Earlier this year, the Federal Trade Commission (“FTC”) issued a rule that largely prohibited employers from requiring employees to sign non-compete agreements (the “Non-Compete Rule”). The rule was set to take effect on September 4, 2024. However, on August 20, 2024, the United States District Court for the Northern District of Texas issued its final ruling in Ryan, LLC v. FTC, a case that challenged the FTC’s Non-Compete Rule. In its ruling, the court invalidated the Rule, meaning that non-compete agreements will continue to be valid and enforceable.

Background

The FTC is a federal agency charged with regulating commerce. The FTC was created by Congress and is granted certain statutory authority to regulate business in the United States. One of the areas that falls under the FTC’s purview is unfair trade practices.

In recent years, the FTC began looking at non-compete agreements. Eventually, the agency determined that the creation and enforcement of non-compete agreements was an unfair trade practice. The FTC used this determination as its basis for issuing the Non-Compete Rule.

Ryan LLC v. FTC

The plaintiff in Ryan challenged the Non-compete rule and argued that it had two basic flaws. First, it was arbitrary and capricious, based on the fact the FTC’s studies it relied on to reach its determination were inadequate. Second, the plaintiff argued that the FTC lacked the statutory authority to regulate non-compete agreements in general.

The Court agreed with the plaintiff in Ryan and held that the Non-Compete Rule was arbitrary and capricious as well as outside the authority granted by the FTC’s statutory mandate. Therefore, the court set aside the Non-Compete Rule in its entirety ensuring that it will not go into effect on September 4.

Takeaways

The court’s ruling is a final order in the case. The FTC may choose to appeal the ruling to the Fifth Circuit Court of Appeals. However, such an appeal would take months if not years, and the Non-compete Rule will not be enforced in the interim. If there is no appeal, the Non-Compete Rule is effectively dead.

However, given that non-compete clauses are in the FTC’s crosshairs, it is certainly possible that the agency will try to issue a new rule that would be able to pass judicial review. It is also possible that Congress could pass a law either banning non-competes or expressly giving the FTC authority to regulate them. That possibility is less likely in the near-term, given upcoming elections and the current partisan makeup of Congress.

But for the present, employers can continue their usual practices concerning non-compete clauses in employment contracts. While such clauses are not prohibited by the FTC Non-Compete Rule, there are a multitude of state laws and judicial decisions that constrain and delineate whether such clauses are valid and enforceable. In broad terms, non-compete clauses must be reasonably drafted to protect the legitimate interests of employers without being overly restrictive on an employee’s ability to work. Non-compete clauses need to be reasonable as to the length of time they are in effect, the geographic area they cover, and the scope of the prohibited competitive behavior.

If your company is currently using a PEO then you should contact them about this topic.

The most common classifications are exempt and nonexempt. Exempt employees are typically salaried workers who (a) are paid the same amount each week regardless of hours worked, (b) are paid at least $844 each week and (c) hold administrative, professional or executive positions. Nonexempt employees are often hourly workers who perform more manual or technical duties. Nonexempt employees are entitled to overtime pay for any hours worked beyond 40 in a workweek, which is defined as seven consecutive 24-hour periods.

Classifying employees as exempt or nonexempt under the Fair Labor Standards Act determines their eligibility for overtime pay as well as meal and rest breaks. Most employers have both exempt and nonexempt workers.

Other employment types come with their own sets of laws and considerations:
Full time describes someone who works a specified number of hours a week and gets access to company benefits. The specific terms are set by the employer and may be subject to state-specific labor laws. The category is subject to FLSA.

Part time describes someone who works fewer hours than full time, though the exact number of hours that constitutes part time is left to the employer to define. Part-time workers are covered by FLSA.

Contract employees are hired for a defined period, often for their specialized knowledge or skills. They work varying hours according to the contract and are eligible for FLSA benefits.
Independent contractors are like contract employees but aren’t on the company’s payroll. Their work hours and exemptions are determined by the organization they work for. Independent contractors are not covered by FLSA.

