of Labor and Human Resources; and (4) programs limited to "shadowing" or tasks do not require special knowledge. The Act further directs the DLHR to promulgate regulations in 60 days (February 20, 2023) to implement the Act.
Puerto Rico—2023 Limits for Qualified Retirement Plans Announced
The Puerto Rico Treasury Department released Puerto Rico Circular Letter No. 23-01, 01/13/2023 announcing contribution limits for qualified retirement plans under P.R. PRIRC Reg. § 1081.01(h), effective January 1, 2023. Generally, the limits conform to the federal retirement plan and compensation limits for highly compensated employees. Other limits include: (1) the annual limit on catch-up contributions to a retirement plan, other than a plan sponsored by the federal government, remains unchanged at $1,500 for a participant who is at least 50 years old, (2) the annual limit on voluntary after-tax employee contributions remains unchanged at 10% of the participant's aggregate compensation for all the years of participation in the retirement plan, and (3) the elective deferral (contribution) limit for a participant in a Puerto Rico-only qualified retirement plan remains unchanged at $15,000.
Rhode Island—Governor Directs Funds to Workers Compensation to Avoid Increase in Employer Premiums
On January 17, 2023, Rhode Island Governor Dan McKee delivered the State of the State address. McKee noted that he has directed $4 million into the state's Workers' Compensation Fund to prevent an increase in premiums paid by employers.
Virginia—Withholding Filing Due Date Reminder
The Virginia Department of Taxation (DOT) has reminded taxpayers that Forms W-2 and 1099 are due January 31 by electronic submission. Taxpayers are required to file Form W-2 and 1099 statements with the DOT when those statements reflect Virginia income tax withheld. The Forms W-2 and 1099 can be filed by Web Upload, which is a file-based system that accepts multiple file types, or by eForms, which are fillable electronic forms that work best for businesses with a small number of employees or payees. The Annual or Final Withholding Summary (Form VA-6/Form VA-6H) is separate from Form W-2 and 1099 data and also is required to be sent by January 31 [Withholding Tax, Va. Dept. of Taxation, 01/01/2023].
West Virginia—Governor Proposes Income Tax Rate Reduction
On January 11, 2023, West Virginia Governor Jim Justice, during the State of the State speech, proposed a 50% reduction in the personal income tax rate over a three-year period. The phase-out would begin with a 30% reduction in June 2023, and another 10% reduction in the following two years. The bill (House Bill 2526), currently in the House Finance committee, that contains the proposed tax reduction also would reduce the rate of withholding tax on nonresident income, applying the reduced rate retroactively to January 1, 2023, and applying new rates on January 1, 2024 and January 2025. Currently, income tax rates range from 3% to 6.5%. Under the proposed bill, income tax rates would range from 2.1% to 4.55%, beginning January 1, 2023, retroactively. In 2024, they would be further reduced from 1.8% to 3.9% then reduced to 1.5% to 3.25% in 2025.
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