As if figuring out how to make a decent profit this year isn’t enough to tie your stomach in knots, with the start of the new year, the federal government brought a passel of new regulations for freelancers and small business owners. While it’s true that business and labor regulations exist to promote fair, ethical and legal conduct and working conditions, complying can place a burden on freelancers and small business owners who may struggle with the required paperwork, the costs of implementation and the threat of penalties for missing a deadline. But cheer up – one of the new rules comes with a spoonful of sugar (thank goodness!). Here’s the who, what, when and why of 2024 regulations for small businesses.
As of January 1, 2024, most small businesses will be required to file a Beneficial Ownership Information (BOI) report with the federal government under the Corporate Transparency Act. The act is intended to increase transparency regarding business ownership and help law enforcement officials discourage the use of shell companies for money laundering, terrorism, fraud or other illegal activities.
Under the CTA, new and existing businesses that meet the definition of a reporting company must file a BOI Report with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). The report provides information about the identities of the beneficial owners of the business – that is, those who directly or indirectly exercise significant control over the business or own 25 percent or more of the business. Entities formed on or after January 1, 2024, must also provide “company applicant information” about individuals who file business formation or registration paperwork and will have until January 1, 2025 to file the initial beneficial ownership.
Unless your entity is exempt, all corporations, limited liability companies and other reporting companies must provide the Treasury Department (FinCEN) with info about the beneficial owners, meaning a list of those who either own or control the company. New businesses must also provide info about who prepared and filed the business formation documents. Reporting companies could face civil and criminal penalties if they don’t file the report. While the CTA may seem as if it only applies to big corporations, the rule primarily impacts small businesses, including LLCs and S Corps with just one or two owners.
Domestic reporting companies are corporations, LLCs, limited partnerships and other business entities created by filing documents with the secretary of state or similar office, or with a Native American tribe. Foreign reporting companies are businesses formed in a foreign country that have registered to do business in any U.S. state or Native American tribe.A sole proprietorship or informal business partnership is not considered a reporting company and will not have any reporting requirements under theCTA. LLCs, corporations and limited partnerships must file beneficial owner information unless they fall within one of the 23 exemptions listed in the act. Most exemptions apply to larger companies and specific regulated industries, so small businesses and Freelancers who operate as a C Corp, S Corp, LLC, or limited partnership will likely need to file a BOI Report.
Small business loans
The Consumer Financial Protection Bureau’s Small Business Lending Rule would require affiliated financial institutions to collect and report data on small business loan applications, including applications from minority-owned and women-owned small businesses. The rule would also create the first comprehensive database of small business credit applications in the United States.
The goal is to create a database similar to what the mortgage industry has. Per the Home Mortgage Disclosure Act of 1975, banks collect data from residential mortgage applicants, including geography, race, whether or not the loan was approved and at what interest rate. Regulators and the public use HMDA data to look for possible signs of mortgage lenders discriminating against borrowers (redlining).
It’s often difficult for small businesses to obtain a loan because they may have made scant profits or have an insufficient track record to assure banks of the owner’s ability to repay the loan on schedule. Women and minority-owned businesses especially find it difficult to obtain loans to grow their ventures. To encourage more transparency and equity around business loans, in 2023, the CFPB said it would require banks to begin reporting the demographics and income of small business loan applicants in 2024.
How do businesses feel about these changes?
In rebuttal, some small business advocacy organizations claim that CFPB requirements will slow down the loan process and make it still more difficult for small businesses to obtain loans, not easier. Karen Kerrigan, Small Business & Entrepreneurship Council President and CEO, says the proposed 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.”
On October 26, 2023, the U.S. District Court for the Southern District of Texas issued a nationwide injunction prohibiting the CFPB from implementing or enforcing its Small Business Lending Rule; the CFPB has stayed deadlines for compliance with the small business lending rule for the moment. The U.S. Supreme Court may take up the matter, so those of you in search of a business loan may want to follow this issue.
National Labor Relations Board joint-employer rule
Also in October 2023, the National Labor Relations Board issued a revised joint employer rule, expanding the definition of “joint employer.” This means that two companies that are both responsible for some decisions about employees – such as a franchisor (an entity that holds the trademark and grants license to use the corporate name) and franchisee (the owner/operator of one or more individual franchise locations) – can both be held liable for unfair labor practices and the rule goes beyond franchises.
Backstory: in 2019, a group of 1,400 McDonald’s workers filed a lawsuit alleging that their employers had violated California Labor Code wage-and-hour regulations by denying them overtime pay, meals and rest breaks, along with forcing them to work off the clock. Furthermore, the suit alleged that as “joint employers,” both the Haynes Corporation, the franchisee that owned eight locations in Oakland and San Leandro, and the franchisor, McDonald’s, were responsible. Although the employees and Haynes reached a class-wide settlement, the court ruled that McDonald’s was not responsible since it isn’t involved in the “day-to-day operations” of the restaurants, despite them carrying the McDonald’s name.
But on October 26, 2023, the NLRB issued a clarification of the joint employer rule, deciding that both franchisors and franchisees can be held liable for unfair labor practices and labor law can no longer insulate corporate franchisors from liability for what goes on at individual franchise locations.
Unions and workers’ groups say the new rule will benefit and help protect workers, but restaurant associations and other small business advocacy groups say it’s unfairly burdensome to owners. The rule was scheduled to go into effect on December 26, 2023, but pending Congressional and legal challenges, the NLRB extended the effective date of the new joint-employer rule to February 26, 2024.
Wages and overtime
Maybe you own a seasonal business and hire minimum-wage employees to keep things going during the busy season. If so, you already know that hourly wages are rising. In fact, more than 20 states will have minimum wage increases in 2024, including Nebraska’s minimum wage increase of $1.50 to $12/hour on January 1, 2024, and Rhode Island’s increase of $1 to $14/hour.
There could still be more action on wages coming soon – in August 2023, the Department of Labor proposed a rule that would allow 3.6 million more workers to become eligible to receive overtime pay. The proposed regulation would require employers to pay overtime to salaried workers in executive, administrative and professional roles and earn less than $1,059 a week, $55,068/year, as full-time employees. That annual salary threshold was increased from $35,568.
Karen Kerrigan, President and CEO of the SBE Council (and who also opposed collecting demographic info on small business loan applicants, as discussed above), said she expects that when the final rule is handed down, it will face legal challenges since raising the minimum wage would have a big impact on many businesses. The Labor Department may issue the final rule sometime in 2024. Kerrigan said, “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 or compensation models.”
$600 online payments reprieve
I’ve saved the best for last! In November 2023, the Internal Revenue Service once again delayed activating the requirement that payments of $600 or more for goods and/or services provided by you and sent to you via Third-Party Settlement Organizations, (e.g. payment apps like Venmo and Zelle or online marketplaces like Amazon or Etsy), must be reported on IRS Form 1099-K as taxable income. The requirement was scheduled to go live in tax year 2023.
Instead, the IRS has instituted a threshold of $5,000 for tax year 2024 that will introduce a phase-in of what will eventually include the Form 1099-K $600 reporting trigger for TPSO payments received. In November 2023, the IRS said that in tax year 2023, 1099-K reporting will continue to be required only of freelancers and others who received $20,000 or more in annual gross TPSO payments for 200 or more sales transactions in that year. Beginning in tax year 2024, the TPSO annual gross payments threshold for Form 1099-K reporting will be lowered to $5,000.
Small businesses need internal rules and regulations, too. Learn how to create your company’s employee handbook.