Upcoming regulatory initiatives and their impact on payroll

“What percentage of your job is driven by laws and regulations,” asked Alice Jacobson, Esq., the American Payroll Association’s director of government relations. Almost 100% of hands went up in response.

Speaking at the American Payroll Association’s 40th Annual Congress this week in Las Vegas, Jacobson, Robert Wagner, Esq., and Mike Linehan caught attendees up on today’s hot payroll-related regulatory issues. Wagner is the APA’s senior director of government relations and Linehan is assistant manager of government relations.

Nexus and remote employees

Pre-covid, about 20% of the workforce worked remotely. During the pandemic, more than 70% worked remotely. Now, 80% of employees expect to work remotely at least three days a week, according to Wagner. Leaving aside the 44% of employers that would like to banish remote work altogether, issues of unplugging, loneliness and collaboration arise, he added.

The main issue for payroll, he said, is knowing where your remote employees are working because you are required to withhold those states’ taxes under the legal concept of nexus—states may tax income earned within their borders. Employees, however, don’t always tell you they’ve moved and their managers don’t tell you either. Employees could, theoretically, look at their pay statements and see taxes were withheld for the wrong state, but employees ignore their pay statements, Wagner stressed.

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He suggested these steps to get a handle on this issue:

  • Develop and enforce a policy requiring employees and their managers to notify you before they move. This keeps Payroll in the loop.
  • Create a clearly defined and articulated approval process for employees who want to move. The process should include Payroll, the tax department and your legal department.
  • Add identifiers or alerts to your travel and expense management system. This may not solve the problem, but it will allow you to ask the proper questions to employees and their managers.

The future of wages

While Linehan said the future is crypto and digital, he also gave the audience a tutorial on currency. Fiat currency, the dollar, for example, is legal tender; it’s issued by a government and has perceived value. It’s managed centrally, which facilitates withholding and the government can place holds on accounts.

Crypto isn’t fiat currency—it’s not government controlled. It’s decentralized and stored in a digital wallet opened with a public key and a private key. Crypto’s impact on payroll right now is minimal, Linehan noted. Employees paid in crypto can provide you with direct deposit information, just like they used to, he added.

Digital currencies are fiat currencies, meaning the government writes the rules, Linehan pointed out. He mentioned Executive Order 14067, under which the federal government will lay the groundwork for a U.S. digital currency.

The principal issue with crypto is whether you can use it to pay employees. The Fair Labor Standard Act requires employees to be paid their minimum wages and overtime in legal tender, Linehan emphasized. State payday laws generally require employees to be paid in cash, he added. The IRS says you can pay in crypto, but everything has to be converted into cash and reported as cash.

Crypto’s volatility can create problems for employers, Linehan commented. For example, what would happen if the crypto devalues between the time you send your ACH file to the bank and payday? New systems will need to be created for this, he added, noting NACHA would mostly likely be the architect of whatever new system is created.

Privacy

The purpose of most state privacy laws, Jacobson said, was to allow consumers and employees more control over the disposition of their personal data. Biometric data can be very handy for Payroll, she added—it’s used for wage-and-hour compliance, to limit access to software and secure spaces and authentication for employee portals.

Jacobson posed this simple issue: You could violate state laws if you give employees a smartphone with facial recognition software. And what’s worse, coverage varies by state, she noted, which creates liability problems for you.

State laws generally cover employees’ notice and consent, security and encryption and disclosure limits, Jacobson pointed out. But what would happen if an employee didn’t consent, she asked. Do you fire them or do you accommodate them?

Jacobson advised employers to protect Payroll by conducting a thorough analysis and to ensure risk management systems are continuously updated. Payroll knows the compliance risks, Jacobson stresses and you should pass your concerns up the line.