Along with dramatic changes in the global economy, the new year brought some significant new rules for businesses in the United States. If you’re a business owner you’re probably used to keeping track of regulations as they apply to your industry.
But these regulations are relevant to anyone who works for a business—that probably includes you. They affect the wages and overtime pay you’re entitled to earn and the medical leave you can request. It’s good to know your rights, especially where your paycheck is concerned.
Most notably, new regulations in 2021 respond to the ongoing COVID-19 pandemic—and the financial stress of the pandemic on small businesses—with another round of federal loans and grants. Several states updated their minimum wage and paid sick leave laws in the new year. And one older 2020 change deserves mention, since it provides small business owners with a lifeline if they face bankruptcy.
Unless stated otherwise, the regulations apply nationally to businesses across the United States.
The return of Paycheck Protection Program (PPP) loans
The United States government finished out 2020 with the Continuing Appropriations Act of 2021, extending further financial relief to small businesses after the first round of PPP loans ran out in August. The Act includes over $284 billion earmarked for U.S. Small Business Association (SBA) loans.
Business owners who already received a PPP loan, as well as first-time borrowers, are eligible to apply again for round two. As with the original loans, you can borrow up to 2.5x your average monthly payroll costs (up to the maximum amount) and apply for loan forgiveness.
The maximum loan amount is $2 million this time, scaled back from the $10 million maximum offered by earlier loans.
Previous PPP recipients are eligible if their business has 300 or fewer employees and faced at least a 25% gross revenue decline in 2020. Funds are also set aside for very small businesses (those with 10 or fewer employees), certain self-employed workers and independent contractors, food service operations, and nonprofits, among other groups.
The new legislation increases the list of loan-funded expenses eligible for forgiveness — including perishable goods, technology, worker personal protective equipment, and other operating costs. Big basic expenses, like rent, utilities, and wages, remain forgivable.
Because of the unique nature of PPP loans, which are designed to keep your business solvent, you don’t necessarily have to pay them back.
To qualify for forgiveness, businesses should spend at least 60% of their loan on payroll costs during a specific loan-forgiveness coverage time period—between 8 and 24 weeks (which can start and end whenever you choose).
At the end of this period, you’ll submit an official forgiveness application. Borrowers who needed smaller amounts of $150,000 or less can opt for a simpler single-page application to streamline the process.
How this affects business owners
A PPP loan can give your business a much-needed cash infusion, and if you went through the first round, you’ll have some insight into the (no doubt frustrating) process. Note that even if you received a first-round PPP loan you’re not guaranteed to qualify for the second round, though you can apply again.
And don’t let the forgiveness process wait too long. You have ten months after the end of your loan-forgiveness coverage time period to get an official application in (go directly through your lender or use the SBA website form). After ten months pass, you’ll have to start making payments.
For the PPP loan you can take your pick of lenders – the SBA has a helpful map to find a lender near you. All PPP loans have the same terms and interest rates regardless of the lender you pick, but you’ll still want to choose a good one that can help you sort through all the government legalese efficiently.
BlueVine is a lender you should seriously consider for PPP loans. BlueVine works with small businesses and self-employed sole proprietors, and they’ve streamlined the application process so it’s quick, simple, and ensures you’re doing everything you need to do to qualify for funding.
For “second draw” PPP loan applicants, BlueVine offers interest rates starting at 1.0% (!) and lets you borrow up to the $2 million limit if needed. You’ll have to get some paperwork ready, including bank statements, expenses, and (for $150K+ loans) proof your business sustained at least a 25% loss in revenue.
Act quickly – BlueVine and the SBA are only accepting loan applications through March 31, 2021.
If you plan to use the simplified application for loans of $150,000 or less, it’s a good idea to take a look at the longer application and make sure you have all your “ducks in a row,” including documentation to prove expenses; the SBA may request more info to cover their anti-fraud bases.
The IRS has gotten a lot of questions about the tax laws for PPP loans, and the December 20 legislation provided some clarity, though there may be more changes before tax time.
Any PPP loan money that is forgiven won’t count as taxable income, which is a huge relief to businesses and a departure from the usual procedure for the IRS.
However, any loan amount not forgiven will still be taxable.
Early 2021 tax changes brought some more good news for businesses.
