Although federal laws and rules get more headlines, the bigger Payroll compliance job in the U.S. lies in tracking the different state and local initiatives, staying current with the unique procedures, and ensuring the requirements are followed. A number of state and local changes are happening 1 July.
In many cases, employers can be fined, sued, and even lose their business license in the jurisdiction if they fail to follow through.
Two Issues
Payroll-related laws generally are put in place to help generate revenue for the government(s) as economic measures via taxes, or, to promote the well-being of the residents through various social programs. Measures can be enacted for overlapping reasons, but generally, most can be grouped as either economic or social in nature.
The federal government, through its House and Senate, is charged with proposing and enacting legislation along these lines – to help the economy and promote the greater good. However, this is an election year. Congress likely will not be passing anything this year that significantly impacts Payroll operations.
To achieve more of its agenda through other means, The Executive Branch under the President has been frantically using its regulatory powers to make changes by re-interpreting existing tax and labor laws.
Final rules recently included an adjustment to who is eligible for overtime pay, a reinterpreted employee status, and new requirements for employee retirement plan advisors. All of those are being challenged as they may be considered stretching the power of the Executive Branch beyond its intended scope.
Lack of federal action has compelled states and many localities to step in to enact requirements for two primarily social issues that appear to be gaining in popularity: a higher minimum wage and required paid leave. Because of the sheer number of differing laws, accounting for all the requirements around these two issues keeps many Payroll professionals up at night.
State and Local Minimum Wage Requirements
Nearly 90 years ago, the minimum wage under the Fair Labor Standards Act (FLSA) was enacted to apply to the entire country. But each increase required an act of Congress. The current hourly minimum wage under the FLSA is $7.25 an hour (€6.67, or £5.66). It has been at that level for 15 years.
There is nothing to stop states and localities from enacting their own minimum wage standard covering employers and employees in the jurisdiction. In part because the federal rate has remained stagnant, more than 2/3rds of the states, and now, many localities, have higher hourly minimum wage requirements than the federal standard. Some more than double the federal rate.
For Payroll professionals with operations in states or localities, keeping abreast of these changes is a big challenge. Among Payroll’s responsibilities are determining:
- the correct amount of pay per hour,
- who it applies to,
- when the new rates go into effect,
- that systems adjust correctly for the updates in a timely manner, and
- recordkeeping and payslip accounting for any change.
While many increases become effective 1 January, a significant number of jurisdictions set theirs to change mid-year, on 1 July, every year. Others are not so conforming.
Until this year, New York, for example, changed its minimum wage effective 31 December, instead of 1 January, meaning work performed on New Year's Eve had to be paid at the new rate(s).
Oregon’s minimum wage rates vary. Currently, there is a $14.25 an hour base minimum wage requirement, but those working in the metro area of the city of Portland are to receive $15.45 an hour, while those in certain non-urban counties are to get $13.20 an hour. These figures will change to $14.70, $15.95, and $13.70 an hour, respectively, on 1 July.
New York and Oregon are two states that apply different rates based on the worker’s location within the state. New York (and others) also set different rates based on types of work. Some states, like Minnesota, have separate rates based on the size of the employer doing business in the state.
To add complexity in applying appropriate minimum wages to workers, a number of localities in nine states and the District of Columbia (Washington, D.C.) set their own amounts. There are dozens of cities and counties in California alone that require hourly pay to be at least $16.00, with varying effective dates and provisions describing covered employers and employment.
These requirements at the state and local level can impact a significant number of employers with workers they choose to pay at or close to the minimum wage.
This is but a subset, however, of all workers and employers. State and local paid leave laws have a much broader reach, affecting many more employers and employees who do business in those areas.
Paid Leave
While paid leave, in one form or another, has surfaced in proposals in the U.S. Congress, and through both the Trump and Biden Administrations, there currently is no nationwide requirement to pay workers for leave. (Now expired, there was a short-term federal Family and Medical Leave Act provision that required employees to pay leave for verified Covid-related circumstances.)
Like the minimum wage, states and some localities have started to set their own standards to provide paid leave to workers.
The way paid leave is required by law can vary dramatically from state to state and locality, however.
One way, adopted by a growing number of states, mandates collecting contributions (or taxes) from employers and employees to fund programs that pay out to employees taking family and medical leave who meet certain criteria.
Payroll does not have to deal with paying employees directly for the leave time, but must be involved in:
- thresholds to trigger the requirement (i.e., amount of time worked, size of employment population),
- the tax or contribution amounts (calculated for each employee),
- withholding from pay any employee portion, in addition to any employer portion,
- procedures for remitting amounts, and
- unique reporting of amounts earned and amounts withheld or contributed.
These leave law amounts generally are remitted to state labor agencies in charge of unemployment insurance, but, in other cases, a different state agency acts as the collector.
A second way states and local jurisdictions are addressing paid leave is to require employers to provide a paid leave program to employees that meets a set standard of benefit.
