Major Compliance Trends to Follow in 2023
State legislation is ushering in a host of changes in 2023. Laws differ from state to state but knowing how new rules may impact your organization's workers and payroll practices is critical to compliance success, not to mention avoiding penalty fines or legal expenses. In an age of remote work, it behooves business owners to stay informed on legislative changes in their own state, as well as states where they have, or may hire, remote employees.
From pay transparency laws, to classifying independent contractors correctly, to family leave law, the upcoming year is bringing big changes with it. Organization leaders are encouraged to keep up on the latest developments in state legislation for their states and states where remote workers reside. Tracking these compliance trends could mean the difference between proper reporting and penalty fines.
Everyone knows employment laws change constantly. If you feel like keeping up with the latest legislation is like running on giant hamster wheel, you are not alone. The thing about compliance is, even if business owners don't understand it, they can still be held accountable for non-compliance by serious fines and penalties. It's important to know how legislative changes affect you and your business. The good news is this article will recap an on-demand webcast where experts Samantha Munro and Eric Ruden — both senior counsel at ADP — give an overview of some of the biggest compliance trends to keep an eye on in 2023. You can launch the webinar on-demand anytime.
What are pay transparency laws?
Pay transparency laws require businesses to follow certain rules for reporting pay data or providing salary ranges on job postings. Related to these laws are other pay equity laws such as laws prohibiting the asking of salary history questions to job applicants. For example, the state of California requires employers with 100 or more employees, with at least one employee in California, to report pay data to the Department of Fair Employment and Housing (DFH) annually. The data reported must show the mean and median rates of pay by demographic group. The year 2021 was the first year this law was in effect, and the current deadline to file is May 10th.
A handful of other states have enacted or are in the process of enacting legislation to promote equal pay, including requiring pay transparency. These laws are intended to help prevent pay discrimination. Some of them require a salary range to be posted along with the requisition both internally and externally. Others have placed a ban on asking salary history questions to applicants during the hiring process. Ruden notes that this helps to prevent unintended discrimination: "If a company isn't intentionally discriminating against someone, but they are basing their pay offer on salary history, if at some point in that person's career they were discriminated against, then the offer is still effectively discriminating against recruiting talent."
Since there are already a few states that have enacted these kinds of pay equity and transparency laws, we encourage you to talk to your employment counsel to confirm whether you may need to adjust recruiting, pay questions and offers to stay in compliance.
Another facet of pay transparency laws is the way that remote workers add additional complexity. If your business is in a state that doesn't have any pay equity or transparency laws, but you're actively hiring remote employees, you may still be required to abide by the state laws of the applicant's state. The reality is, pay equity and transparency laws are a hot topic, and experts believe they are only going to expand as other states follow suit by enacting similar laws.
The penalties for not complying with pay equity and transparency laws are steep. Illinois allows employers to be fined up to $10,000 — yes you read that right. 10,000. And New York City imposes penalties of up to $125,000 for not posting a salary range in good faith (not posting a salary range in good faith means you put an extremely wide range to get around having to specify the real range). Ruden specifically mentions the possibility of class action lawsuits when it comes to the consequences of not complying with these laws. Lawyers are at the ready for cases like this where a large pool of applicants may have applied to a role where no salary range was listed. And aside from the fines, class actions create additional attorney and litigation expenses.
Visit ADP.com/PayTransparency for up-to-date resources and best practices.
What has changed for paid family leave?
One of the main trends in state-provided paid family leave is who is considered a family member. As some may know, under the Family Medical and Leave Act (FMLA), only caring for an immediate family member (spouse, child or parent) qualifies an employee for leave. Therefore, requests for leave to take care of grandparents, step siblings/children or any other extended family would not qualify for paid leave under FMLA. However, states that have their own paid leave options are expanding the definition of who is considered a family member. For example, New York has extended the definition, which Munro explains like this: "New York has expanded what the list of family members is for 2023, and they've now included siblings with a serious health condition, but not just biological siblings—adopted, step siblings, and half siblings. And they've also confirmed that those siblings can live outside of New York and even outside of the country."
California is another example of a state whose family leave laws have changed to expand the definition of family member. As of Jan. 1, 2023, under the California Family Rights Act and California Health Workplaces law, employees have the opportunity to identify a designated person for the purposes of family medical leave. This could be any person that is a family member or who the relationship with is the equivalent of a family relationship. Munro notes: "I think the general consensus here is to err on the side of inclusiveness when considering whether or not the person they've designated would fall under the leave law."
What does it mean to be an independent contractor?
Being an independent contractor means that you are not an employee of the company you are performing services for. Traditionally, working for a company as an independent contractor meant that the employee was not covered by Fair Labor Standards Act (FLSA), meaning that the company is not required to track hours, pay overtime or pay minimum wage. This is remaining the same. However, a 2021 Department of Labor (DOL) rule which was quickly rescinded set out a new independent contractor test which focused on two factors: the nature and degree of control over their work the worker has as well as the opportunity for profit or loss. This rule never went into effect and in October 2022, the DOL proposed a new rule which would change the DOL's test for independent contractor status, returning to a totality of the circumstances analysis based on six factors, each of which is given a full consideration.
Expert Eric Ruden expects that the proposal will be accepted and encourages employers to be extremely wary of misclassification, which can have huge financial impact: "Do not assume a worker is properly classified just because they signed an independent contractor agreement … If they work 40 hours a week and are completely controlled by their manager, then they would likely be ruled as an employee by the courts regardless of the signed form." This is very important when it comes to groups of contractors working together performing the same job, which Ruden warns could turn into class action lawsuits if there is a misclassification brought to light.
The wrap up
State laws change frequently, and with all the legislative updates, keeping up on the changes is critical to avoiding penalties. If you think some of these compliance changes may apply to your business, check with your legal or employment counsel.
[Webcast] Major Compliance Trends to Follow in 2023
Dive deeper by watching the webinar on demand where the experts discuss the details.