In a reversal of previous legislation (and after pressure from the Senate, the American Institute of Certified Public Accountants, and elsewhere) the IRS announced business owners will be able to deduct expenses paid with any forgiven PPP loan amounts.
These include the basics like payroll, rent, and utilities, which are typically deductible, and any forgiveness-related expenses such as hiring an accountant to wade through the application.
How this affects business owners
If you’ve done any 2021 tax prep, you may have planned not to deduct PPP-related expenses, or put off filing for forgiveness altogether to avoid a tax hike.
Now that you can deduct anything you paid for with a forgiven loan—or a loan you reasonably expect to be forgiven—you should see a positive change to your bottom line. And go ahead and apply for forgiveness if you haven’t already, since the application takes a while to be approved.
Since pandemic-related closures and restrictions are still in place almost everywhere (depending on what state you live in), the savings may just help keep you afloat: that’s what the new legislation was designed to do.
Loans and grants for struggling businesses
The SBA oversees Economic Injury Disaster Loans (EIDLs) and Community Development Financial Institution (CDFI) loans, two programs small businesses can use to stay afloat.
Economic Injury Disaster Loans (EIDLs)
EIDLs have been available for a while to help businesses after federally-declared disasters. For many employers, the COVID-19 economic shutdowns have been pretty disastrous, and the SBA expanded the program in response. Application information should be available later in 2021.
Unlike forgiven PPP loans, EIDLs are considered taxable income and they need to be repaid.
Each EIDL comes with an advance grant of $10,000. This amount doesn’t need to be repaid, and it’s available even if you don’t accept additional EIDL loan funding or you already have a PPP loan.
The newest legislation gives EIDL grants a nice perk for 2021 — the $10,000 is no longer considered taxable income, and business owners don’t have to deduct the amount from their PPP loan forgiveness requests (as they were required to in 2020).
Community Development Financial Institution (CDFI) loans
For businesses in low-income and minority communities, decent loan funding can be harder to access. The federal government set aside $12 billion to fund these businesses, called Community Development Financial Institutions, through loans and even a few grants.
To qualify for EIDL assistance, your business should be located in a low-income community, have 300 or fewer employees, and be able to prove an economic loss of greater than 30%. Self-employed people, contractors, and sole proprietors are eligible to apply as well.
EIDLs have competitive terms — the fixed interest rate is only 3.75%, and drops to 2.75% for nonprofit organizations. The term length is substantial at 30 years, but you can pay the loan off faster if you choose, with no penalty.
How this affects business owners
If you’ve had an especially rough year, EIDL funding might give you an extra boost in addition to a PPP loan.
Government loans come with government rules. You’ll have to keep a careful record of how the loan is spent since the SBA only approves funding for business expenses (not extras like bonuses and dividends). And plan on making full, timely repayment to avoid any penalties.
Expansion of some state paid leave laws
Each state legislature writes its own paid leave laws, but there’s a detailed rundown at the Littler Workplace Policy Institute.
Six states — California, Colorado, Connecticut, Maine, Massachusetts, and New York — passed legislation giving employees broader access to paid family and medical leave. Unless stated otherwise, each law goes into effect on January 1, 2021.
The California Family Rights Act (CFRA) was expanded to increase eligible reasons for workers to take CFRA leave. Though the CFRA isn’t new, there are a few additions. Workers can now take paid leave to care for a grandparent, grandchild, or sibling, to support a family member deployed in military service, or to spend time with a new baby (both parents now get 12 weeks each).
Colorado’s 2021 updates require employers with 16 or more workers to offer one hour of paid sick leave for every 30 hours worked (up to 48 hours per year) and additional paid leave as needed during public health emergencies.
Connecticut’s Paid Family and Medical Leave Act (PFMLA) doesn’t officially get started until January 1, 2022. It’s shaping up to be one of the most extensive paid leave programs in the United States, covering all employers with at least one employee and offering 12 weeks of paid leave for qualifying reasons.
As you can imagine, this paid leave will cost a fair amount, and Connecticut employers are required to take quarterly payroll deductions to fund the program starting on January 1, 2021. The deductions aren’t huge — they’re capped at 0.5%, similar to Social Security deductions.
Maine’s new Earned Paid Employee Leave Law allows workers to take paid leave for any reason (most states have a list of qualifying conditions). Employees who work for an organization with at least 10 people — all employees, including part-time and temporary ones — earn one hour of paid leave for every 40 hours they work, up to 40 hours per year.