Temporary employees are hired on a short-term basis and are eligible for FLSA benefits.
On-call employees are expected to be able to work during specific hours, are paid hourly and may be covered by certain provisions of FLSA.

Seasonal workers or employees are hired for a specific period — typically of six months or less. Seasonal workers tend to be hired for the same six months from year to year (for example, summers), while seasonal employees tend to work as help during peak times (for example, winter holiday workers). FLSA does not specifically cover these categories, but certain provisions of the act may apply. Volunteers are not employees, so they are neither exempt nor nonexempt.

Because employee classifications impact companies’ budgets, some employers may seek to treat workers as independent contractors to avoid compliance with unemployment insurance, workers’ compensation, Social Security, tax withholding, temporary disability, and minimum wage and overtime laws. However, if you instead establish an employee classification policy and apply it consistently, your company will be less likely to face costly fines for misclassification. Payroll software, which offers such extras as analytics to aid in decision making, can help with compliance while fostering business growth.

Employee classification is essential for workforce planning, recruitment and retention strategies, and compliance. One of the business advantages of joining a Professional Employer Organization (PEO) is that they will assist in ensuring that your company has made the employee classifications accurate.

New Overtime Regulations

On April 23, 2024, the U.S. Department of Labor announced a final rule to raise the salary threshold for certain overtime exemptions.

The final rule raises the minimum salary thresholds in two steps.

July 1, 2024:

• The salary threshold will increase to $844 per week or $43,888 per year (a 23% increase over current levels).
• The salary threshold for highly compensated employees will increase from $107,432 to $132,964 per year (a 23% increase over current levels).

January 1, 2025:

• The salary threshold will increase to $1,128 per week or $58,656 per year (a 64.9% increase over current levels).
• The salary threshold for highly compensated employees will increase to $151,164 per year (a 41% increase over current levels).

The rule is considered a “major rule” and cannot take effect for 60 days. During this time, the ruling could be challenged in court.

We recommend that you review your salaries and classification policies to determine what approach you would use to comply with the rule, if and when it becomes effective. Because the rule could be struck down, you may wish to plan for implementation but hold off on taking action for as long as possible.

Options to consider if someone’s salary is under the new thresholds:

• Increase their salary to the new minimum; or
• Change their status to hourly, non-exempt and pay overtime.

January 2024,
The Biden administration issued a new rule Tuesday intended to put more contractors on company payrolls, a change that could reverberate across a range of industries, including healthcare, restaurants, construction and transportation. The rule, which will go into effect in March 2024, would impose a stricter test to determine whether companies can classify their workers as independent contractors. It would replace a 2021 rule implemented by the Trump administration. The new regulation could affect millions of workers, though affected businesses could consider taking legal action to block the rule.

Independent contractors don’t receive federal labor protections such as minimum wage, workers’ compensation or unemployment benefits. Some companies improperly count their employees as contractors to avoid paying for those protections, Labor Department officials said. Under the new rule, if a worker can be counted as a contractor would depend on factors such as whether the job is primarily permanent or temporary, how much control an employer has over work performance or how integral a worker’s job is to the overall business.
This new rule will likely raise operating costs for small businesses due to the requirement that these workers will now be classified as employees so the employer must pay for abide by Wage and Hour regulations including minimum wage rules, unemployment taxes, payroll and tax withholding and provide workers’ compensation insurance coverage.

Joining a Professional Employer Organization (PEO) will help ensure a business will be in compliance with these new DOL rules. PEOs act as the employer of record and provide HR guidance that ensures their client businesses will navigate the regulatory landscape successfully.

E-Verify mandate for Florida.
Florida Governor Ron DeSantis recently signed SB1718, requiring private employers in Florida with at least 25 employees to use E-Verify beginning July1, 2023. E-Verify is a U.S. Department of Homeland Security (DHS) internet-based system that allows enrolled employers to confirm the eligibility of their employees to work in the United States. Joining a PEO service provider will assist you with this process.

