A blog of some of the prior week’s more important payroll stories. This week’s focus is on: the transitional month of March for year-end payroll, the status of the latest COVID-19 relief bill, more Labor Department opinion letters withdrawn, IRS forms and publications, Paycheck Protection Program changes, the Supreme Court denies hearing Amazon’s driver arbitration case, state and local news and more.
Remuneration is the money paid for work or a service. In ancient Egypt, workers were remunerated for their labor with beer and other necessary commodities (i.e., bread, meat, clothing, etc.) and payment was recorded on clay tablets. In the early 1900s, automobile engineer Henry Ford made headlines for paying remuneration at two times the going hourly wage at the time – $5 per hour – to many of his employees.
Whether it’s beer, bread or a decent hourly wage, employees want to be properly compensated for the work or service they perform for an employer. This makes a business’s payroll department very important since it is typically an employer’s greatest expense.
And arguably the most important (and challenging) time to be a payroll professional, is during the period known as “year-end.” This period typically starts in early-November and can run all the way through to mid-April of the following year.
In Like a Lion
This can make March an interesting month for payroll professionals. March is the third month of the year where the seasons transition from winter to spring. An idiom describing March as going in like a lion and out like a lamb is because the month typically starts off with harsher winter weather and usually ends with milder, spring-like weather.
For payroll professionals, March is also a transitional time where the blizzard of “year-end” begins to show signs of clearing – though it is a bit harder to tell these days with the abundance of federal, state and local legislation involving the COVID-19 pandemic. Nonetheless, by the end of February, several employer reporting responsibilities have concluded, like reporting Forms W-2 to the Social Security Administration (SSA) (and issuing employees their copies) and filing Form 940 with the IRS.
However, for 2021, because February 28, 2021 falls on a Sunday, the deadline for some other employer reporting responsibilities is March 1, 2021. For example, the deadline for paper filers of Form 8027 to report tip income and allocated tips is March 1, 2021 (electric filers have until March 31, 2021). Also, certain Forms 1099 must be filed by March 1, 2021 – except new tax year 2020 Form 1099-NEC for nonemployee compensation, which had a due date of February 1, 2021 (typically January 31, but it fell on a weekend).
Then there’s employees who made $20 or more in tips in February having to report those wages to their employer by March 10, 2021 and also the possibility of some employers thinking about what hourly wage issue Daylight Savings time may cause for employees working the graveyard shift on March 13, 2021 through March 14, 2021 (employees working the graveyard shift when Daylight Savings time begins work one less hour because the clocks are set ahead one-hour).
So, as payroll professionals press on through one of the seven months in the year with 31 days, I hope you all can experience some relief from “year-end” by at least the first day of spring on March 20, 2021. Now, let’s get to some news happening last week in payroll.
House votes on more COVID-19 relief. On February 26, 2021, the House of Representatives voted along party lines to pass President Biden’s COVID-19 relief legislation. The American Rescue Plan (ARP) Act of 2021 is a $1.9 trillion economic stimulus package that contains a number of payroll-related provisions including expanding and extending existing COVID-19 provisions for employers like the paid sick and family leave credits from the Families First Coronavirus Relief Act (FFCRA) and the employee retention credit (ERC) from the Coronavirus Aid, Relief and Economic Security (CARES) Act. These provisions were already extended and expanded by the Consolidated Appropriations Act of 2021 (CAA), a more than 5,500-page law.
The nearly 600-page ARP Act would extend the ERC through the end of 2021 (currently set to expire June 30, 2021) and structure the credit as a refundable credit against Medicare tax after June 30, 2021. The legislation would also extend the paid sick and family leave credits through September 30, 2021 (currently set to expire on March 31, 2021). The bill would also reset the 10-day limitation on the maximum number of days an employer can claim the credits regarding wages paid to an employee.
