Operations Insights
Deep Dive
December 11, 2023

We’re in our AI era: The 2023 U.S. HCM compliance year in review

In 2023, HCM compliance teams in the U.S. saw a wide range of challenges. Learn more about how inflation, AI, overtime, and pay transparency impacted organizations.

Table of Contents

So, what was the biggest thing in 2023?

Taylor Swift.

OK, yes, Taylor Swift and her record-breaking Eras Tour. It’s her world, and we’re just living in it. (Don’t blame me, but this blog article may even have some easter eggs that Ms. Swift would be proud of.)

Let me rephrase: What was the biggest thing in 2023 in the HCM space? If you said generative AI, you would probably be correct! However, 2023 also ushered in new buzzwords like coffee badging, career cushioning, and strike culture. We also heard a lot about the generational shift occurring in the workplace.

In the world of compliance, most of the common trends that we covered in last year’s article remained relevant and top of mind for employers in 2023, including inflation, AI, minimum wage, and leave. But each provided their own special spin this year. 

A cruel summer for inflation

Unfortunately, inflation didn’t end with 2022 and was again one of the biggest trends of 2023. It continued to have major effects on the workplace and the world in general. In fact, the high cost of living remains one of many employers’ top financial wellness concerns.

The good news is that there have been signs this year (at least as of the publication date of this article) that things are hopefully improving. However, both organizations and employees still felt the financial strain this year, and employers continued to try to alleviate workers’ inflation troubles in various ways, including by providing more traditional offerings such as increased wages and bonuses, as well as on-demand pay, financial wellness benefits, flexible work arrangements, and additional paid time off.

AI…Ready for it?

In last year’s version of this article, we asked whether robots were taking over. Although we tentatively answered not yet, it felt like the AI revolution had even more of a moment in 2023. And AI is definitely making its way into the workplace and intriguing, but also sometimes frustrating, employers (and judges).

In fact, in the spirt of embracing AI, I decided to ask ChatGPT about the ways in which AI can affect the workplace. It replied that “AI can have a profound impact on the workplace, influencing various aspects of how businesses operate and employees perform their tasks.” It also came up with a list of ways AI can affect the workplace that included:

  • Automation of repetitive tasks
  • Enhanced decision-making
  • Improved productivity
  • Personalized learning and development
  • Predictive analytics for HR
  • Collaboration tools and virtual assistants
  • Cybersecurity
  • Job displacement and transformation
  • Ethical and regulatory considerations
  • Remote work enablement.

ChatGPT also noted that “It’s important for organizations to carefully plan and implement AI technologies, considering the potential impact on employees, ensuring ethical use, and providing adequate training and support during the transition.” That sounds pretty similar to a lot of guidance in compliance and HR blogs on AI, so thanks for confirming, ChatGPT!

Now, on to some of the recent AI compliance developments.

On October 30, 2023, President Biden issued “a landmark Executive Order to ensure that America leads the way in seizing the promise and managing the risks of [AI].” According to the Fact Sheet released by the White House, among other things, this Executive Order (EO) is designed to establish new standards for AI safety and security; protect Americans’ privacy; advance equity and civil rights; stand up for consumers, patients, and students; support workers; promote innovation and competition; advance American leadership abroad; and ensure responsible and effective government use of AI.

Within the employment law context, to date most discussions about the regulation of AI have focused on concerns related to whether AI may facilitate or create bias and/or discrimination. Generally speaking, lawmakers have reminded employers of their existing, unchanged responsibilities to promote equal employment opportunity while confirming that improper or unsophisticated use of AI, machine learning, algorithms, and related technologies will not be defenses to claims of discrimination or denial of employment rights. Additionally, both federal guidance and state legislation have reminded employers that use of AI in selection procedures (e.g., hiring, promotion, firing) may result in disparate or adverse impact across a range of protected classes and categories.

Currently, New York City is the only jurisdiction that requires employers to proactively conduct/obtain a specific bias audit before engaging in the use of certain covered “Automated Employment Decision Tools” in the employment context. However, government scrutiny of AI is only expected to increase in the coming years. Employers should expect to see more guidance from various federal agencies, and more jurisdictions are expected to follow New York City’s lead by enacting their own AI laws, regulations, and guidance.

Look what inflation made minimum wage do

In 2023, due to several factors (namely, inflation), there has continued to be a lot of momentum behind wage rate raises in many states and locales. There were numerous increases and cost-of-living adjustments in July, and more are coming in January 2024. This continued flood of minimum wage increases seems to show that the federal rate of $7.25 per hour no longer works for many areas of the country. As of July 2023, 14 states and D.C. had a minimum wage greater than or equal to $12.50, and there are many localities that have even higher rates.