Massachusetts Paid Family and Medical Leave give employees 12 weeks of paid time to care for a family member (26 weeks for a family member on active duty in the military), and 20 weeks to recover from an illness of their own.
This program is also funded by payroll deductions set at 0.75% annually in 2021.
Employees who have worked at least 26 weeks for their employer can access 12 weeks of job-protected paid leave in New York state. The program is funded through payroll deductions of 0.511% of gross wages (capped at $385 annually), though employers can contribute as much as they choose.
The new sick leave law requires employers with fewer than 100 workers to provide 40 hours of paid sick leave per person (if you have fewer than five workers and netted less than $1 million in 2020, you can offer unpaid sick leave, but each worker still gets 40 hours).
Expiring March 31, 2021 — Federal Emergency Family Medical Leave Act (EFMLA) and Paid Sick Leave Act (PSLA) tax credits
These federal rules were part of the Families First Coronavirus Response Act, which sped through Congress in March 2020 as a pandemic response and extended many provisions in the original Family and Medical Leave Act (FMLA).
The EFMLA extended medical job-protected leave to 12 weeks (three months) for eligible employees to care for a child. The PSLA allowed for two weeks or 80 hours of paid sick leave if an employee was self-isolating with COVID-19 or caring for a family member who had symptoms.
Both acts applied to US workplaces with fewer than 500 employees; most small businesses fall into this category.
As of January 1, 2021, businesses are no longer mandated to provide EFMLA or PSLA leave. However, they can voluntarily offer this leave if an employee needs it, and until March 31, 2021, they can still earn a federal tax credit for doing so.
How these laws affect business owners
If your state expanded its leave program for 2021, you’ll want to read up on any additional state-specific requirements and adjust your budget so employees can take paid leave if necessary. If you’re required to take payroll deductions, let your employees know in advance where the money is going so they aren’t unpleasantly surprised.
As an employer, you’ll also need to make arrangements to cover eligible employees’ shifts or responsibilities during the leave period (employees can voluntarily help find coverage, but you can’t require them to do so). Some businesses will find this process easier than others.
Flexibility is key here — though workers are encouraged to give as much notice as possible before taking leave, they can’t anticipate when they’ll get sick. And if your employees are parents or caregivers for young children, they’re facing drastically reduced childcare options. Extended leave might be a necessity for them.
You may be able to earn tax credits, so keep detailed records of who goes on leave and for how long. More importantly, you’ll be helping your staff stay healthy.
Minimum wage increases
Twenty-seven states bumped their minimum wages in 2021 (for most states the laws took effect on January 1, while other states will implement them later in the year).
Minimum wage is a hot-button issue across the nation, but each state sets its own standards. With rising costs of living everywhere, it’s no surprise over half the states in the US decided to raise the wage. If you’re an hourly worker in one of these states, this is good news — you might be entitled to higher pay.
Some states made special 2021 increases with schedules for further raises in the next few years. Others adjust their minimum wage annually.
Business owners and employees in these states should know the revised hourly rates for minimum wage. Some states break wage divisions down further.
For instance, New York State and Oregon workers’ minimums will vary based on location and industry (NYC is more expensive to live in than the rest of the state, so workers’ rates are higher).
- Alaska: $10.34.
- Arizona: $12.15.
- Arkansas: $11.00.
- California: $13.00 (for employers with fewer than 26 employees); $14.00 (for employers with 26 employees or more).
- Colorado: $12.32.
- Connecticut: $13.00 (effective August 2021).
- Florida: $8.65, increasing to $10.00 in October 2021.
- Illinois: $11.00.
- Maine: $12.15.
- Maryland: $11.60 (for employers with fewer than 15 employees); $11.75 (for employers with 15 employees or more).
- Massachusetts: $13.50.
- Michigan: $9.87.
- Minnesota: $8.21 for employers with less than $500,000 in annual gross revenue; $10.08 for employers with $500,000 or more in annual gross revenue.
- Missouri: $10.30.
- Montana: $8.75.
- Nevada: $9.75 for employees without employer-provided healthcare; $8.75 for employees with healthcare (effective July 2021).
