Federal Employment Law Update – October 2018
DOL Delays Overtime Rule Until March 2019
In fall 2018, the U.S. Department of Labor, Wage and Hour Division (WHD) announced that it intends to issue a Notice of Proposed Rulemaking (NPRM) in March 2019 to determine the appropriate salary level for exemption of executive, administrative, and professional employees. The WHD stated that it is reviewing the overtime regulations at 29 C.F.R § 541, which implement the exemption of bona fide executive, administrative, and professional employees from the federal Fair Labor Standards Act’s minimum wage and overtime requirements. The NPRM will propose an updated salary level for exemption and seek the public’s view on the salary level and related issues.
Read the announcement
IRS Reminds Business Owners of Tax Law Changes
On October 16, 2018, the federal Internal Revenue Service (IRS) released a reminder for business owners that tax reform legislation passed last December affects nearly every business. The IRS is highlighting the following important information for small businesses and self-employed individuals to help them understand and meet their tax obligations.
Qualified Business Income Deduction
Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income. The new deduction — referred to as the § 199A deduction or the qualified business income deduction — is available for tax years that began after December 31, 2017. Eligible taxpayers can claim it for the first time on their 2018 federal income tax return. A set of FAQs provides more information on the deduction, income, and other limitations.
Temporary 100 Percent Expensing for Certain Business Assets
Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances, and furniture generally qualify.
Fringe benefits include:
- Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement, or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.
- Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
- Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
- Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax. Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
- Employee achievement award: Special rules allow employees to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property does not include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities, and other similar items.
Read the press release
OSHA’s Position on Workplace Safety Incentive Programs and Post-Incident Drug Testing Clarified
On October 11, 2018, the federal Department of Labor (DOL) released a standard interpretation memorandum (Standard Number 1904.35(b)(1)(iv)) from the federal Occupational Safety and Health Administration (OSHA) detailing OSHA’s position on workplace safety incentive programs and post-incident drug testing.
29 C.F.R. § 1904.35(b)(1)(iv) states, “you must not discharge or in any manner discriminate against any employee for reporting a work-related injury or illness.” The DOL interprets that 29 C.F.R. § 1904.35(b)(1)(iv) does not prohibit workplace safety incentive programs or post-incident drug testing. The DOL stated that it:
“…believes that many employers who implement safety incentive programs and/or conduct post-incident drug testing do so to promote workplace safety and health. In addition, evidence that the employer consistently enforces legitimate work rules (whether or not an injury or illness is reported) would demonstrate that the employer is serious about creating a culture of safety, not just the appearance of reducing rates. Action taken under a safety incentive program or post-incident drug testing policy would only violate 29 C.F.R. § 1904.35(b)(1)(iv) if the employer took the action to penalize an employee for reporting a work-related injury or illness rather than for the legitimate purpose of promoting workplace safety and health.”
The DOL further states that incentive programs can be an important tool to promote workplace safety and health and that most instances of workplace drug testing are permissible under 29 C.F.R. § 1904.35(b)(1)(iv).
The memo supersedes other OSHA interpretive documents that could be considered inconsistent with the new memo. This includes:
- A Memorandum from Dorothy Dougherty to the OSHA Regional Administrators entitled “Interpretation of 1904.35(b)(1)(i) and (iv)” (October 19, 2016) (Appendix A);
- Guidance on OSHA’s website, entitled “Improve Tracking of Workplace Injuries and Illnesses” (issued October 19, 2016) (Appendix B);
- A Memorandum from Dorothy Dougherty to the OSHA Regional Administrators and State Designees entitled “Interim Enforcement Procedures for New Recordkeeping Requirements Under 29 CFR 1904.35” (November 10, 2016) (Appendix C); and
- A Memorandum from Dorothy Dougherty to the OSHA Regional Administrators and State Designees entitled “Interim Investigation Procedures for 29 C.F.R. 1904.35(b)(1)(iv)” (November 10, 2016) (Appendix D).
