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New Regulations Will Impact SMBs in 2024

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As if figuring out how to make a decent profit in 2024 won’t be enough to tie your stomach in knots, the federal government has arranged for the New Year to bring a passel of new regulations for Freelancers and small business owners to grapple with. While it’s true that business and labor regulations are created to promote fair, ethical and legal conduct and working conditions, what it takes to comply can sometimes place a burden on Freelancers and small business owners, who may struggle with the required paperwork, the costs of implementation and, always, the threat of penalties for missing a deadline or failing to comply. But cheer up, my friend, because one of the new rules will give you a spoonful of sugar (thank goodness!). Here’s the who, what, when and why of it all, coming your way.

Corporate transparency

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% 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 are also required to 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 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 the CTA. 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 that includes geography, race, whether or not the loan was approved and at what interest rate. HMDA data is used by regulators and the public to look for possible signs of mortgage lenders discriminating against borrowers (redlining).

It’s often difficult for small businesses to obtain a loan because there may be scant profit made or 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, the CFPB in 2023 said it would require banks to begin reporting the demographics and income of small business loan applicants in 2024.

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 (entity that holds the trademark and grants license to use the corporate name) and franchisee (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 and meal and rest breaks and also forced 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 “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 and 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 be still 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 who are 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, compensation models, etc.”

$600 online payments reprieve

I’ve saved the best for last! In November 2023, the Internal Revenue Service for the second time 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. The IRS in November 2023 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. 

Thanks for reading,

Kim

Update: In response to a suit brought by the National Small Business Association against the Treasury Department, the U.S. Federal District Court for the District of Alabama ruled on March 1, 2024 that the Corporate Transparency Act is unconstitutional. Presiding Judge Liles Burke granted the plaintiffs’ motion for summary judgment and issued a permanent injunction after finding that the CTA “exceed[ed] the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” The ruling was handed down only two months after the CTA went into effect on January 1, 2024 and an appeal by the Biden administration is expected.

Image: © (Getty Images) James Stewart (R), as a caring community activist, points at Lionel Barrymore (L), a “greed is good” style real estate baron and banker, in a scene from It’s a Wonderful Life (1946, produced and directed by Frank Capra).

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Survey: Freelancing in America 2020-2021

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Upwork, the largest online marketplace for connecting Freelance workers with those who might hire us, continues to examine the state of Freelancing in America, a project the company began in 2014. I last reported on the survey in 2017.

As you probably guessed, the number of Freelancers, and clients willing to hire independent workers, continues to grow. To study the current state of Freelancing, Upwork’s 7th annual report, researchers surveyed 6,000 Freelance workers in the U.S. Survey respondents covered the spectrum—full-time, part-time, the side hustle (formerly known as moonlighting) and occasional workers. The data revealed that 59 million Americans performed Freelance work of some sort during the previous 12 months, an increase of 2 million Freelancers since 2019 and representing 36% of the U.S. workforce.

The response of businesses to the coronavirus shutdown that began in March 2020 caused seismic changes in the workplace. Impacting mostly white collar office workers, the Work From Home revolution would become a turning point for employees and their employers. By spring – summer 2021, COVID-19 vaccinations were well underway and many employers began to ask their employees to return to the office, but there was sometimes pushback. As children returned to school, working parents found it easier to WFH when the burden of toggling between paid work and supervising classroom lessons had ended. According to researchers at Upwork, it is anticipated that 40 million or more employees will work from home at least one day/ week by 2026.

WFH had more reach than could have been imagined, giving rise to the unprecedented Great Resignation. The U.S. Department of Labor reported that from April – June 2021, 11.5 million workers quit their jobs; in September, another 4.4 million left their places of employment. It appears that employees are done with office politics, done with endless meetings that have no purpose and done with bosses who withhold pay raises and promotions because they enjoy controlling people’s lives.

As you might expect, the Great Resignation impacts Freelancers because they have to make a living somehow. Furthermore, the WFH phenomenon has speeded up a growing acceptance among managers of hiring Freelance workers. Upwork in August 2021 reported that 53% of managers are now more willing than pre-pandemic to hire Freelancers for selected projects and tasks, as a result of their experience with remote workers in their own organizations.