Many jurisdictions have established schedules for raising minimum wage rates. For example, Hawaii has set a schedule for regular increases in order to reach $18.00 per hour beginning January 1, 2028. Other states with similar gradual increases include Delaware, Florida, Nebraska, New York, Rhode Island, and Virginia.

Jurisdictions are also increasingly passing laws to phase out the tip credit. For example, this year, Chicago announced that beginning July 1, 2024, the lower minimum wage for tipped workers will begin to phase out until it is eliminated on July 1, 2028.

Additionally, other places are passing minimum wage laws targeting specific industries. For example, effective April 1, 2024, California will have an hourly minimum wage for fast food restaurant employees, and effective June 1, 2024, there will be an hourly minimum wage for certain health care workers. And pending the outcome of ongoing litigation, certain delivery workers in New York City may be entitled to higher rates. [Update, the Appellate Division, First Judicial Department upheld the higher wage requirements, effective immediately.]

So it goes…another proposed overtime rule

In 2023, the U.S. Department of Labor (DOL) revisited the federal overtime rule by issuing a proposed rule to update and revise the current regulations issued under the Fair Labor Standards Act (FLSA). The DOL proposed changes to the rule that implements the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees. Some of the most significant proposed changes include:

  • Raising the standard salary level to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. (At the time the proposed rules were issued, this change would raise the salary level to $1,059 per week ($55,068 per year) from the current $684 per week ($35,568 per year)); 
  • Increasing the total annual compensation requirement for highly compensated employees; and
  • Providing for automatic updates for salary thresholds every three years.

This new proposed rule certainly drew attention from a lot of interested parties with the DOL receiving over 33,000 submissions during the public comment period. The DOL will certainly have its hands full reading and responding to all these comments while it prepares the final rule. However, there are actions employers can take to begin preparing now.

Comply with pay transparency laws to avoid bad blood

Building on pay transparency law trend from 2022, there has continued to be a lot of movement in this area in 2023. In the continuing interest of promoting wage fairness and transparency, more jurisdictions are targeting wage inequality by requiring pay information in job postings.

In fact, a few new states joined the salary disclosure party in 2023. The beautiful state of Hawaii enacted a law that expands the state’s existing equal pay rules and creates a new a job listing disclosure requirement. Illinois amended its Equal Pay Act to create new pay transparency requirements, and effective January 1, 2025, covered employers must include the pay scale and benefits for a position in any specific job postings. Additionally, the Illinois law has disclosure requirements related to promotional opportunities for current employees.

Pay transparency laws also became effective in Albany County, New York in March and in New York State in September.

Colorado, who was really the initial pioneer for this type of law, decided to modify its original law. The changes, which are effective January 1, 2024, significantly amend the law regarding employment opportunities.

Since it appears that these laws are only continuing to gain traction and class action lawsuits are starting to crop up, as a best practice, organizations may wish to begin gathering and providing this information regardless of jurisdiction, since it may simplify further compliance with new laws as they arise.

Don’t leave a blank space on other hiring issues

In addition to salary transparency laws, various jurisdictions have been busy addressing other recruiting and hiring inquires, or what I’ll call: “Things You Can’t Ask During Recruiting.”

First, a couple of jurisdictions addressed inquiries related to criminal history. Effective April 24, 2023, Chicago amended its criminal history ordinance to better align with existing Illinois state law and to further expand employer restrictions and requirements. Modifications to California’s Fair Employment and Housing Act (FEHA) employment regulations regarding criminal history became effective October 1, 2023.

A couple of jurisdictions established new salary history bans, including Minnesota (effective January 1, 2024) and Columbus, Ohio (effective March 1, 2024). 

Next, Colorado passed a more unusual, novel law regarding age inquiry prohibitions. Under the Job Application Fairness Act, starting July 1, 2024, covered Colorado employers are prohibited from requesting or requiring individuals to include certain age-related information on an initial employment application. Such information includes an individual’s age, date of birth, or dates of attendance at or date of graduation from an educational institution.

Additionally, the Equal Employment Opportunity Commission (EEOC) released details for the 2022 EEO-1 Component 1 Data Collection. Although changes to the filing process were minimal, the EEOC did streamline multi-establishment reporting and address how to report non-binary employee data, virtual/remote workers, and workers at client sites. Notably, the file was only approved for one year, suggesting that there could be more significant changes next year.

