HR compliance and tax experts from Experian Employer Services hosted a webinar at the beginning of 2023 to help employers anticipate changes for their organizations and prepare for new legislation taking affect and the impact on compliance trends.
Here were the key takeaways:
- How to manage unemployment costs ahead of modifications to tax rates.
- Upcoming changes to expect for Form I-9 and Section 2 remote document inspection.
- State revisions to remote work employer laws and rules.
- Tax consultancy updates (e.g., hiring incentives, tax credits and employment tax).
- What organizations can expect from the 2023-24 Congress.
This check-in halfway through 2023 reviews compliance trends that have, or will soon, alter unemployment management, I-9 administration, tax consultancy and more.
Compliance Trends Affecting Employers Today
After a tumultuous calendar year in 2022, organizations are looking forward to the headwinds projected to impact employers this year. Why? Because planning for new legislation and organizational changes will be key to remaining compliant long-term. The major trends to take into consideration include:
- Lower unemployment figures are highlighting employee onboarding, despite increased layoffs in certain sectors like IT.
- Organizational flexibility is projected to continue, and this support for remote and hybrid workforces is driving the need to improve the onboarding experiences for new hires and general retention.
- Growing hybrid and remote workforces, in addition to technological advances, are increasing the emphasis on employee information security and privacy.
- Amidst an uncertain economic environment, organizations are tightening their corporate spending.
Overall, these compliance trends spanning across industries have made it critical for employers to pay keen attention to the legislative and regulatory landscape — often requiring comprehensive solutions and dependable partners that support an improved process.
Understanding the Proposed Changes to Form I-9 Compliance
The current Form I-9 —the form used to verify the employment eligibility of each new employee (both citizen and noncitizen) hired to work in the U.S. — expired as of Oct. 31, 2022. Now, U.S. Citizenship and Immigration Services (USCIS) is looking to reduce complexity for teams by introducing a new “simplified” form. What will this look like?
- Sections 1 and 2 will be presented on the same page.
- Section 3 will be a separate supplement to be accessed when needed.
- Instructions will be reduced from 15 pages to 7.
Proposed changes to the form
To minimize confusion and enforcement uncertainty, the following changes to Form I-9 have been proposed:
- Updating the list of Acceptable Documents and providing a link to List C documents.
- Removing the N/A requirement for optional or unused fields.
- Simplifying the current three boxes for A-Number, I-94 and Foreign Passport down to one box.
- Removing the QR code.
Proposed process changes
In addition to preferred modifications to the form itself, there are also recommendations for alterations in the process as well. The suggested changes seek to authorize remote examination, which could require:
- Adding a box to the form for employers using remote procedures to check (audits would be adjusted to account for the process).
- Participating in mandatory training for document inspection and anti-discrimination.
- Meeting specific conditions (i.e., using E-Verify or excluding employers cited for failure to comply with I-9 regulations).
When it comes to proposed changes to the form and process, they could be required, but nothing is set in stone yet. And, with decisions expected soon, it’s important to note that organizations can continue using the current Form I-9 until the new one is formally introduced. Regardless of the release date, businesses will have a 90-day transition period to adjust their processes to these changes.
End of remote verification for now
A permanent remote process for Form I-9 document verification may be in the works, but until then employers must be prepared to follow standard I-9 requirements when the temporary remote policy expires. In early May, the U.S. Department of Homeland Security (DHS) and U.S. Immigration and Customs Enforcement (ICE) announced that employers will have 30 days to comply with standard Form I-9 requirements after the COVID-19 flexibilities sunset July 31, 2023. A temporary policy has been in place since March 2020 allowing employers to review employees’ identity and employment authorization documents without employees’ physical presence. Sunsetting this temporary policy effectively ends I-9 remote verification for the time being. This summary covers how the announcement affects employers who were utilizing the I-9 remote verification process.
Taking a Closer Look at the Unemployment Tax Landscape
According to the White House, the unemployment rate across the country ticked down to 3.4% in January. An update in April put the rate at 3.5%. While this is good news for employers, the unemployment tax landscape still has some business leaders scratching their heads:
- Most 2023 tax rates have been assigned with the majority experiencing no change to state factors.