Minimum wage increases are going into effect for many states. In July 2023, minimum wage rate increases will impact several states, cities, and counties. These increases will apply to employers with employees working in the adjusted areas.
Some of those states include California, Illinois, Minnesota, Nevada, and Oregon. If you have employees within these states or if you have any questions regarding any updated state minimum wage rates, you should speak with your PEO client support representative. To ensure your companies is in compliance with these new minimum wage requirements, it may be necessary to increase the wage rate for any employees that are at the current minimum wage to at least the lowest new minimum wage rate for the respective state, city, and/or county.

Federal Pregnant Workers Fairness Act (PWFA). Effective June 27, 2023, employers with 15 or more employees must provide pregnancy-related accommodations to employees and applicants under the PWFA. In accordance with the PWFA,
employees are to be provided accommodations for conditions related to pregnancy, childbirth, or a related medical condition.This applies to physical and mental conditions. Under the Act, pregnancy-related conditions include morning sickness, gestational diabetes, post-partum depression, and lactation.The PWFA expands upon previously established employer requirements within the Americans with Disabilities Act (ADA).

These are some of the reasons that businesses that join a Professional Employer Organization (PEO) gain a valuable partner to help them navigate the ever-changing regulatory landscape for employers.

Qualified Employer-Sponsored Plans

The CalSavers website states that a qualified retirement plan includes any plan that is qualified under Internal Revenue Code sections 401(a) (including a 401(k) plan), a qualified annuity plan under section 403(a), a tax-sheltered annuity plan under section 403(b), a Simplified Employee Pension (SEP) plan under section 408(k), a Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA plan under section 408(p) or a payroll deducted IRA with an automatic enrollment feature.

If your company has five or more employees in California and already offers a qualified employer-sponsored retirement plan, you are exempt from having to participate in the state program. However, employers need to certify their exemption by going to CalSavers.com or by contacting CalSavers Client Services at 855.650.6916.

Employers who are utilizing the services of a Professional Employer Organization and are obtaining employee access to a 401K plan should also contact their PEO to confirm the process for obtaining the exemption. Employers with five or more employees in California considering joining a PEO to obtain access to employee benefits like retirement plans should contact StaffMarket to streamline their search for the right California Professional Employer Organization for their company.

The business community is waiting for guidance from the Treasury Department to implement this policy. Secretary of the Treasury, Steve Mnuchin, has stated that participation will be voluntary and employers can choose not to allow their employees to take advantage of this payroll tax withholding deferral. Larry Kudlow the President’s economic advisor, has stated that the President is looking for ways to “fully forgive” the payroll tax deferral however no instructions have been forthcoming in writing from any US Government entity.

Employers are concerned that they will ultimately be responsible for the repayment of the payroll tax deferral. Federal tax law and IRS regulations make it clear that the employer is liable for unpaid payroll taxes. Many organizations that represent businesses providing financial and accounting services are seeking clarity on their responsibilities and those of their clients and constituents to collect and remit payroll tax withholdings.

Including:

• The National Association of Professional Employer Organizations (NAPEO).
• The American Institute of Certified Public Accountants
• The National Payroll Reporting Consortium
• The US Chamber of Commerce

On Friday, 142 House Democrats sent a letter to President Trump demanding he reverse his ”recent executive action on Social Security payroll taxes and abandon your call to defund Social Security by eliminating the payroll tax permanently.” Now it’s a political spin zone.

Since PEOs are considered the employer of record for their clients there is legitimate concern in the PEO industry that they may be held liable for unremitted payroll taxes of worksite employees of their clients. While some rules are still yet to be resolved, all current PEO clients should contact their PEO for guidance on how to proceed in this situation.

Small Businesses Have Never Needed a PEO relationship more

The COVID pandemic has hammered the economic climate for small and medium sized business in 2020. Aside from the general business climate deterioration, the impact in the area of workforce administration continues to be a landscape of confusion and change. PEO services have never been more valuable for their small business clients. Let us help you find the right PEO for your company.