For example, San Francisco, California, requires employers to provide paid sick leave to all employees (including temporary and part-time employees) who perform work in San Francisco, accruing at the rate of one hour of leave for every 30 hours of work. Depending on the number of employees, a different minimum total accrued amount applies.
For these requirements, Payroll may need to verify and apply to systems:
- the type(s) of leave covered,
- the base minimum amount of required paid time off,
- the minimum accrual amount threshold per pay period (this varies widely),
- the size of the employer,
- whether an employee working in the jurisdiction is full-time or part-time, and
- any mandates or circumstances (such as termination of employment) to pay out the leave.
There is little consistency across the spectrum of paid leave laws, making policy-setting much more complicated even than the challenge of tracking and adjusting minimum wage rates.
Related to minimum wage and paid leave laws are state overtime provisions that also vary from the FLSA, requirements for meal and rest breaks, and other requirements that Payroll must take into account.
Do Your Homework
U.S. Payroll professionals know what can be at stake for failing to comply: penalties from the jurisdictions, loss of ability to do business in some localities, and, of course, lawsuits from employees. Additionally, there can be bad public relations should noncompliance be spotlighted in social media or other more traditional news outlets.
While reputable subscription resources with coverage of Payroll laws and regulations can be instrumental in staying on top of the changes, there remains the need to match up requirements that may apply to a specific employer and its workers. And these resources are not infallible.
Outsourced service providers may or may not choose to inform clients of changes. Their programmers work hard to stay current and timely adjust rates and accumulators, but sometimes there is a lag, or a delay, especially with just-enacted provisions that have a short run-up to the effective date.
Can artificial intelligence (AI) assist in tracking and helping to manage this cornucopia of laws and requirements? Of course. But remember, AI needs to account for issues specific to the employer as well as the web of governmental instructions. It will require the direct input of Payroll professionals at the employer level to help create and implement a successful tracking solution.
Despite the increasing complexity of U.S.-based payroll administration, Payroll professionals can use AI to more readily help operations come up with proper solutions to these and other thorny employment-related compliance challenges. Those in Payroll should see any direct exposure to AI programs as a chance to elevate the skill set of the practice.
In the meantime, the states and many localities will continue to enact new laws and adjust older ones, making compliance harder for those practicing Payroll in the U.S.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on the issue of U.S. state and local minimum wage and paid leave requirements, book Michael as a mentor through the GPA Mentor page, or contact him directly at mike.baer@baerunlimited.com.
Although federal laws and rules get more headlines, the bigger Payroll compliance job in the U.S. lies in tracking the different state and local initiatives, staying current with the unique procedures, and ensuring the requirements are followed. A number of state and local changes are happening 1 July.
In many cases, employers can be fined, sued, and even lose their business license in the jurisdiction if they fail to follow through.
Two Issues
Payroll-related laws generally are put in place to help generate revenue for the government(s) as economic measures via taxes, or, to promote the well-being of the residents through various social programs. Measures can be enacted for overlapping reasons, but generally, most can be grouped as either economic or social in nature.
The federal government, through its House and Senate, is charged with proposing and enacting legislation along these lines – to help the economy and promote the greater good. However, this is an election year. Congress likely will not be passing anything this year that significantly impacts Payroll operations.
To achieve more of its agenda through other means, The Executive Branch under the President has been frantically using its regulatory powers to make changes by re-interpreting existing tax and labor laws.
Final rules recently included an adjustment to who is eligible for overtime pay, a reinterpreted employee status, and new requirements for employee retirement plan advisors. All of those are being challenged as they may be considered stretching the power of the Executive Branch beyond its intended scope.
Lack of federal action has compelled states and many localities to step in to enact requirements for two primarily social issues that appear to be gaining in popularity: a higher minimum wage and required paid leave. Because of the sheer number of differing laws, accounting for all the requirements around these two issues keeps many Payroll professionals up at night.
State and Local Minimum Wage Requirements
Nearly 90 years ago, the minimum wage under the Fair Labor Standards Act (FLSA) was enacted to apply to the entire country. But each increase required an act of Congress. The current hourly minimum wage under the FLSA is $7.25 an hour (€6.67, or £5.66). It has been at that level for 15 years.
There is nothing to stop states and localities from enacting their own minimum wage standard covering employers and employees in the jurisdiction. In part because the federal rate has remained stagnant, more than 2/3rds of the states, and now, many localities, have higher hourly minimum wage requirements than the federal standard. Some more than double the federal rate.
For Payroll professionals with operations in states or localities, keeping abreast of these changes is a big challenge. Among Payroll’s responsibilities are determining:
- the correct amount of pay per hour,
- who it applies to,
- when the new rates go into effect,
- that systems adjust correctly for the updates in a timely manner, and
- recordkeeping and payslip accounting for any change.
While many increases become effective 1 January, a significant number of jurisdictions set theirs to change mid-year, on 1 July, every year. Others are not so conforming.
