Payroll Insights
December 16, 2022

Yes, we must talk about inflation: The 2022 U.S. HCM compliance year in review

Compliance in 2022 challenged employers to become more agile. Discover how inflation, minimum wage, pay equity, paid leave, AI, and more changed the compliance and legislation landscape this year.

Table of Contents

The good news for 2022: We didn’t hear the words “COVID,” “pandemic,” or “unprecedented” quite as much as the prior two years. COVID-related laws and guidance tapered off significantly in 2022, with many laws and mandates expiring.

Overall, the year felt more hopeful because the world seemed to make strides out of the black cloud of the pandemic. Although this caused some Ted Lasso “Believe” optimism in a lot of people, the bad news for 2022 is that we replaced a few of our least favorite buzzwords with new ones, like “the Great Regret” and “quiet quitting.”

Let’s look at what 2022 brought us (besides the first World Cup in November/December, a slapping incident at the Oscars, and Bennifer 2.0). In compliance land, there were some common themes that we discussed in last year’s article, like minimum wage and leave, but we also got to know some new kids on the block like artificial intelligence (AI) and salary information disclosure laws.

The new “I” word: Inflation

Inflation was one of the biggest trends of 2022.I It affected the workplace (and the world in general) in what felt like countless ways this year. And it didn’t just impact organizations’ bottom lines. Employees really felt financial strain, especially when they were reminded of it everywhere – at the gas pump, the grocery store, and even when buying concert or movie tickets. And to add insult to injury, in many cases, consumers  got less bang for their buck due to “shrinkflation.” I would like my five chips back, please!

Many employers scrambled to figure out how to help their employees, especially because organizations had still been grappling with recruiting and retention issues due to the pandemic and the Great Resignation. In addition to salary increases (which look like they will continue into 2023), organizations explored various ways to keep their employees happy and help ease inflation woes by offering things like financial wellness benefits, hybrid or remote work, on-demand pay, bonuses, and more time off.

Minimum wage is on the rise

While minimum wage increases are often a mainstay on an annual compliance lookback, they were often higher this year because of, you guessed it, inflation. This year brought the usual rounds of scheduled increases and cost-of-living adjustments across numerous states and locales (especially California), with many increases occurring in July and more coming in January 2023.

There were also a few unique minimum-wage developments this year. Some changes arose due to ballot initiatives in the November election. For example, Nebraska voters approved a ballot initiative that will raise the state’s hourly minimum wage through yearly increases until the minimum wage reaches $15.00 per hour on January 1, 2026.

Nevada also made a big change to their minimum wage structure via a ballot initiative. Currently, employers that offer qualified health benefits to their employees may pay a lower minimum wage. However, in the November election, Nevada voters approved a ballot initiative to eliminate the two-tier minimum wage system, effective July 1, 2024.

But courts also got involved in at least one state. In Michigan, there is pending litigation that may affect the minimum wage rate. In response to a recent court opinion, significant changes to Michigan’s minimum wage law, which may include adjustments for inflation, are anticipated in February 2023.

Pay equity and salary disclosure laws are all the buzz right now

Pay equity and pay policy initiatives have continued their evolution in 2022. In the continuing interest of promoting wage fairness and transparency, many jurisdictions have enacted pay equity/salary information disclosure laws. This year, several jurisdictions in the New York area, including New York City, Westchester County, and Jersey City passed laws related to salary transparency. (The New York State Legislature also passed a salary disclosure law that, at the time this blog was being written, had just been delivered to the governor.)

Washington also amended its existing wage and salary disclosure requirements under the Washington Equal Pay and Opportunities Act. Under the expanded requirements, in postings for job openings, covered employers must disclose the wage scale or salary range for the position and provide a general description of all the benefits and other compensation offerings to hired applicants.

And, of course, there’s California. California amended its existing salary history information law to strengthen its pay scale disclosure requirements. This amendment was also part of legislation that expanded pay data reporting by adding new data elements, a new deadline, and technical updates. 

Since these salary information disclosure laws are likely to continue popping up in more jurisdictions, as a best practice, employers may wish to begin gathering and providing this information regardless of jurisdiction, since it may simplify further compliance with new laws as they come around.