2023 also brought about updates to certain federal onboarding forms, including a revision to the Office of Federal Contract Compliance Programs’ Voluntary Self-Identification of Disability Form (CC-305) and the end of Form I-9 remote verification flexibility for certain employers. The United States Citizenship and Immigration Services (USCIS) did approve a new procedure that permits participating E-Verify employers in good standing to remotely examine employee documentation via live video. However, employers who do not participate in E-Verify are not eligible to use the remote verification procedure, and are still required to use the physical, in-person document review process.

Employers know paid leave laws all too well

And no surprise here, but paid leave was again a top trend this year.

Under an Illinois law called the Paid Leave for All Workers Act, effective January 1, 2024, covered Illinois employers must provide earned paid leave for eligible employees to use for any reason. Some exceptions apply, including workers covered by a local paid sick leave requirement in effect on January 1, 2024.

With the state law’s effective date approaching, Chicago – one of the jurisdictions with an existing paid leave ordinance in effect – took the opportunity to repeal and replace their paid leave law with a novel, dual-entitlement approach. On November 9, the Chicago City Council passed the Chicago Paid Leave and Paid Sick and Safe Leave Ordinance, and the law is set to take effect December 31, 2023. The Ordinance takes a unique approach to paid leave entitlements by providing for two distinct leave banks of up to 40 hours each – one for paid leave and one for paid sick and safe leave. Each leave type has a few nuances, and additional guidance is likely to be provided by Chicago.

Additionally, Minnesota has adopted a statewide paid leave entitlement. Effective January 1, 2024, covered Minnesota employers must provide earned sick and safe time (ESST) to eligible employees.

And of course, we couldn’t talk about paid leave without mentioning California! Effective January 1, 2024, California has increased the benefits provided by its existing statewide paid sick leave law. As a result of the changes, workers’ rights will expand to provide a greater leave entitlement and increased accrual and carryover amounts. Additionally, the requirement that earning statements must provide notice of available leave now preempts local laws that don’t require such notice.

And finally, two more states have joined the growing list of jurisdictions with paid family and medical leave programs – Maine and Minnesota.

Organizations let employee benefits speak now

In what shouldn’t be a surprise to employee benefits specialists, benefits trends continued to evolve in 2023 as employers sought to fulfill the needs of their workplaces and employees. Some of the trends we saw this year included:

Additionally, federal student loan payments, which were paused in 2020 at the beginning of the global pandemic, resumed in 2023. Since this will likely be a financial blow to a lot of employees, many employers have been trying to figure out the best student loan debt benefits to offer to help ease the burden for their employees, including a new student loan payment match option under the SECURE 2.0 Act.

Predictive scheduling laws are nothing new

Another 2023 trend is something of an old favorite. Although predictive or fair scheduling laws (also known as fair workweek laws) have been on the employment compliance scene for a while, new laws are still continuing to pop up in various U.S. jurisdictions. These laws are usually specific to certain industries or workers within particular geographic boundaries. Key locations with laws around predictive scheduling include, for example, New York City, several California localities, Seattle, Chicago, Philadelphia, and Oregon.

And in 2023, California had some movement in this area.

Effective April 1, 2023, the Los Angeles Fair Work Week Ordinance (FWWO) applies to covered retail employers with employees working within the geographic boundaries of the City of Los Angeles. The law provides covered employees with predictive scheduling rights, including the right to receive predictability pay for certain work schedule changes and premium pay when insufficient rest is provided between work shifts.

Beginning January 12, 2024, the Berkeley Fair Workweek (FWW) Ordinance will provide covered workers with predictive scheduling rights, including the right to receive predictability pay for certain work schedule changes. Employees will also be entitled to minimum rest between shifts and will have the right to decline or receive premium pay for schedules that do not supply that rest. Coverage of the law varies by industry and employer size; it does not necessarily apply to every employer within the City of Berkeley.

Evanston, Illinois also adopted a Fair Workweek Ordinance that will become effective January 1, 2024.

Looking forward to New Year’s Day

What will 2024 bring for the HCM compliance space? Long story short, we’ll have to wait and see, but odds are some of the usual suspects like minimum wage, leave, and benefits will still be hanging around. Additionally, some of the new players such as AI and pay equity initiatives are very likely to top the list again, but we’re sure there will also be some new compliance challenges in 2024 that we couldn’t have thought up in our wildest dreams.

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