See the full Upwork report for more details. https://www.upwork.com/i/freelance-forward

  • As of July 1, 2021, 59 million workers in the U.S. performed Freelance labor over the past 12 months, an increase of 2 million workers since 2019 and representing 36% of the workforce
  • Freelancers annual earnings in aggregate were $1.2 Trillion, an increase of 22% since 2019 and representing 5% of the country’s Gross Domestic Product
  • 36% of Freelancers now consider themselves full-time, an 8% increase since 2019
  • The number of Freelancers in the United States has increased by almost 12% between 2014 and 2021
  • 75% of workers who quit their jobs to become Freelancers report that they earn the same income, or greater
  • Freelancers earn, on average, $28 an hour for performing skilled services
  • Young professionals have embraced Freelancing and half of the Generation Z workforce has done Freelance work
  • Freelancers age 55 + comprise 26% of the Freelance workforce and they primarily do skilled and project-based work
  • 50% of Freelancers provide professional level services such as computer programming, software development, marketing, social media, translation and business consulting, an increase of 45% since 2019
  • 51% of Freelancers have participated in skills development training in the past 6 months, as compared to 36% of traditional employees
  • 19% of Freelancers earn $75,000 to $99,999 per year, 12% earn $100,000 to $149,000 per year and 5% earn $150,000 or more per year
  • 58% of freelance workers in the United States have worked with more than 5 clients in the past 6 months
  • 58% of traditional employees who are WFH due to the pandemic are now considering Freelancing in the future

Thanks for reading,

Kim

Image: A Freelancer in America at work

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Will the “Great Resignation” be Great for Freelancers?

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Americans are quitting their jobs. In behavior apparently ignited during the significant chunk of time spent away from offices as a result of the coronavirus shutdown, a surprising number of American workers have decided that they’re not going back to business as usual.

A LinkedIn survey revealed that 46 % of respondents felt that the time spent at home — either on lay-off or working remotely — during the pandemic shutdown led them to rethink their current work situation. The U.S. Department of Labor reported that during April, May and June 2021, 11.5 million workers gave notice. The February 2021 Microsoft Workplace Confidence Index survey of more than 30,000 workers showed that 41 % of American workers are considering quitting; that number increases to 54 % when looking solely at Gen-Z employees. If that’s not enough, a new Gallup survey found that 48 % of workers are actively job-hunting.

Upwork, the online marketplace for Freelance assignments, released a report in August 2021, “The Great Resignation: From Full-time to Freelance,” yet another examination of why American professionals are leaving, or seriously thinking of leaving, their current full-time employment. As many businesses anticipate a return of their employees to the office, sometimes on a limited basis, the survey of 4,000 workers showed that some professional-level employees are not willing to surrender their WFH work-life balance. Approximately 9 million pandemic WFH employees, 17% of professionals, apparently would consider looking for another job if forced to return to the office on a full-time, or even part-time, basis.

Needless to say the “Great Resignation,” as the phenomenon was named by Anthony Klotz, Associate Professor of Management at Texas A & M University, has the potential to create significant disruption for many organizations if it should come to pass in the way that several studies indicate. Already, workforce development experts are advising in particular mid-size organizations, who cannot compete for talent in the way that big businesses are able to do, to find an opportunity in the instability and tap the power of the growing on-demand workforce—Freelance consultants, that is.

Rather than scrambling to hire employees on short notice, company leaders would be better served by supplementing their teams with talented Freelancers—you and me, my friend—who own the skills needed to successfully tackle any project, from designing eye-catching websites, to managing a multi-platform social media campaign, to conducting comprehensive research projects. Instead of paying both high salaries and benefits for full-time employees, mid-size organizations can access top-drawer Freelance talent on a per project basis and keep overhead down as they achieve objectives.

No doubt many company leaders will first attempt to squeeze more work out of current employees, but that all-too-common default behavior probably won’t fly anymore. In fact, that habit could partly explain why valuable team members quit. The bosses will be nervous and may not know where to turn. Still, deciding to outsource and bring in Freelance talent may quickly be seen as inevitable.

So how might Freelancers cash in on the “Great Resignation?” Carpe diem—-you know how to do that! Start by putting yourself in the shoes of an employer who has a mission-critical project, a deadline and a team that’s down two key players. Below are sources that would be familiar to employers looking for Freelance talent so that an important job will get done. You’ll also find a credibility building resource that when you commit to using it will showcase you as a very attractive candidate to hire.

  • LinkedIn Populate as many categories of your profile as possible and be certain to include examples of your best work. If you haven’t participated in ProFinder, the service where employers solicit Freelancers for projects, create a profile and be prepared to quickly respond to employer requests. Only five Freelancers may bid on a project.
  • Upwork and Fiverr These gig worker marketplaces seem to be more welcoming to web designers and IT programmers, but I was hired for a writing project on Upwork three years ago. To get hired, you must search for and pursue assignments and at Upwork, you’ll wind up paying a small fee to bid on a job.
  • Help a Reporter Out. Prospective employers will surely type your company name into a search engine to see what comes up. In addition to great content that you’ve written and your social media sites, include as well your insightful quotes that have appeared in relevant publications. Quotes are an excellent way to demonstrate your know-how and convince prospects that you’re a good hire. https://www.helpareporter.com/sources/

Thanks for reading,

Kim

Image: An office in Palo Alto, CA circa 2000