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The potential policies of President-elect Donald Trump’s administration likely would significantly affect payroll-related issues, including federal income taxes, the Affordable Care Act, wage and hour and wage provisions and reporting.
The policies, based on comments Trump made shortly after the election, during the presidential campaign and in his action plan for his first 100 days in office, are expected to roll back several payroll-related initiatives of President Barack Obama. Following is a look at some of the Republican's possible proposals:
• Federal income taxes. Payroll professionals could anticipate midyear withholding changes if income tax changes pass early in a Trump administration. Based on Trump's 100-day action plan, which largely adheres to Republican doctrine, the proposal would reduce the number of income tax brackets to three from seven under the “Middle Class Tax Relief and Simplification Act.”
The maximum annual income level before taxation under Trump’s plan would be about 11 times higher than under the federal income tax withholding tables for 2016, $25,000, compared with $2,250. The largest tax cut would apply to the middle class, with a family with two children receiving a 35 percent tax reduction.
Trump announced plans to revamp the brackets during an Aug. 8 speech in Detroit. For single filers, the first tax bracket would include annual income of more than $25,000 but up to $50,000, and taxed at 12 percent; the second bracket, more than $50,000 but up to $150,000, and taxed at 25 percent; and the third bracket, more than $150,000, and taxed at 33 percent. Trump previously proposed rates of 10, 20 and 25 percent. The maximum income tax withholding rate now is 39.6 percent.
• Affordable Care Act. Trump made the elimination of most or all of the Affordable Care Act a significant component of his presidential campaign platform and is widely expected to implement that plan in conjunction with continued Republican majorities in the House and Senate. Repealing the ACA (Pub. L. 111-148) would cancel numerous provisions of the law related to payroll and likely would lead to cancellation of federal regulations regarding the ACA that involved payroll processing.
Trump plans to phase out the ACA while phasing in a replacement health-care system, he said Nov. 13 on the CBS program “60 Minutes.” Two ACA components he said he wants to retain are a provision allowing some individuals to remain covered by their parents' health insurance and a provision allowing those with pre-existing conditions easier access to coverage.
The requirement for applicable large employers to use Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, to report the degree to which sufficient health insurance was offered to full-time employees, and the requirement for self-insured employers that are not applicable large employers to use Form 1095-B, Health Coverage, to report related information, likely would be eliminated as part of the repeal of the ACA. Thus, payroll departments no longer would need to calculate hours worked by full-time equivalent employees or full-time employees as defined by the ACA for compliance purposes.
Other components of the ACA which could be eliminated or changed during Trump's presidency are the annual limit on the amount of pretax dollars that may be contributed to health flexible-spending accounts, the excise tax of 40 percent on high-valued health plans that was scheduled to take effect Jan. 1, 2020, and reporting an applicable cost of employer-sponsored health-plan coverage on Forms W-2, Wage and Tax Statement, using Box 12, Code DD.
• Overtime. Although Trump has called for repealing many Obama administration regulations, he has not said if the Labor Department's new overtime rule would be included. His election victory, however, improves the chances that employers would see some form of relief.
The rule, which takes effect Dec. 1, requires that employees earning less than $47,476 are eligible for pay of time and one-half for working more than 40 hours in a week.
The process to remove the rule would not be easy. “The new administration would have to suspend the regulation, go through rulemaking to repeal it and take public comments before they make a decision,” Randy Johnson, senior vice president for labor, immigration and employee benefits at the U.S. Chamber of Commerce, told Bloomberg BNA. “They have to provide a reasoned analysis as to why they would repeal it.”
The Obama administration wanted to ensure that the rule would apply before a new president assumes office. The timing of the rule means that many businesses have committed policies and must proceed with existing strategies, although smaller employers may now hope for a later exception from the rule's application under the new administration and could consider revising their approach by Dec. 1, management lawyers told Bloomberg BNA on Nov. 14.
For companies with employees earning $40,000 to $45,000 a year who were prepared to increase those salaries to more than the new threshold to keep them exempt, a short-term option now would be to freeze their pay and track their hours, said Alfred Robinson, an acting Wage and Hour Division administrator under President George W. Bush. Employers would “treat them as nonexempt for the foreseeable couple of months until we get some better idea of if it’s going to be a priority for” Trump to revise the rule, Robinson said.
The rule also is the subject of a hearing scheduled for Nov. 16 in a federal district court in Texas. Two lawsuits to halt the regulation, one from 21 states and another from business associations, were merged by the court, a move that was not opposed by the Labor Department. ( Plano Chamber of Commerce v. Perez, E.D. Tex., No. 4:16-cv-0731, motion granted 10/19/16).
Additionally, a Republican-backed effort in Congress seeks to delay implementation of the rule.
• Wage reporting. The incoming Trump administration is expected to affect requirements recently finalized by the Equal Employment Opportunity Commission calling for information on Forms W-2, Wage and Tax Statement, and hours worked to be included on the annual Form EEO-1, Employer Information Report, starting with the 2017 report.
Trump would be able to designate a new EEOC chairman and, sometime in 2017, the commission would achieve a 3-to-2 Republican majority. After that change occurs, the EEOC could revisit the pay data-collection plan, which now is scheduled to take effect with the 2017 report due March 31, 2018. James Plunkett, the U.S. Chamber of Commerce’s director of labor law policy, told Bloomberg BNA to expect a Republican-majority EEOC to rescind or revise its EEO-1 form to remove employers’ obligations to report pay data.
• Minimum wage. The Republican Party’s 2016 platform, which was released in July, suggested that minimum wages be decided by states and local governments. Trump said during the campaign that state minimum wages should not be lower than they are. The hourly minimum wage should be increased in some states, based on the cost of living, he said, adding that it should be at least $10 in some cases.
• Joint employment and franchisor liability. Under the Trump administration, franchisors and contractors could see a shift away from attempts by the Labor Department to include them as parties for wage and hour violations affecting employees of franchisees and subcontractors.
During the Obama administration, Labor Department officials discussed how some corporate structures may be set up to shield larger organizations from being liable for violations occurring at the franchisee or subcontractor level. This followed a 2015 ruling by the National Labor Relations Board, a separate federal agency, that designated higher-level contractors jointly liable for violations.
Partly in response to the NLRB ruling, eight states passed laws that separated franchisor and franchisee liability under various state laws.
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