The House bill includes a provision for a $15 federal minimum wage that would incrementally increase to this rate as follows: $9.50 per hour in 2021, $11.00 per hour in 2022, $12.00 per hour in 2023, $14.00 per hour in 2024, and $15.00 per hour in 2025. After that, any minimum wage rate changes would be based on the annual percentage increase, if any, in the median hourly wage of all employees as determined by the Bureau of Labor and Statistics. The House-passed ARP would additionally phase out the tip credit (currently $2.13 per hour at the federal level) by changing the credit to $4.95 per hour in 2021 and increasing the credit by $2.00 per hour each year thereafter until it matches the standard federal minimum wage.
All this appears to be a moot point since on February 25, 2021, the Senate parliamentarian ruled that the minimum wage hike would not comply with the budget rules required to pass bills under the reconciliation process, which is the process the Democrats are using so that their COVID-19 relief bill would not be subject to a Republican filibuster. This would appear to make the $15 minimum wage provision dead on arrival. The Senate takes up the ARP this week and may vote on the package before week’s end.
More Labor Department opinion letters withdrawn. Following President Biden’s regulatory freeze, the Department of Labor (DOL) has withdrawn certain Wage and Hour Division (WHD) opinion letters, which are used as guidance on what Fair Labor Standards Act (FLSA) and Family Medical Leave Act (FMLA) compliance entails or other federal wage and hour laws enforced by the DOL. Two more recent opinion letters that were withdrawn include: (1) FLSA2019-6 regarding the worker classification of gig workers as independent contractors in a virtual marketplace company and (2) FLSA2019-10, which concludes that the time spent by truck drivers in the vehicle’s sleeper berth on multi-day trips hauling items in interstate commerce is not compensable under the FLSA. The withdrawal is an official WHD ruling and the letters may not be relied upon as statements of agency policy as of February 19, 2021.
IRS forms and publications. The IRS issued a final version of the 2021 Publication 15-A, Employer’s Supplemental Tax Guide, which contains specialized and detailed employment tax information supplementing the basic information provided in Publication 15, Employer’s Tax Guide. The what’ new section of the publication notes new Form 1099-NEC for nonemployee compensation reporting and adds that all sick pay references in the publication relate to ordinary sick pay and not the sick pay provided for COVID-19 reasons.
The IRS has updated the draft instructions for Form 941, Employer’s Quarterly Federal Tax Return, that accompanies the draft Form 941 posted on January 29, 2021. The changes to the draft instructions reflect the fact that the deferrals of the employer’s share of Social Security tax that was part of the CARES Act were not extended for the 2021 tax year. The IRS has also posted a draft for the Form 941 Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors, and Schedule R, Allocation Schedule for Aggregate Form 941 Filers.
Tip pooling rule delayed until April 30. The Department of Labor has postponed the implementation of its tip pooling rule until April 31, 2021. The rule is designed to align the regulation prior Department guidance on dual jobs and the tip credit. It was published in the Federal Register on December 30,2020 and addressees tip rules for tipped workers who perform both tipped and non-tipped work by eliminating the 80/20 rule and nontraditional tip pooling arrangements. The rule had an original effective date of March 1, 2021 but the delay will make the effective date at the close of April 2021.
Biden Administration may revamp joint employer rule. The Department of Labor submitted a rule to the Office of Information and Regulatory Affairs (OIRA) titled, “Joint Employer Status Under the Fair Labor Standards Act” on February 24, 2021. This may be a signal that the Biden Administration is looking to change the Trump Administration’s prior joint employer rule from back in January of 2020, which established a four-factor test for determining joint employment. Trump’s rule faced legal challenges in March of 2020 and a federal district court partially invalidated it in September of 2020 (New York v. Scalia, DCNY, Dkt. No. 1:20-cv-1689-GHW, 9/8/2020).
Biden-Harris Administration announces Paycheck Protection loan changes. The Biden-Harris administration has released a Fact Sheet detailing recent changes to the popular Paycheck Protection Program (PPP) to ensure equitable distribution of loans to smaller businesses. The CARES Act established the Paycheck Protection Program which permitted the SBA to provide loans to qualified businesses impacted by the coronavirus (COVID-19) pandemic. The Fact Sheet announces several reforms to ensure the smallest businesses receive the much needed relief.
