What small businesses need to know about new regulations going into 2024
Written by Mae Anderson, New York-based reporter covering small business.
Regulations are a double-edged sword. They're created to improve business dealings, discourage unfair or illegal business activity, and protect workers. But, for small business owners, they often mean more red tape, higher costs and possible penalties for failing to comply.
"For a small business, you have a higher cost per employee when it comes to complying with regulations than your larger business competitors," said Tom Sullivan, vice president of small business policy for the U.S. Chamber of Commerce.
Heading into 2024, there are several regulations that should be on small business owners' radar.
1. Registering with FinCEN
Small businesses will need to register with an agency called the Financial Crimes Enforcement Network in 2024, as part of an act passed in 2021 called the Corporate Transparency Act.
The act was intended to get a look inside shell companies and crack down on attempts by "criminals, organized crime rings, and other illicit actors to hide their identities and launder their money through the financial system," Treasury Secretary Janet Yellen said in 2022.
Businesses with more than 20 employees and more than $5 million in sales can qualify for exemptions. But that leaves an estimated 32 million small businesses that aren't exempt. The owners and part-owners of those businesses must register personal information with FinCEN, such as a photo ID and home address.
Despite legal challenges, the regulation is set to take effect in 2024. Deadlines have been extended, however. The deadline for existing businesses has been changed to Jan. 1, 2025, from Jan. 1, 2024.
Businesses that are created after Jan. 1 will have only 90 days to comply, extended from 30. The cost of not complying could be steep: Penalties can run as high as $10,000.
2. A reprieve from reporting digital transactions over $600 to IRS
In November, the Internal Revenue Service again delayed a requirement that payments of over $600 via third-party providers like payment apps such as Venmo and Zelle and online marketplaces have to be reported.
The requirement, part of the American Rescue Act, was delayed last year but set to take effect for the 2023 tax year. Now, the IRS says businesses won't have to report that revenue for 2023, either. They're planning a threshold of $5,000 for the tax year 2024 as part of a phase-in to eventually implement the $600 reporting threshold.
The move was made after feedback from the tax community and other third parties and "prevents unnecessary confusion," said IRS Commissioner Danny Werfel.
3. New reporting requirement for small business loans
It's notoriously difficult for small businesses to secure loans because they often don't have the profit or track record needed to assure banks of their ability to pay back the money. Women and minority-owned businesses especially find it difficult to get loans.
In an effort to have less discrimination and more transparency around the loan process, the Consumer Financial Protection Bureau this year said it would require banks to start reporting demographics and income of small business loan applicants.
The aim is to create a database similar to what the mortgage industry has. Bank regulators have for decades collected data on residential mortgage applicants-;including race, geography, whether the loan was approved and the interest rate-;under a 1970s era law known as the Home Mortgage Disclosure Act. The data collected under HMDA has long been used by regulators and the public to look for potential signs of banks discriminating against borrowers, also known as redlining.
But small business advocacy organizations say these requirements will slow down the loan process and could make it even more difficult for small businesses to get loans, not easier.
The regulations will "bury small businesses and financial institutions with costly and time-consuming paperwork, expose small-business borrowers and lenders to increased litigation and privacy risks, drive more small banks out of business, and limit competition in the financial lending space," said Small Business & Entrepreneurship Council president and CEO Karen Kerrigan.
Due to ongoing litigation, the CFPB has stayed deadlines for compliance with the small business lending rule for the moment. Still, it's something to keep an eye on in 2024.
4. National Labor Relations Board joint-employer rule
In October, the National Labor Relations Board issued a revised joint employer rule, expanding the definition of a "joint employer." This means that two companies that are both responsible for some decisions about employees-such as a franchiser and franchisee, although the rule goes beyond franchises-can both be held liable for unfair labor practices. The rule only applies to labor relations. It applies to every business that falls under the National Labor Relations Act, which is most private-sector businesses.
Unions and workers' groups say the new rule will benefit and help protect workers. But small business advocacy groups say it's unfairly burdensome to small businesses.
The rule was scheduled to go into effect on Dec. 26, but pending Congressional and legal challenges, the National Labor Relations Board extended the effective date of the new joint-employer rule to Feb. 26, 2024.
5. Wages and overtime
More than 20 states will have minimum wage increases in 2024. For example, Nebraska’s minimum wage will rise by $1.50 to $12 on Jan. 1, and Florida’s will go up by $1 to $13 on Sept. 30.
Also worth keeping on the radar: The Department of Labor in August announced a proposed rule that would let 3.6 million more workers qualify for overtime. The proposed regulation would require employers to pay overtime to salaried workers who are in executive, administrative and professional roles but make less than $1,059 a week, or $55,068 a year for full-time employees. That salary threshold is up from $35,568.
Kerrigan of the SBE Council said she expects when the final rule is out it will face legal challenges, because raising the threshold would have a big impact on so many businesses. The comment period closed on Nov. 7 so the Labor Department could issue the final rule any time in 2024.
“That’s going to have a lot of disruption for small businesses in terms of cost, but also the models they may use in their workplace in terms of career growth models, compensation models, etc.,” she said.
Original article written by Mae Anderson and can be found here: https://apnews.com/article/small-business-regulation-digital-transactions-irs-overtime-778662c717ed47ea063a99cd567c36b2?utm_source=copy&
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