For small businesses, navigating employment related laws and regulations has long been a challenge. The COVID-19 outbreak has produced a double whammy for many companies. Many employers are dealing with a loss of revenue combined with increasing employer related costs due to newly expanded rules related to sick leave, paid family leave and expansion of the Family and Medical Leave Act (FMLA). While some of these details remain fluid, companies using a Professional Employer Organization will get assistance from their PEO that ensures they are legally compliant and doing the best they can for their company and their employees.

On Wednesday March 19, 2020 President Donald J. Trump signed H. R. 6201 in to law which extends additional assistance to individuals affected by the COVID-19 outbreak.

House Resolution 6201 Highlights include:

• Requires employers with fewer than 500 employees to provide up to 12 weeks of job-protected leave related to caring for a child via an expansion of the Family and Medical Leave Act (FMLA) (with the first 10 days unpaid).
• Requires employers with fewer than 500 employees to provide up to 80 hours (generally two weeks) of emergency paid “sick” leave to full-time employees (with special rules for part-time employees).
• Provides tax credits for required paid sick leave, paid family and medical leave and certain health plan expenses.
• Requires group health plans, health insurers and government programs to provide free coronavirus testing.

Employers who are working with a PEO should contact their PEO HR support contact for additional information about funding the additional costs and how tax credits will be assigned. Impacts on State Unemployment Tax Funds (SUTA) has yet to be understood.

Components of H.R. 6201, COVID-19 relief legislation

Temporary Expansion of Family and Medical Leave

• H.R. 6201 would require employers with fewer than 500 employees to provide up to 12 weeks of job-protected leave, ten weeks of which would be paid.
• Leave would be for “qualifying need related to a public health emergency.”
• Qualifying need is defined as to mean “the employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school [meaning a primary or secondary school only] or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.”
• A “public health emergency” is then defined to mean “an emergency with respect to COVID-19 declared by a Federal, State, or local authority.”
• The leave applies to employees who have been employed for at least 30 calendar days, rather than the 12-month period under the current FMLA.
• The Secretary of Labor has the regulatory authority to exempt employers with fewer than 50 employees if the provision of paid FMLA leave “would jeopardize the viability of the business as a going concern.”
• Employers with 25 or more employees would be required to reinstate employees after their FMLA leave period ends.
• Employers with fewer than 25 employers do not have to reinstate an employee if they are experiencing significant economic hardship.
• The first 10 days for which an employee takes leave could be unpaid leave, or the employee could choose to substitute any accrued vacation, personal or sick leave (including in certain instances the emergency paid “sick” leave described below).
• After the initial 10 days, the employer would be required to provide paid leave based on an amount that is not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work.
• The bill caps the amount of the paid leave, per employee, to no more than $200 per day or $10,000 in the aggregate.

• Creation of a Temporary Paid Sick Leave Program

• H.R. 6201 requires employers to provide full-time employees with 80 hours of certain emergency paid “sick” leave related to the coronavirus (with special rules for part-time employees).
• The paid sick leave could be used in any of the following circumstances:

• The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19.
• The employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19

• The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
• The employee is caring for an individual who:

• Is subject to a federal, state or local quarantine or isolation order related to COVID-19, or
• Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.

• The employee is caring for a son or daughter where the school or place of care of the son or daughter has been closed or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.
• The employee is experiencing any other substantially similar condition specified by the Secretary of HHS in consultation with the Secretary of the Treasury and the Secretary of Labor.

• Full-time employees would be entitled to 80 hours of paid leave
• Part-time employees are entitled to “a number of hours equal to the number of hours that such employee works, on average, over a 2-week period.”
• The required paid leave ends with the employee’s next scheduled work shift following the end of the qualifying need.
• The required sick pay is calculated based on the employee’s regular rate of pay or, if higher, the applicable minimum wage rate.
• In the case of leaves to care for a family member or child, however, the required sick pay is based on 2/3rds of the regular rate of pay.
• For part-time employees whose schedule varies from week to week, special rules apply to calculate the average number of hours.
• The maximum amount of required sick pay per employee is $511 per day and $5,110 in the aggregate.
• In the case of leaves to care for a family member of child, however, the maximum amount of required sick pay per employee is $200 per day and $2,000 in the aggregate.
• The bill imposes notice requirements and prohibits employers from discharging, disciplining or discriminating against employees who take paid sick leave.
• The Secretary of Labor is instructed to provide a model notice within seven days after enactment.
• An employer is also prohibited from requiring employees to look for or find replacement employees to cover the hours during which the employee is using the paid sick time.
• Violations are punishable under the FLSA.

