It’s said that the only constant in life is change, and that applies to the business world as well. The last several years have kept Michigan business owners constantly on their toes, with rapidly evolving changes to the economy, the way businesses have been run (in-person, remote, back to the office), and legal and regulatory frameworks at local, state and federal levels.
From new guidance on how to classify workers (employees v. independent contractors) to cost-of-living adjustments to health and welfare benefit plans, the following updates are meant to keep Michigan business owners informed about their legal and regulatory responsibilities.
On October 11, 2022, the U.S. Department of Labor released a proposed rule interpreting how a worker is classified under the Fair Labor Standards Act (FLSA).
The proposed rule adopts an “economic realities test,” under which the standard for determining if a worker is an employee or an independent contractor is based on whether the worker is economically dependent on the employer for work (i.e., an employee) or is in business for themselves (i.e., an independent contractor. To evaluate the economic dependence, the proposed rule uses a “totality-of-the-circumstances” analysis, which requires the consideration of a number of factors, including:
- The opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the employer;
- Degree of permanence of the work relationship;
- Nature and degree of control by the employer over the worker;
- Extent to which the work performed is an integral part of the employer’s business; and,
- Skill and initiative.
It’s important to keep in mind that these standards are not universal—for example, even if classification is proper under FLSA standards it doesn’t mean the State of Michigan (or IRS) will come to the same conclusion.
It’s important to get these issues right, because misclassifying a worker, even without dubious intent, creates legal and financial risks. To avoid legal risks, the best option is for you to work with an experienced employment and business lawyer.
Cost of Living Adjustments to Health and Welfare Benefit Plans
The Internal Revenue Service recently announced 2023 cost-of-living adjustments for retirement and health and welfare benefit plans. The significant adjustments reflect the increase in inflation over the last year. The adjustments are detailed in IRS Notice 2022-55. For example, the contribution limit for a Simple 401(k) will increase to $15,500 in 2023 from $14,000 in 2022; the Health FSA limits will increase to $3,050 in 2023 from $2,850 in 2022; and the key employee threshold will increase to $215,000 in 2023 from $200,000 in 2020.
Business owners and employers should be aware of these adjustments and share this information with employees as we approach 2023.
EEOC Updated “Know Your Rights” Poster for Workplaces
The Equal Employment Opportunity Commission has issued an updated “Know Your Rights” poster that employers with more than 15 workers are required to display in their workplace. The updated poster identifies and summarizes laws that protect workers from discrimination and retaliation, and explains how employees or applicants can file a complaint if they believe that they have experienced discrimination. According to the EEOC, posters should be placed in a conspicuous location in the workplace where notices to applicants and employees are customarily posted.
Among other changes, the updated posted makes clear that that harassment is a prohibited form of discrimination, and provides information about equal pay discrimination for federal contractors.
The updated poster can be accessed here.
Now is a Great Time to Conduct a Review of Your Business for 2023
Needless to say, there is a lot that goes into running a successful—and compliant—business in Michigan. The issues identified above are just a few of the things you should be aware of as the year comes to an end, and we look ahead to 2023. In addition to these changes, business owners should conduct a thorough review and prepare to take the following steps to ensure themselves and their businesses are protected in the new year:
- Update and file annual statement with the State of Michigan
- Conduct shareholder meeting/annual board meeting
- Review contracts
- Get your tax records in order and make any required tax payments
- Send out 1099s
- Make sure employment policies are up to date
If you have any questions or require assistance with any of these or other issues, please contact Zana Tomich, co-founder of the law firm Dalton & Tomich.