- 41% of states saw their unemployment insurance (UI) taxable wage base increase.
- Federal Unemployment Tax Act (FUTA) credit reductions will need to be considered.
Understanding FUTA credit reductions
So, what exactly is causing rates to go up? When state unemployment agencies’ trust fund balances near insolvency, they can request Title XII advances funds from the federal loan account within the Unemployment Trust Fund (UTF). But, to avoid a FUTA credit reduction on the Federal Form 940, advances must be paid by the specified deadline.
As of June 2, 2023, California, New York and the Virgin Islands have outstanding balances. Colorado, Connecticut, New Jersey and Pennsylvania have an approved Advance Authorization. California, Illinois, New York, Pennsylvania and the Virgin Islands have Accrued Interest to pay by September, while California and the Virgin Islands are expected to still be on the list of states with outstanding balances for next year. This means employers in those states will most likely remain on the FUTA Credit Reduction list on next year’s federal form 940.
Projections for Employment Tax and its Compliance Trends
Here’s a closer look at the hot-button issues within the employment tax landscape halfway through 2023:
Hiring tax credit
Tax credits are available to employees based on certain hiring activities, and this issue has garnered attention in recent years. This includes the following trends:
- Challenging the use of tax credits: The Georgia Atlanta Journal-Constitution released a report auditing whether state tax credits result in net new jobs and are worth the loss in revenue — representing a resurgence in questioning their value.
- Federal disaster zone retention: The federal disaster zone retention tax credit, designed to support employers after a qualifying major disaster, failed to pass as part of the December spending bill. However, this will likely be raised in legislation later this year.
- Bi-partisan support: As a result of bi-partisan support, Michigan will send nearly $850 million into the state’s Development Incentive Fund.
- Focusing on discretionary incentives: To avoid the perception of a windfall, state governments are moving away from retroactive tax credits to focus on discretionary incentives as an economic development tool.
Convenience of the employer and multistate income tax withholding
The convenience of the employer rule — applicable in Connecticut, Delaware, Nebraska, New York and Pennsylvania — imposes tax withholding to be based on where the employer is located, as opposed to where the employee is working. In 2023, states are looking at this more actively, with states that have been “hurt” by nonresident state enforcement pushing back.
When it comes to multi-state income tax withholding, it can be extremely complicated to be compliant — virtually no employer is. Looking forward, there’s a proposed solution in the works: The uniform nationwide rule proposed in Mobile Workforce State Income Tax Simplification Act. This would establish a 30-day threshold before a state could impose income tax on a non-resident employee’s wages.
Both of these issues indicate two major trends: It’s getting harder to keep up with compliance trends and states are planning to crack down on this more moving forward. Consequently, experts recommend having co-developed policies and processes between your HR and tax teams to keep pace with these issues more effectively.
Other issues employers are facing include:
- Minimum wage increase: Higher minimum wages are in effect in certain states.
- Independent contractor vs. employee classification: Employers must consider different approaches to worker classification between the U.S. Department of Labor and the IRS, with states predicted to push for setting independent contractors up as common law employees.
- Paid leave uncertainty: 13 states and Washington D.C. have enacted paid family leave laws. Because federal laws haven’t kept up, this can cause uncertainty about how to tax and report these benefits.
Boost Compliance Efforts in 2023 With Comprehensive Solutions
Adhering to the applicable legislative and regulatory requirements is an essential element of long-term business success. But, with compliance trends indicating yet more difficulty for employers, the process can quickly become daunting — even for seasoned professionals.
When you’re ready to simplify the compliance process and streamline workflows, Experian Employer Services can help. Our comprehensive suite of employer services is designed to support organizations in optimizing workforce management and improving the employee lifecycle.
For more information, watch the full 2023 Outlook webinar. Or, contact us at Experian Employer Services to learn more about how our solutions can support your organization’s compliance efforts in 2023 and beyond.