Refundable Tax Credits to Pay for Leave

• H.R. 6201 provides provide a series of tax credits to those employers subject to expanded FMLA and emergency paid “sick” leave requirements.
• The employer-related credits, which are refundable, would be applied against the employer portion of Social Security taxes for each quarter equal to the “qualifying” paid leave wages paid by the employer.
• The tax credits would apply with respect to both the FMLA-expanded paid leave as well as the emergency paid “sick” leave.
• The amount of the tax credits varies based on the type of leave.
• Tax Credit for Expanded FMLA Leave
• H.R. 6201 would provide employers a refundable tax credit equal to 100 percent of the “qualified family leave wages” that the employer is required to pay for a given quarter under the Expanded FMLA Leave.
• The amount of the qualified family leave wages that would be taken into account for purposes of the credit per employee is $200 for any day for which the employer pays the employee qualified family leave wages, up to a maximum amount for all calendar quarters of $10,000 per employee.
• Tax Credit for Emergency Paid “Sick” Leave
• H.R. 6201 would provide employers a refundable tax credit equal to 100 percent of “qualified sick leave wages” that the employer is required to pay for a given quarter under the Emergency Paid Sick Leave Act.
• The amount of qualified sick leave wages for purposes of the credit would vary depending upon the reason for the leave.
• For employees who must self-isolate, obtain a coronavirus diagnosis or comply with a self-isolation recommendation from a public official or health care provider, the amount of qualified sick leave wages taken into account is capped at $511 per day.
• The bill also allows for an increase in the amount of the tax credit equal to the amount “of the employer’s qualified health plan expenses as are properly allocable to the qualified family [or sick] leave wages for which such credit is allowed.”
• The tax credit would apply to wages the employer pays between (1) a date that the Secretary of the Treasury must specify within 15 days after the date of enactment and (2) December 31, 2020.

Free Coronavirus Testing

• H.R. 6201 would require that group health plans and health insurance issuers of group to cover FDA- approved COVID-19 diagnostic testing products.
  Cost covered include the items and services furnished during a provider visit (office, telehealth, urgent care and emergency room) to the extent those items and services relate to the furnishing or administration of the testing product or the evaluation of the individual’s need for the testing product.
  The mandated coverage must be provided without “any cost sharing (including deductibles, copayments and coinsurance) requirements or prior authorization or other medical management requirements.”
  The requirement to cover COVID-19 testing costs starts from the date of enactment until the Secretary of HHS determines that the public health emergency has expired.
  This provisions would be effective “not later than 15 days after the date of enactment.”
  The paid leave provisions go into effect “not later than 15 days after the date of enactment” and expire on December 31, 2020.

Additional Resources for Business Managers Regarding COVID-19:

President Trump’s Coronavirus Guidelines for America (printable)

CDC’s Interim Guidance for Businesses and Employers on COVID-19

Small Business Guidance and Loan Resources from the Small Business Administration

SBA Disaster Assistance in Response to Coronavirus

U.S. Chamber of Commerce Small Business Resources for Surviving Coronavirus Crisis

Resilience in a Box: Disaster Preparedness Resources for Small Businesses

OSHA’s COVID-19 Website

OSHA Guidance on Preparing Workplaces for COVID-19

Thanks to the National Association of Professional Employer Organizations for compiling some of the information used in this article.

The Social Security Administration recently announced changes to the maximum limit on earnings subject to the tax. In October 2019, the SSA announced that the taxable wage cap will increase by more than $4,000, effective Jan. 1, 2020.

What is the new max earnings limit?

This increase in the wage limit for Social Security payroll taxes is nothing unusual. The income cap is automatically adjusted on a yearly basis and generally mirrors average increases to the national wage.

