Legal/Compliance Roundup - December 2023

Each month, Mployer collects and presents some of the most relevant and most pressing recent changes in law, compliance, and policy in areas related to employee benefits, health care, and human resources. 

Secure Act 2.0 Takes Effect January 1, 2024

The Secure Act 2.0, which was signed into law in the closing days of 2022 and will take effect at the beginning of the new year, ushers in some sweeping changes to retirement planning and savings administration in the US, including: 

• Mandatory 401k Enrollment: Most companies with more than 10 employees that have been in operation for at least 3 years will be required to automatically enroll employees into their 401k plan with between 3% and 10% automatic contributions. There’s also a tax credit available for many companies to cover the additional administrative burden of automatic enrollment.
• Starter 401ks With No Employer Match Requirement: The expense of matching employee contributions has deprived many employees over the years of the benefits of having a 401k account even in the absence of matching employer contributions, which should no longer be an issue under the new law. 
• Increased Catch-up Contributions: The amount of annual contributions that employees can begin putting into their 401ks at age 50 is being increased by 50% from $6,500 to $10,000, and that limit is now indexed to inflation to ensure it keeps up with the cost of living.
• Increased Emergency Savings Account Flexibility: Despite more than 4 in 10 US workers expressing a desire to be automatically enrolled in an emergency savings account program through their employer, only about 1 in 10 employers offered such an opportunity as of 2022. The Secure Act increases the flexibility and ease with which employers can now offer such account via withholding as much as 3% of opting-in employees’ paychecks up to $2,500 to be placed into said emergency savings accounts, from which employees can then withdraw their money untaxed up to four times a year with no penalties whatsoever. 

Employees vs. Independent Contractors

The Internal Revenue Service recently released an information letter that clarifies the primary factors that determine whether a given worker should be properly classified as an employee or as an independent contractor for tax purposes. 

When making this determination, the main consideration is how much control and autonomy does the worker have in doing the job, which can be analyzed in light of three primary factors: 

• Behavioral Control: The main question to ask when assessing whether a worker is subject to the behavioral controls of a supervisor and should therefore rightly be classified as an employee is whether or not the recipient of the worker’s services has the right to control or direct how the work is done. Providing the worker with training or instructions on how to complete the required task and/or providing an evaluation of the worker’s performance or an evaluation of the work itself upon completion might all be indicative that the worker should be classified as an employee.

• Financial Control: Whether the recipient of the worker’s services has control over the financial aspects of the job is another important consideration when assessing employment status. For example, some good questions to ask are how was the method of paying the worker determined, has the worker made a significant investment in order to complete the work (as well as if/how reimbursements were involved), and is there an opportunity for the worker to profit or incur a net loss as a result of their work. 

• Relationship Between Worker and Work Recipient: The relationship between the parties is not only determined by their agreements and contracts, but also by their other actions with respect both to the work and to each other. How each party represents the nature of their relationship to others - including other employees and/or contractors -  can also factor into the determination, in addition to whether or not the worker offers similar services more broadly to the market in general.

The IRS also noted that while it can not make determinations as to whether or not a prospective employee would properly be classified as an employee or independent contractor, the IRS will issue a letter ruling on prior employment status which can then be applied to all other workers engaged under substantially similar circumstances. 

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Workplace Psychological Abuse Regulations

Supporters want to see the Workplace Psychological Safety Act become the new template across the country for how psychological abuse is reported, managed, and prevented at work.

Unlike many current laws addressing workplace harassment, the Workplace Psychological Safety Act has no requirement that ties the bullying behavior to protected status on the part of the victim, thus removing one of the major obstacles to complaint filing and dispute resolution. 

The model legislation requires employers to: 

• Promptly investigate complaints of workplace psychological abuse;
• Implement policies aimed at combating abuse; and
• Submit diversity metrics and abuse reports quarterly, which will then be made available via public search in an effort to increase transparency and incentivize compliance.

The model legislation also enables victims of on-the-job psychological abuse to :

• Request internal investigations by their employers in order to circumvent some of the red tape that can sometimes bog down investigations conducted by state agencies; and
• Sue employers for failing to adequately address the abuse in accordance with the law. 

While the Act has yet to be enacted by any state legislature, the momentum is clearly building, having already cleared the Senate in Rhode Island, with an anticipated imminent introduction in New York, and much outward signaling of support inside the Massachusetts statehouse, as well.