White House, Congress Bring Sharper Focus To ACA, Labor-Agenda Items Affecting Payroll

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By Michael Baer

The period of transition to the Trump administration from the Obama administration is almost complete as key agency directors have been confirmed and policy changes affecting payroll operations have started. And Congress, which six months into the legislative session is moving to replace the Affordable Care Act and enact some type of tax reform, is feeling pressure to act as well.

Until early June, there were few payroll-related initiatives taken on by the administration other than a freeze in January on new regulations that slowed down guidance and expected rules changes. The House, on a second try, passed the Affordable Health Care Act, which would repeal most of existing Affordable Care Act tax requirements, but leave employers with an additional monthly reporting burden based on information reported on Forms W-2, Wage and Tax Statement. The Senate this week was to address its version of the repeal, with similar provisions for payroll's involvement.

While administration appointees were evaluated, Congress made little progress on other initiatives. President Donald Trump delivered a brief outline of planned tax policy changes, and his budget included some items of interest to payroll, especially a paid leave proposal for new parents. The Treasury Department continued guidance for certifying professional employer organizations and the Internal Revenue Service moved to curtail payroll-related fraud, particularly with regard to Forms W-2.

Labor Department Comes Alive

The first signs that the reins have truly been handed over with regard to payroll-related issues occurred in early June. Labor Secretary Alexander Acosta told Congress that he would solicit comments on overtime requirements, pulled two Obama-era administrator interpretation letters, launched a campaign to promote apprenticeship programs, and admitted that expected budget cuts to the Labor Department would affect enforcement of wage and hour laws.

Acosta's action to remove the administrator interpretations on worker status and joint employment could have a dual effects in terms of policy changes.

First, the move could signal a shift back to the Labor Department providing more directed guidance through opinion letters. The agency during the Obama administration stopped issuing opinion letters and focused on broader policy proclamations in the form of the administrative interpretations.

Second, there could be policy changes in the nature of the issues dealt with in the two former administrative interpretations. Republicans have favored less interference in business models that the previous administration said gave rise to joint employment scenarios that would lead a contract employer, for example, to become liable for a subcontracted employer's failure to uphold wage and hour requirements for its workers.

Additionally, the removal of the 2015 administrator's interpretation on worker status or independent contractor issues could signal a more flexible approach to these determinations under this administration.

The Labor Department also faces reduced funding, a proposed overall spending decrease of 21 percent. At a June 7 hearing before a House panel, Acosta indicated there would be cuts related to departments that focus on enforcement, but still said that “we are going to enforce vigorously.”

Congressional Moves

The Senate Republican leadership developed a plan, referred to as a “discussion draft,” to replace the ACA, adopting most provisions from the House version in its measure, the Better Care Reconciliation Act of 2017, which has not been introduced as a bill.

On June 20, the House passed the Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393). The Senate, which introduced a companion bill (S. 540) on March 7, has not acted on the bill. In previous congressional sessions, the legislation has not moved forward in the Senate after passing the House.

A hearing is scheduled this week on how state and local governments apply the Social Security opt-out process for employees under Section 218 of the Social Security Act. The June 29 hearing, Complexities and Challenges of Social Security Coverage and Payroll Tax Compliance for State and Local Governments, is to focus on the complexity of payroll tax compliance for state and local governments.

Some Appointments Unfilled

Although Trump's main agency directors have been confirmed, appointments to make Republican majorities for those overseeing the Equal Employment Opportunity Commission and the National Labor Relations Board have not been formally made.

The change to the EEOC-1 form, announced last year to require many employers to include W-2 information and hours-worked data on the form, remains in place, at least for now. Republicans have said that requirement is unduly burdensome on employers and questioned enhanced ability to measure equal pay using this additional data.

The Trump administration 2018 budget proposed to combine the EEOC and the Labor Department's Office of Federal Contract Compliance Programs to create “one agency to combat employment discrimination.” Congress may need to approve the reorganization.

The status of Internal Revenue Service Commissioner John Koskinen, who was urged to resign by several members of Congress last year, has not been determined. Koskinen said he was open to staying on at the agency, but urged the White House to have its next commissioner in place by November.

The fate of the Consumer Financial Protection Bureau, which stood up under President Barack Obama's watch amid resistance from Republican lawmakers, also is uncertain, as is a bureau rule issued last year that would affect how employers and financial institutions may introduce payroll cards as a method of payment to employees. The bureau continues to be led by an Obama administration appointee, Richard Cordray.

The bureau, which said the rule's implementation would be delayed until April 2018, recently sought comments on modifications to the rule.

Status of Proposals

Trump, as of June 27, proposed and provided talking points on income-tax cuts and paid leave for new parents.

Trump's income tax cut proposal, which would set three personal income tax brackets at 10, 25, and 35 percent instead of the current seven brackets, is closely aligned with the House tax reform blueprint announced in mid-2016.

Congress has not released more documents on tax reform or cuts and it may be running out of legislative days in 2017 to work on the issue. It remains possible that overall tax reform could be put on hold and a straight tax cut could pass by the end of the year, analysts tracking tax reform said.

The paid-leave proposal, which was released as part of the Trump's proposed 2018 budget, calls for up to six weeks of paid leave for new parents, but does not contain any details for implementation.

Budget Director Mick Mulvaney, describing the implementation process in statements after the budget's release, said funding for paid leave would likely be done through the unemployment insurance system.

As for agency actions, Acosta faces a June 30 deadline on whether the administration would defend the court challenge to the 2016 rule changing overtime salary thresholds ( Nevada v. DOL, 5th Cir., No. 16-41606, 4/19/17 ).

In Congress, movement to consolidate legislation to repeal and replace the ACA continues, with tax reform also pledged to be taken up in some capacity after the July 4 recess.

After the July 4 recess, the House has 13 days of scheduled work before members take off all of August, reconvening Sept. 5. The Senate has 15 days of work scheduled before the August hiatus.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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