Last year, the average employee wage rose by 3.6 percent. Accordingly, the SSA increased its cap on taxable wages by $4,800, bringing 2019′s wage cap of $132,900 up to $137,700 for 2020.

This increased taxable wage cap will fund the increased financial benefits for approximately 69 million people currently receiving Social Security benefits.

“The 1.6% cost-of-living adjustment (COLA) will begin with benefits payable to more than 63 million Social Security beneficiaries in January 2020,” the Social Security Administration noted in a news release. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2019.

A fact sheet released by the SSA notes that with taxable income cap increase, an individual under full retirement age follows an earnings exempt amount of $1,520 per month or $18,240 annually in 2020. This is compared to 2019′s retirement earnings exempt amounts of $1,470 per month, or $17,640 annually.

Additional tax for Medicare

There are also changes coming to income tax amounts to support Medicare benefits. A provision of the Affordable Care Act requires that employees receiving high compensation will be subject to an additional 0.9 percent tax for Medicare as part of their employee-paid Medicare FICA tax.

While the Social Security taxable income cap is adjusted each year based on inflation and the cost of living, the rise in the Medicare tax amount are not subject to inflation-related changes. This means that the increased tax rate impacts more employees every year.

This year’s 0.9% threshold increase affects:

• Married couples that file joint taxes and earn more than $250,000.
• Married couples that file separately and make $125,000.
• Single and all other taxpayers earning $200,000.

Changes for internal HR and payroll processes

With these and other taxable income changes going into effect next year, it’s important that internal company HR teams prepare their systems and educate employees about the adjustments, particularly when they noticeably impact their pay.

Employees whose compensation exceeds the 2019 maximum of $132,900 will see a decrease in net take-home pay if they don’t receive a raise to address the payroll tax’s increase.

Company HR leaders should ensure that their payroll software systems correctly account for the increase in taxable wage limits, as well as the higher income thresholds for Medicare tax. HR stakeholders should notify affected employees of the rising payroll withholding.

If your company is current a member of a Professional Employer Organization, your PEO will ensure that the proper wage caps are in place for the 2020 payroll tax withholding changes. Contact your PEO to discuss how this information should be shared and explained with your workforce.

Image credit to: Indiana Memory Hosted Digital Collection

About the FLSA

The Fair Labor Standards Act of 1938 requires that full time employees whose jobs do not primarily involve executive, administrative or professional duties are paid at least one and a half times their regular pay rate if they work more than 40 hours in a week. Subject to certain exemptions, the standard also applies to every employee regardless of role who earns a salary below a certain threshold.

The Department of Labor’s new overtime rule will increase the current salary threshold of $23,660 a year by 50% as of Jan. 1, 2020. All nonexempt employees who earn less than $35,568 a year will be entitled to time-and-a-half overtime pay, regardless of their duties. The new threshold increase is lower than the amount proposed by the DOL under the Obama administration. Then secretary of Labor Perez proposed to double the threshold to $47,476.

What it means for employers

If your company has any salaried exempt employees making less than $684/week, you will be required, starting with checks dated 1/1/2020, to make one of the following changes:

• Increase the worker’s salary to the new $684 weekly minimum or
• Change their status to non-exempt and pay overtime

Employers are allowed to use non-discretionary bonuses (routine and part of an employee’s total wages), incentives, and commissions (paid annually or more frequently) to satisfy up to 10 percent of the standard salary level ($684/week).

• Example: An employee makes an annual salary of $33,000 and has been promised a non-discretionary bonus of $800 each quarter.
• Since their annual salary of $36,200 will exceed the $35,568 minimum and their bonus accounts for less than 10% of that salary, no change is needed.

Partnering with a Professional Employer Organization (PEO)

Employers who have partnered with a PEO can expect to be notified if they have any workers who will be affected by the new rule. The PEO will assist the PEO client with the HR and payroll changes necessary to ensure compliance with the new rules.   Keeping their client companies compliant in any every changing regulatory world is what PEOs do. Review the DOL Wage and Hour Division rule fact sheet for more information.