Several new legislative changes may affect your payroll processing and documenting responsibilities, as well as your financial accounting needs. We’ve put together our very own List of Seven.
1. Independent contractors
California passed legislation in 2019 requiring companies who use independent contractors (1099 workers) to generate revenue for their businesses must classify these workers as employees, with eligibility for benefits.
The law, called AB5, became a point of contention among ride sharing companies such as Uber and Lyft. While these firms later received an exemption based on public vote, the law still applies to many other businesses. Perhaps more importantly, the Joe Biden administration remains in support of wider adoption. Stay tuned.
2. Minimum wage rates
While the federal minimum wage remained at $7.25 in 2021, many states have increased their rates above the federal minimum. Here’s a look at state minimum wage laws. Additionally, many counties and cities apply their own minimum wage rates. In all cases, employers must pay the highest applicable wage. Best to know and understand which rate applies to you.
3. Paycheck Protection Program (PPP) loans
In response to economic suffering caused by the Covid-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020. Among other funds, the law eventually authorized $669 billion in forgivable loans to help small businesses retain workers and meet specific expenses including payroll costs, interest on mortgages, rent and utilities, and personal protection equipment and supplies. If businesses meet all requirements, the interest and principal on the loans are eventually forgiven. Again, you got to know how to properly apply and abide all requirements to take advantage of these funds. Learn more at U.S. Small Business Administration.
4. Workers’ compensation insurance costs
Most states require you to purchase workers’ comp to cover the cost of potential on-the-job injuries to employees. Different states have different laws regarding workers’ compensation. Also, depending on your state, business classification code and industry group, your workers’ comp premium may increase or decrease in any particular year. For that reason, it’s more than a good idea to know what rate will apply to you, why and when. How do I find out my classification? Contact the Census Bureau at 1-888-756-2427 or NAICS@census.gov. You can also look it up via the North American Industry Classification System (NAICS). This U.S. Census Bureau page should help you get started.
5. Social Security tax
Social Security tax has a wage base limit, or maximum wage that’s subject to the tax for that year. For earnings in 2021, this base increased to $142,800 from $137,700 in 2020. This means that employer and employee pay a 6.2 percent social security tax for annual salaries up to $142,800. The 6.2 percent rate is unchanged from 2020.
6. Retirement contribution limits
The total 401(k) contribution limit increased to $58,000 in 2021, up from $57,000 in 2020. The total 401(k) limit includes employee elective deferrals and employer contributions. The limit for IRA contributions remained flat with 2020 at $6,000. Here’s a summary, including annual compensation limits. The Treasury Department adjusts the rates annually based on inflation, which increased in 2021.