“You don’t know what you don’t know.” Our payroll broker, Holly Acosta said this when talking about business owners who aren’t aware of the intricacies of employment law. Unfortunately, claiming ignorance on this topic can get you into trouble.
As a business owner, you are expected to know the law and you’re expected to stay in compliance with it. Most entrepreneurs are so busy building their businesses that they end up learning the hard way by failing to stay abreast of the law. (Unless they have a lot of time and money to onboard specialists from the ground floor.) It’s hard and frustrating when you get caught up in these issues. Being proactive is so important. In our podcast, Ericka pointed out that all regulatory bodies will mail you documents. You’ve got to open your mail and stay on top of things to stay out of trouble. The business owner is liable for receiving those notices.
The government has enacted several changes in employment law over the last six months (July 1, 2024-January 1, 2025.) Aside from a headache, the complicated nature of keeping up and staying in compliance with employment requirements may hit your business with hardship or worse, make you have to close your doors.
Some examples of recent changes to the law:
In March of 2024, the following was enacted. The 6-factor test helps determine if a worker is a contractor or an employee. No single rule from the 6-factor test carries more weight than any other rule. Therefore, if one rule applies to a situation, all rules apply. If that worker assumes a profit or a loss based on the employer’s profit or loss, they are considered a contractor.
The benefit of hiring a payroll company is that they can help you stay out of trouble with the government by educating you and guiding you into compliance with employment laws. This is why we chose to hire a payroll company. It’s a great move we recommend because the security of knowing someone has your back in an area you’re not familiar with will help you focus on the other areas of your business for success.
Don’t be fooled by thinking that you can count on protection for your business by dealing with large payroll software companies. It is different talking to an HR expert versus someone in a call center who probably won’t know the answer to your questions, or worse, give you the wrong advice. Benefit eligibility depends on the amount of time someone’s been on the payroll. Their focus is not so much being a software company, but being compliance experts and helping their clients navigate the situations they’re facing.
The #1 fine the IRS issues to small businesses is misclassified workers. 1099 contractor and they shouldn’t be. Could be classified as a salaried employee and should be an hourly employee.
Hourly VS. Salary
The government decided what could be considered salary versus hourly. Now: 35,568 is what you have to make to salary (July 1 it went up - it is being challenged $43,888) Jan 1, 2025, it is $58,656 annually you must be salaried. There are so many lawsuits from employees who were due overtime but because they were classified incorrectly, they were never paid their overtime. (1099 vs W2) Companies need to understand the impact of this because they could be forced to go back and pay overtime. A lot of small businesses can’t endure that kind of adjustment. Not only would they have to do that, but they would be required to pay back payroll taxes.
If you own a company and you provide training for a worker to come help you on a job, then they are also considered to be an employee. Another example of one of these rules is a general contractor walking away and letting the painting company/workers do their job. If that painting company/workers only do business with that one contractor, they get flagged. Builder’s Association and others in the industry are challenging this rule because it will have a major impact on their business.
For example, within the first rule, if a worker is still going to make the same amount of money on a job whether or not you have profit or loss then the government determines that worker is an employee. This environment of tax law change is creating more unemployment because small businesses can’t afford the additional expense. The government doesn’t care what mutually decided on business relationships workers and employers have, because the government has determined they are the author of those relationships and how they’re governed.
These rules seem less about protecting the worker (as the government claims,) and more about making sure that as many tax dollars as possible go to the government.
Holly said that some industries have abused the matter. Certain workers should be classified as employees and they’re skirting tax laws. It’s like a few people did some bad things, so now we all have to take our shoes off at the airport. But why should the people who are driving the economy of the U.S. be the ones that are punished? Small businesses are the ones who are paying. The majority of the people employed in the US are employed by Small businesses.
A lot of companies are calling Holly’s company for help to come into compliance with the new rule. One of the first things they talk to the small businesses about is salaried employees and whether those workers should even be salaried. She says a lot of times the answer is no. The reason for that is the business is trying to say a worker gets to be a 1099 contractor because the owner can’t afford payroll taxes. But some rules apply. The same thing works for salaried and hourly workers called The Duty tax. There are certain duties a worker has to fall into to be allowed to receive a salary and to be exempt from overtime.
Ericka said the scariest part of being a business owner is the government. Intent doesn’t matter in these cases.
Claims: NLRB (National Labor Relations Board) and EEOC (Equal Employment Opportunity Commission) have a rise in complaints to these organizations.
A business should look at the EEOC annual report. In 2023, the agency reported recovering a record $ 665 million for workers (lawsuits) 30% fiscal increase than in 2022. 50% more lawsuits were filed than the previous year. Holly and Ericka care deeply for their staff. They are pro-worker, and for safe, healthy work environments.
According to Holly the people she has worked with in the EEOC, investigators are having to navigate messy issues due to changes in our culture. She mentioned advertisements on TikTok that tell people how to file claims against an employer. It is good that our system makes it easy for workers to make legitimate claims, but culture is encouraging people to mistreat the system. In 2023, the EEOC handled over 522,000 calls only resulting in 143 lawsuits. The problem is that true victims are getting bottlenecked because there are too many claims.
She brought up an issue that was important to her before the podcast wrapped up. Workplace violence. In 2022, there were 525 workplace fatalities. This often happens around the time of an employee's termination. Mental health in the workplace is so important to help avoid these escalations. Almost 60,000 injuries were from workplace violence. Holly shared that her company, Kasdan, is offering a new service: unlimited mental health care access to 24/7 therapy. $15 per month that companies can select for their employees. Kasdan licensed as a third-party administrator. They can offer payroll, HR, and benefits. They’re brokers and they look at how the law affects business owners. Something as simple as how many employees are on the payroll affects different rules with the EEOC.
Holly and her staff have a saying in their office: “Proactive HR is better than emergency HR.” (To save her business owners from being victimized by fraudulent or frivolous claims.)