Note: This DOL interpretation letter explains OSHA requirements, as set by statute, standards, and regulations, and how they apply to particular circumstances. However, the interpretation does not create additional employer obligations and may be impacted by changes to OSHA rules.
Read the standard interpretation
Social Security Announces 2.8 Percent Benefit Increase for 2019
On October 11, 2018, the Social Security Administration (SSA) announced that Social Security and Supplemental Security Income (SSI) benefits for more than 67 million Americans will increase 2.8 percent in 2019. The 2.8 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 62 million Social Security beneficiaries in January 2019. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2018. (Note: Some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $132,900 from $128,400.
Information about Medicare changes for 2019, when announced, will be available at www.medicare.gov. The Social Security Act provides for how the COLA is calculated. To read more, visit www.socialsecurity.gov/cola. See a fact sheet showing the effect of the various automatic adjustments.
Read the press release
EEOC Releases Preliminary Fiscal Year 2018 Sexual Harassment Data
On October 4, 2018, the federal Equal Employment Opportunity Commission (EEOC) announced preliminary fiscal year (FY) 2018 sexual harassment data. What You Should Know: EEOC Leads the Way in Preventing Workplace Harassment addresses the EEOC’s role in enforcement, education, and training for workers and employers, and offers new solutions to reduce harassing conduct in the workplace.
Based on preliminary data, in FY 2018:
- The EEOC filed 66 harassment lawsuits, including 41 that included allegations of sexual harassment, reflecting more than a 50 percent increase in suits challenging sexual harassment over FY 2017.
- Charges filed with the EEOC alleging sexual harassment increased by more than 12 percent from FY 2017.
- The EEOC recovered nearly $70 million for the victims of sexual harassment through litigation and administrative enforcement in FY 2018, up from $47.5 million in FY 2017.
- The EEOC’s training program, “Respectful Workplaces,” launched in October 2017 and teaches skills for employees and supervisors to promote and contribute to respect in the workplace. More than 9,000 employees and supervisors in the private, public, and federal sector work forces participated in Respectful Workplaces trainings this past fiscal year. An additional 13,000 employees participated in EEOC’s antiharassment compliance trainings.
The EEOC enforces federal laws prohibiting employment discrimination.
See the announcement
USCIS Notice to Appear Policy Memorandum Not Applicable to Employment-Based Petitions
On September 27, 2018, the United States Citizenship and Immigration Service (USCIS) clarified that its Notice to Appear (NTA) policy memorandum (PM), released June 28, 2018, providing guidance on when the USCIS may issue Form I-862, Notice to Appear, will not be implemented with respect to employment-based petitions and humanitarian applications and petitions. Existing guidance for these case types will remain in effect.
An NTA is a document that instructs an individual to appear before an immigration judge. This is the first step in starting removal proceedings. Beginning October 1, 2018, USCIS may issue NTAs on denied status-impacting applications, including but not limited to, Form I-485, Application to Register Permanent Residence or Adjust Status, and Form I-539, Application to Extend/Change Nonimmigrant Status.
The USCIS will send denial letters for status-impacting applications that ensures benefit seekers are provided adequate notice when an application for a benefit is denied. If applicants are no longer in a period of authorized stay, and do not depart the United States, the USCIS may issue an NTA. The USCIS will provide details on how applicants can review information regarding their period of authorized stay, check travel compliance, or validate departure from the United States.
According to the USCIS, it will continue to prioritize cases of individuals with criminal records, fraud, or national security concerns and will continue the current processes of using our discretion in issuing NTAs on these case types.
The updated policy affects the following categories of cases where an individual is removable:
- Cases where fraud or misrepresentation is substantiated, and/or cases where there is evidence the applicant abused any program related to receiving public benefits. The USCIS will issue an NTA in these cases, even if it denies the case for reasons other than fraud.
- Criminal cases where an applicant is charged with (or convicted of) a criminal offense, or committed acts that are chargeable as a criminal offense, even if the criminal conduct was not the basis for the denial or the ground of removability. The USCIS will, where circumstances warrant, refer cases to ICE without issuing an NTA or adjudicating an immigration benefits.