Until this year, New York, for example, changed its minimum wage effective 31 December, instead of 1 January, meaning work performed on New Year's Eve had to be paid at the new rate(s).
Oregon’s minimum wage rates vary. Currently, there is a $14.25 an hour base minimum wage requirement, but those working in the metro area of the city of Portland are to receive $15.45 an hour, while those in certain non-urban counties are to get $13.20 an hour. These figures will change to $14.70, $15.95, and $13.70 an hour, respectively, on 1 July.
New York and Oregon are two states that apply different rates based on the worker’s location within the state. New York (and others) also set different rates based on types of work. Some states, like Minnesota, have separate rates based on the size of the employer doing business in the state.
To add complexity in applying appropriate minimum wages to workers, a number of localities in nine states and the District of Columbia (Washington, D.C.) set their own amounts. There are dozens of cities and counties in California alone that require hourly pay to be at least $16.00, with varying effective dates and provisions describing covered employers and employment.
These requirements at the state and local level can impact a significant number of employers with workers they choose to pay at or close to the minimum wage.
This is but a subset, however, of all workers and employers. State and local paid leave laws have a much broader reach, affecting many more employers and employees who do business in those areas.
Paid Leave
While paid leave, in one form or another, has surfaced in proposals in the U.S. Congress, and through both the Trump and Biden Administrations, there currently is no nationwide requirement to pay workers for leave. (Now expired, there was a short-term federal Family and Medical Leave Act provision that required employees to pay leave for verified Covid-related circumstances.)
Like the minimum wage, states and some localities have started to set their own standards to provide paid leave to workers.
The way paid leave is required by law can vary dramatically from state to state and locality, however.
One way, adopted by a growing number of states, mandates collecting contributions (or taxes) from employers and employees to fund programs that pay out to employees taking family and medical leave who meet certain criteria.
Payroll does not have to deal with paying employees directly for the leave time, but must be involved in:
- thresholds to trigger the requirement (i.e., amount of time worked, size of employment population),
- the tax or contribution amounts (calculated for each employee),
- withholding from pay any employee portion, in addition to any employer portion,
- procedures for remitting amounts, and
- unique reporting of amounts earned and amounts withheld or contributed.
These leave law amounts generally are remitted to state labor agencies in charge of unemployment insurance, but, in other cases, a different state agency acts as the collector.
A second way states and local jurisdictions are addressing paid leave is to require employers to provide a paid leave program to employees that meets a set standard of benefit.
For example, San Francisco, California, requires employers to provide paid sick leave to all employees (including temporary and part-time employees) who perform work in San Francisco, accruing at the rate of one hour of leave for every 30 hours of work. Depending on the number of employees, a different minimum total accrued amount applies.
For these requirements, Payroll may need to verify and apply to systems:
- the type(s) of leave covered,
- the base minimum amount of required paid time off,
- the minimum accrual amount threshold per pay period (this varies widely),
- the size of the employer,
- whether an employee working in the jurisdiction is full-time or part-time, and
- any mandates or circumstances (such as termination of employment) to pay out the leave.
There is little consistency across the spectrum of paid leave laws, making policy-setting much more complicated even than the challenge of tracking and adjusting minimum wage rates.
Related to minimum wage and paid leave laws are state overtime provisions that also vary from the FLSA, requirements for meal and rest breaks, and other requirements that Payroll must take into account.
Do Your Homework
U.S. Payroll professionals know what can be at stake for failing to comply: penalties from the jurisdictions, loss of ability to do business in some localities, and, of course, lawsuits from employees. Additionally, there can be bad public relations should noncompliance be spotlighted in social media or other more traditional news outlets.
While reputable subscription resources with coverage of Payroll laws and regulations can be instrumental in staying on top of the changes, there remains the need to match up requirements that may apply to a specific employer and its workers. And these resources are not infallible.
Outsourced service providers may or may not choose to inform clients of changes. Their programmers work hard to stay current and timely adjust rates and accumulators, but sometimes there is a lag, or a delay, especially with just-enacted provisions that have a short run-up to the effective date.
Can artificial intelligence (AI) assist in tracking and helping to manage this cornucopia of laws and requirements? Of course. But remember, AI needs to account for issues specific to the employer as well as the web of governmental instructions. It will require the direct input of Payroll professionals at the employer level to help create and implement a successful tracking solution.
Despite the increasing complexity of U.S.-based payroll administration, Payroll professionals can use AI to more readily help operations come up with proper solutions to these and other thorny employment-related compliance challenges. Those in Payroll should see any direct exposure to AI programs as a chance to elevate the skill set of the practice.
In the meantime, the states and many localities will continue to enact new laws and adjust older ones, making compliance harder for those practicing Payroll in the U.S.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on the issue of U.S. state and local minimum wage and paid leave requirements, book Michael as a mentor through the GPA Mentor page, or contact him directly at mike.baer@baerunlimited.com.