While there are no significant employment law changes effective in 2023 from a federal mandate, employers still need to be aware of any legislative changes on state or local levels.
Nationally, no major changes are slated for 2023 with the Fair Labor Standards Act (FLSA) still establishing minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector, and in federal, state, and local governments.
The national minimum wage remains the same as it has been since July 24, 2009, at $7.25 per hour for covered nonexempt workers. Overtime pay at a rate of not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.
However, some states and local jurisdictions have their own minimum wage standards that employers must follow.
Montana, for example, has a minimum wage above the federal minimum wage that is subject to cost-of-living adjustments based on the Consumer Price Index, with employees making minimum wage getting a 75-cent bump to come Jan. 1, 2023 – effectively an 8.15 percent increase.
Federal Laws: Understanding Your Employer Obligations
The United States Department of Labor (DOL) has produced a series of short compliance videos to help employers understand their obligations regarding the Fair Labor Standards Act (FLSA).
“These brief, plain-language explanations of FLSA requirements strip away the “legalese” and provide employers the basic information they need to understand their obligations and to comply with the law,” explains the DOL. “We consulted a variety of employers and other stakeholders during the production of these FLSA tutorials, and incorporated their feedback to provide these user-friendly, straightforward primers, delivered in a language and format that’s engaging and easy to understand.”
Currently, there are five videos available for employers:
- Coverage: Does the Fair Labor Standards Act (FLSA) apply to my business?
- Minimum Wage: What minimum wage requirements apply to my business?
- Deductions Can I charge my employees for uniforms and other business expenses?
- Hours Worked: Do I have to pay overtime?
- Overtime: When do I owe overtime compensation, and how do I pay it correctly?
Proposed Rule on Classifying Employees, Independent Contractors
The DOL did make news last month when they published a Notice of Proposed Rulemaking on Oct. 13 to help employers and workers determine whether a worker is an employee or independent contractor under the FLSA.
Specifically, the DOL says the proposed rule would do the following:
- Align the department’s approach with the courts’ FLSA interpretation and the economic reality test.
- Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
- Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
- Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control, and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
- Assist with the proper classification of employees and independent contractors under the FLSA.
- Rescind the 2021 Independent Contractor Rule.
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”
Littler employment law firm has a detailed look at the proposed rule including the six-factor test for determining whether a worker is economically dependent on an employer under the totality of the circumstances:
- Opportunity for profit and loss depending on managerial skill
- Investment by the worker and the employer
- Degree of permanence of the work relationship
- Nature and degree of control
- Whether the work performed is an “integral” part of the employer’s business
- Skill and initiative
Comments can be submitted online or in writing through Nov. 28, 2022.
The U.S. Chamber of Commerce released a statement from Glenn Spencer, senior vice president of the employment policy division, pointing out shortcomings in the proposed new rule: “While acknowledging the importance of the independent contractor model to the economy, the Department of Labor’s new Independent Contractor proposal does not provide the clarity of the 2021 rule it seeks to replace. The proposed rule has a number of concerning provisions that could have significant negative impacts on workers and small businesses. Chief among these is that by returning to a ‘totality-of-the-circumstances analysis’ approach where all factors of the economic realities test are treated equally, it will be unclear whether someone has been properly classified. Under the 2021 regulation, certain factors were given more weight which made the classification determination more reliable. Moreover, by stating that an employment relationship is indicated if a worker provides services that are ‘integral’ to a business, the proposed rule threatens to sweep in a wide range of professions and industries. We hope to work with the Department through the comment process to improve the proposal.”
Montana Minimum Wage Rate Goes Up Jan. 1, 2023
The Montana Department of Labor & Industry (DLI) reports that the current minimum wage in Montana of $9.20 per hour will rise to $9.95 per hour on January 1, 2023.
“The new minimum wage will apply to all hours worked on or after January 1, 2023,” says the DLI.
A business not covered by the Fair Labor Standards Act whose gross annual sales are $110,000 or less may pay $4.00 per hour.
“However, if an individual employee of such a business is producing or moving goods between states or is otherwise covered by the Fair Labor Standards Act, that employee must be paid the greater of either the federal minimum wage of $7.25 or Montana’s minimum wage,” says the DLI.
Although some exemptions exist, most workers must be paid the minimum wage for all “hours worked” as state law requires.
“Hours worked” includes:
- Preparation time
- Opening and closing the business
- Company travel
- Required meetings and training
“Any time spent by an employee in the performance of these duties must be recorded and paid,” says the DLI, noting that employers may not use tips as credit towards employee wage rates, including minimum wage.
The overall employment laws landscape is much quieter in 2023 than in 2022 when the state incorporated changes that were signed into law in 2021 including the Wrongful Discharge from Employment Act (WDEA), the Montana Human Rights Act (MHRA), and the Montana Wage Protection Act (WPA).
Minimum Wage Remains at $7.25/HR in Oklahoma, Texas
Unlike Montana, employees making the minimum wage in Oklahoma and Texas are not scheduled for a pay raise in 2023 with both states maintaining the federal $7.25 per hour standard.
In Oklahoma, employers of 10 or more full-time employees at any one location and employers with annual gross sales of $100,000 irrespective of the number of full-time employees must pay $7.25 per hour.
All other employers not covered by the federal minimum wage must pay a basic minimum of $2.00 per hour.
Texas state minimum wage law adopts the federal minimum wage rate by reference, so it remains unchanged in 2023 at $7.25.
Oklahoma Unemployment Benefits to Change in 2023
There is a change on the way in 2023 that Oklahoma businesses should be aware of as House Bill 1933, signed into law in June, will go into effect starting January 2023, changing the duration of unemployment benefits from 26 weeks to 16 weeks.
“Really, all of us are facing the same problem and that is a shortage of workforce. So this is an opportunity to get those who are maybe unemployed to get into the workforce quicker,” Lyle Roggow, president of Duncan Area Economic Development Foundation, told ABC7 News in Lawton.
The new law, says ABC7, does have stipulations to protect Oklahomans in case of a recession. According to the text of the bill, in 2025 the number of weeks to receive benefits could be extended, depending on how many people are claiming unemployment.
2023 Tax Withholding Methods
The IRS has released the 2023 Publication 15-T, Federal Income Tax Withholding Methods. The publication describes how to figure federal income tax withholding using the percentage and wage bracket methods and describes alternative methods for figuring withholding. The publication explains how to withhold income tax based on pre-2020 Forms W-4 and 2020 or later Forms W-4.
The 2023 Form W-4, Employee’s Withholding Certificate, was released with a few changes and no longer contains directions to use the tax withholding estimator to calculate withholdings.
Social Security Wage Limit Increase
The Social Security Administration (SSA) has announced that the maximum earnings subject to Social Security tax (Social Security wage base) will increase from $147,000 to $160,200 in 2023 (an increase of $13,200). The maximum Social Security employer contribution will increase by $818.40 in 2023. (SSA Press Release, 10/13/2022) The tax rate of 6.2% will remain the same, however an individual with wages equal to or larger than $160,200 would contribute $9,932.40 to the OASDI program (Social Security Administration) in 2023, and his or her employer would contribute the same amount.