Benefits are expanding

For several various reasons this year (e.g., inflation, the pandemic, the Great Resignation), many employers were looking to expand their employee benefits offerings to help recruit and retain employees. Some of the expansions we saw this year included:

Additionally, state retirement savings laws continued to trend. Currently, there are quite a few states with retirement program mandates to help individuals save for retirement. Some programs are already active, while others are awaiting implementation. This year, we saw Hawaii and Delaware enact new programs. 

Although talk of COVID finally waned this year, public health leave was still in the news, with public health emergencies being declared for monkeypox and other respiratory illnesses. Additionally, some jurisdictions extended their COVID leaves (e.g., Philadelphia and California).

The paid-sick-leave landscape was a little quieter this year, although Bloomington joined the party. San Francisco voters approved a new type of public health emergency leave that requires employers to provide a separate, annual bank to be used during qualifying public health emergencies. There’s also drama surrounding paid sick leave in Michigan, but currently, the changes are on hold until February.

On the paid family and medical leave (PFML) front, the trend of state-administered programs (where the employer collects premiums and remits them to a state fund) seems to be the preferred method. Delaware and Maryland both joined that club this year (though their programs will need some time to get up and running, so contributions won’t begin for a while). Contributions for the programs in Oregon and Colorado will start in 2023, and New Hampshire’s unusual voluntary plan, which is the first voluntary PFML plan in the country, is also set to begin next year. (Vermont also quickly followed in its neighbor’s footsteps.)

And a few states expanded their qualifying leave reasons. Washington added child bereavement as a qualifying reason for PFML, and Illinois added an unpaid family bereavement leave benefit.

Worker classification is still raising questions

As always, worker classification remained a hot-button issue in 2022. The process of determining whether a worker is an “employee” or an “independent contractor” is complex and generally dependent on fact and situation-specific tests that vary across jurisdictions and agencies.

Independent contractor classification laws are often impacted by politics and may be subject to change when there is a change in an administration. While the last administration generally took a friendlier view toward independent contractors, the Biden administration has indicated that it will “continue to prioritize action to prevent and remedy the misclassification of workers as independent contractors….”

We saw the beginning of such prioritization this year with the U.S. Department of Labor publishing a proposed rule to revise its independent contractor regulations. The proposal would rescind and replace the regulations adopted by the Trump administration and implement new rules that could make it harder for employers to classify workers as independent contractors under the Fair Labor Standards Act (FLSA).

Certain states and localities have also increased investigations, enforcement, and penalties related to independent contractors. For example, New York extended whistleblower protections to independent contractors, D.C. extended its Human Rights Act’s protections to independent contractors, and Seattle released final rules and further guidance for its Independent Contractor Protections Ordinance.

Are robots taking over?

Not yet at least. But the discussion and debate over using AI tools in the workplace certainly had a moment this year.

New York City adopted the nation’s first law restricting the use of AI in hiring by regulating the use of “automated employment decision tools” in the hiring and promotion process. The law will prohibit the use of such tools unless the employer can provide public access to the results of a recent “bias audit.” It was set to become effective January 1, 2023, but the city has announced that enforcement of the law will be postponed until April 15, 2023.

The federal government also took initial steps toward providing guidance on the use of AI in the employment process, with particular focus on the interplay of AI and the Americans with Disabilities Act. An EEOC technical assistance document assists employers with evaluating their use of AI and similar software to ensure the tools are not being applied in a way that reduces employment opportunities for qualified individuals with disabilities. Additionally, the U.S. Department of Justice also issued a similar guidance document on this subject.

This year is just the beginning of government scrutiny of AI. Further guidance on the interplay of AI and other equal employment opportunity laws may be forthcoming from federal agencies, and more jurisdictions are expected to follow New York City’s lead by enacting their own AI tool restrictions.

Looking forward

What will 2023 bring for the compliance space? Only time will tell, but we’ll most likely continue to see the old standbys like leave, minimum wage, and pay equity initiatives. Additionally, a few themes from 2022 are sure to carry over into the new year, including inflation, recruitment and retention worries, and AI. And, of course, we’re willing to bet there will be new compliance challenges in 2023 that our crystal ball failed to predict.

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