Supreme Court declines Amazon drivers’ worker classification case. Without a written opinion, the U.S. Supreme Court has declined to hear a dispute regarding the misclassification of Amazon drivers and whether the drivers could go forward with a class action, or whether the action was precluded by a mandatory arbitration agreement the drivers signed.
State and Local News
Appeal court calls worker classification ruling vague after voter-approved exemption. The California Court of Appeal, Fourth Appellate District, Division One has tossed a Superior Court’s worker classification ruling regarding popular grocery pick-up and delivery service company, Instacart, back for further proceedings in light of the recent voter-approved exemption (Proposition 22) from California’s ABC test for certain drivers. The court notes that the injunction requires Instacart to follow the law, but the law has changed with Proposition 22, and no court has so far addressed this issue. As such, there is no way for Instacart to know if it is or is not following the law or the injunction. The court reversed the injunction and remanded the case back to the superior court.
Unemployment tax rates increasing in 2021. The District of Columbia and Virginia have recently announced that their unemployment tax rates will increase for tax year 2021. DC’s rates are to be determined under Rate Table VI in 2021 – the table with the highest rates. Both the experienced employers’ unemployment tax rate range and the new employer tax rate increases for Virginia employers in 2021.
Unemployment tax relief. Delaware Governor Carney has signed legislation into law that provides coronavirus (COVID-19) related relief to both claimants receiving unemployment benefits and employers who are assessed unemployment taxes. Specifically, the legislation waives the 13-week waiting period to pay extended unemployment benefits in periods of high unemployment through December 31, 2021 and establishes the 2021 new employer assessment rate, average industry assessment rate, and average construction industry assessment rate at the same rate as 2020 in order to avoid an increase in these rates as a result of the increase in unemployment claims due to COVID-19 [L. 2021, H65].
New legislation signed by Maryland Governor Hogan is limiting unemployment tax rate calculations to include only unemployment benefits claimed by July 1, 2019. This limitation will effectively exclude any benefit claims made due to the COVID-19 pandemic during 2020, as well as ensuring tax rates for years from 2022 to 2025 will not increase due to those claims. The rates for 2021 were already subject to the same treatment under another executive order from December 10, 2020. The law also defers unemployment tax filing deadlines until January 31, 2022 for all quarters of 2021 for employers with fewer than 50 employees.
Unemployment tax rate determination postponed. The Texas Workforce Commission has announced that it is postponing the setting of unemployment tax rates for 2021 to allow for more time for ongoing legislative efforts and the continuing economic recovery to play out. The TWC is able to do this after Governor Abbott suspended a section of the Texas Labor Code and allows for a postponement until July 2021.
Executive order extends suspension of some garnishment orders. Illinois Governor Pritzker has signed a recent executive order that extends prior executive orders relating to the COVID-19 emergency. Specifically, one suspends creditor garnishment wage deduction summons that are sent to employers, but it does not include child support garnishments. The other suspends the requirement that an employment certificate be submitted in person by the minor desiring employment.
Out Like a Lamb
The idiom for March in the northern hemisphere ends with good news in that the month concludes like a “lamb” – suggesting calmer weather is ahead. I truly hope that is the case, especially for this pandemic and the employers and workers who are doing their best during these challenging times.
“Hope,” as Andy Dufresne in the movie The Shawshank Redemption notes to his friend Red, “is a good thing.” But being prepared is also a good thing – particularly during times of uncertainty. In Aesop’s Fable about the ant and grasshopper, the ant was prepared and survived the winter. The grasshopper did not prepare and was not so lucky.
Thomson Reuters’ Checkpoint can help a business be prepared for uncertainty and provide a sense of security during challenging times to aid employers with a wealth of information quickly accessed by a powerful search engine.