Regulations can be both advantageous and challenging.
Regulations serve the purpose of enhancing business transactions, discouraging unfair practices, and safeguarding workers. However, for small business proprietors, they often entail increased bureaucracy, elevated expenses, and potential penalties for non-compliance.
Heading into 2024, there are several regulations that should be on the radar of small business owners.
Registering with FinCEN
In 2024, small businesses are required to register with the Financial Crimes Enforcement Network (FinCEN) as mandated by the Corporate Transparency Act passed in 2021. The goal of the act is to unveil the workings of shell companies and combat attempts by illicit actors to conceal identities and launder money through the financial system. Exemptions are available for businesses with more than 20 employees and over $5 million in sales. However, approximately 32 million small businesses without exemptions must register personal information, including photo ID and home address, with FinCEN. Despite legal challenges, the regulation is slated to take effect in 2024, with extended deadlines – Jan. 1, 2025, for existing businesses, and 90 days for new businesses created after Jan. 1, 2024. Non-compliance may result in penalties of up to $10,000.
Reprieve from Reporting Digital Transactions to the IRS
In November, the Internal Revenue Service (IRS) once again postponed the mandate that necessitates reporting payments exceeding $600 through third-party providers, including payment apps like Venmo and Zelle, and online marketplaces.
Originally part of the American Rescue Act and initially deferred last year, this reporting requirement was scheduled to be applicable for the 2023 tax year. However, the IRS has now announced that businesses will not be obligated to report such revenue for the tax year 2023. Instead, a $5,000 threshold is planned for the tax year 2024, serving as a phased approach towards the eventual implementation of the $600 reporting threshold.
This decision was influenced by feedback from the tax community and other third parties, aiming to prevent unnecessary confusion, as stated by IRS Commissioner Danny Werfel.
New reporting requirement for small business loans
Small businesses, particularly those owned by women and minorities, often face challenges in securing loans due to a lack of a robust profit or track record. Recognizing the need for transparency and to reduce discrimination in the loan process, the Consumer Financial Protection Bureau (CFPB) announced its intention to require banks to report demographics and income information of small business loan applicants.
The objective is to establish a database akin to what exists in the mortgage industry. The Home Mortgage Disclosure Act (HMDA) has long mandated the collection of data on residential mortgage applicants, including details on race, geography, loan approval status, and interest rates. This information is crucial for identifying potential signs of discriminatory practices, such as redlining.
However, small business advocacy organizations argue that these new requirements could hinder the loan process, making it more challenging for small businesses to obtain loans. Critics, including Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, express concerns about increased paperwork, potential privacy risks, litigation, and adverse effects on small banks and competition in the financial lending space.
Ongoing litigation has led to the CFPB postponing compliance deadlines for the small business lending rule, making it a noteworthy development to monitor in 2024.
National Labor Relations Board joint-employer rule
In October, the National Labor Relations Board introduced a revised joint employer rule that broadens the definition of a “joint employer.” This expansion implies that two companies sharing responsibility for certain employee-related decisions, such as a franchisor and franchisee (though not limited to franchises), can both be held accountable for unfair labor practices. The rule is applicable solely to labor relations and covers most private-sector businesses falling under the National Labor Relations Act.
Advocates argue that the new rule benefits and safeguards workers, but small business advocacy groups contend that it imposes unfair burdens on small enterprises. Originally set to take effect on December 26, the National Labor Relations Board extended the effective date to February 26, 2024, due to ongoing Congressional and legal challenges.
Wages and overtime
In 2024, more than 20 states are set to witness increases in their minimum wage. For instance, Nebraska’s minimum wage will elevate by $1.50 to $12 on January 1, while Florida’s will rise by $1 to $13 on September 30.
Additionally, a noteworthy development is the Department of Labor’s proposed rule in August, aiming to extend overtime eligibility to approximately 3.6 million more workers. This proposed regulation suggests that salaried employees in executive, administrative, and professional roles should receive overtime if their salary falls below $1,059 per week or $55,068 annually for full-time employees, up from the previous threshold of $35,568.
Karen Kerrigan of the SBE Council anticipates legal challenges when the final rule is released, as the increased threshold could significantly impact numerous businesses. The comment period concluded on November 7, and the Labor Department may issue the final rule at any time in 2024, potentially causing disruptions for small businesses in terms of costs and workplace models.
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