- Cases where the USCIS denied a Form N-400, Application for Naturalization, on good moral character grounds because of a criminal offense.
- Cases where an applicant will be unlawfully present in the United States when the USCIS denies the petition or application.
The PM did not change USCIS policy for any of the following categories:
- Cases involving national security concerns.
- Cases where issuing an NTA is required by statute or regulation.
- Temporary Protected Status (TPS) cases, except where, after applying TPS regulatory provisions, a TPS denial or withdrawal results in an individual having no other lawful immigration status.
- Cases involving deferred action for childhood arrivals (DACA) recipients and requestors when processing an initial or renewal DACA request or DACA-related benefit request; or processing a DACA recipient for possible termination of DACA. Read the PM that applies to cases involving DACA recipients and requestors.
Read the press release
New Employer Tax Credit for Paid Family and Medical Leave Available for 2018 and 2019
On September 24, 2018, the IRS announced that eligible employers who provide paid family and medical leave to their employees may qualify for a new business credit for tax years 2018 and 2019. Additionally, eligible employers who set up qualifying paid family leave programs or amend existing programs by December 31, 2018, will be eligible to claim the employer credit for paid family and medical leave, retroactive to the beginning of the employer’s 2018 tax year, for qualifying leave already provided.
In Notice 2018-71, the IRS provided detailed guidance on the new credit in a question and answer format. The credit was enacted by the 2017 Tax Cuts and Jobs Act (TCJA). The notice also clarifies how to calculate the credit including the application of special rules and limitations.
Only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit. Generally, for tax year 2018, the employee’s 2017 compensation from the employer must have been $72,000 or less.
Read Notice 2018-71
IRS: 2018 Employer Reimbursements for Employees’ 2017 Moves are Generally Tax-Free
On September 21, 2018, the Internal Revenue Service announced (Notice 2018-75) that employer payments or reimbursements in 2018 for employees’ moving expenses incurred prior to 2018 are excluded from the employee’s wages for income and employment tax purposes.
The 2017 Tax Cuts and Jobs Act (TCJA) suspended the exclusion from income for moving expenses reimbursed or paid by an employer for most employees starting in 2018, making these amounts taxable, except for amounts for active-duty members of the U.S. Armed Forces whose moves relate to a military-ordered permanent change of station.
Under Notice 2018-75, reimbursements an employer pays to an employee in 2018 for qualified moving expenses incurred in a prior year are not subject to federal income or employment taxes. The same is true if the employer pays a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
To qualify, reimbursements or payments must be for work-related moving expenses that would have been deductible by the employee if the employee had directly paid them prior to January 1, 2018. The employee must not have deducted them in 2017.
Employers that have already treated reimbursements or payments as taxable can follow the normal employment tax adjustment and refund procedures. See Publication 15, section 13, or Form 941-X and its instructions for details.
Read Notice 2018-75
Treasury and IRS to Launch Redesigned W-4 Form in 2020
On September 20, 2018, the Treasury Department announced that the IRS will implement a redesigned W-4 form for tax year 2020, a timeline that will allow for continued work to refine the new approach for the form. As a result of the enactment of the 2017 Tax Cuts and Jobs Act, the Treasury Department and the IRS are revising the wage withholding system and Form W-4, Employee’s Withholding Allowance Certificate. In June 2018, the IRS released a draft redesigned form for public comment and received many suggestions for improvements, which they are working to integrate.
For tax year 2019, the IRS will release an update to the Form W-4 that is similar to the 2018 version currently in use. The 2019 form will be released in the coming weeks according to the usual practice for annual updates.
The Treasury Department and IRS will continue working closely with the payroll and the tax community as additional changes are made to the Form W-4 for use in 2020. The intent of these additional changes is to make the withholding system more accurate and more transparent to employees. The IRS will release the 2020 form and related guidance and information early enough in 2019 to allow employers and payroll processors ample time to update their systems.
Read the press release