- New Jersey: $11.10 for employers with five or fewer employees and seasonal employers; $12.00 per hour for employers with more than five employees.
- New Mexico: $10.50.
- New York State: $12.50 (effective December 31, 2020).
- New York State fast-food employees: $14.50 (effective December 31, 2020; increasing to $15.00 in July 2021).
- New York City fast-food employees: $15.00 (effective December 31, 2020).
- Long Island/Westchester, New York: $15.00 (effective December 31, 2020).
- Ohio: $7.25 for employers with annual gross revenue under $323,000; $8.80 for employers with annual gross revenue of $323,000 or higher.
- Oregon: $12.00 for employees in rural counties; $12.75 for employees in urban counties; $14.00 for employees in the Portland metro area (all effective July 2021).
- Rhode Island: $11.50.
- South Dakota: $9.45.
- Vermont: $11.75.
- Virginia: $9.50 (effective May 2021).
- Washington: $13.69.
- West Virginia: $9.50.
How this affects business owners
As a responsible small business owner, you’re likely way ahead of me on this one. Minimum wage info can help you plan a long-term financial strategy as inflation progresses. Some states like California, Connecticut, Illinois, Maryland, Massachusetts, Michigan, New Jersey, and Oregon have rolled out planned increases for 2022, 2023, and beyond. Michigan’s projections go all the way to 2030. It remains to be seen if the pandemic and economic crash will affect these numbers. For now, plan to pay your workers at least the 2021 minimum in your state.
Though you’re spending more on wages, higher minimums may have a positive effect on your bottom line since they help prevent employee turnover. As this Houston Chronicle article says:
“Better wages often mean happier employees, and happier employees are less likely to leave a job.”
New salary requirements for “exempt” employees (in certain states)
Many businesses have two kinds of employees on the payroll: salaried and hourly workers. Salaried employees earn the same amount each week regardless of how many (or few) hours they work. They’re also known as “exempt” workers, meaning they can’t earn overtime pay for working over 40 hours weekly.
Hourly employees are paid only for the hours they put in. If they work more than 40 hours in a given week, they earn overtime pay or “time-and-a-half” — 50% more than their usual wages — for each additional hour. For payroll purposes, they’re considered “non-exempt” from overtime pay requirements.
What classifies an employee as salaried or hourly? The role itself makes a difference — salaried employees often have managerial duties that remain the same each week, for example, while hourly workers may perform shift work for companies with flexible staffing needs. But the main dividing factor is the weekly amount a worker earns.
In 2020 the US Department of Labor changed federal overtime laws, requiring businesses to treat employees who earn up to $684 weekly (or $35,568 annually) as hourly or non-exempt workers. Any worker earning at least this amount is entitled to overtime pay, or time-and-a-half beyond their usual wages after they hit the 40-hour mark. This legislation still applies in 2021.
But if state overtime laws set a higher maximum salary cutoff for overtime pay, workers in that state are entitled to the higher rate. Seven states — Alaska, California, Colorado, Maine, New York, Pennsylvania, and Washington — automatically raised this cutoff when they raised the minimum wage in the new year.
The 2021 minimum salary for exempt employees in Alaska is $827.20 per week — twice the new minimum hourly wage.
The 2021 minimum salary for exempt employees in California is $1,040 per week for businesses with fewer than 26 employees and $1,120 per week for businesses with 26 or more employees.
The 2021 minimum salary for exempt employees in Colorado is $778.85 per week, or enough to cover the minimum wage for all hours in a workweek.
The 2021 minimum salary for exempt employees in Maine is $700.97 per week.
New York state
Starting on December 31, 2020, the 2021 minimum salary for exempt employees in most of New York state is $937.50 per week, and $1,050 per week in Nassau, Suffolk, and Westchester Counties.
Since the minimum wage didn’t increase in New York City, the minimum exempt salary in NYC remains the same as last year.
Starting on October 3, 2021, the minimum salary for exempt employees in Pennsylvania is $780 per week.
The 2021 minimum salary for exempt employees in Washington state is $821.40 per week for employers with 50 or fewer employees, and $958.30 per week for employers with 51 employees or more.
How this affects business owners
As a refresher, any employee who earns less than the weekly cutoff in your state is considered “non-exempt” and must be paid time-and-a-half for any overtime hours they work.
Employers might have to reconsider staffing needs so everyone gets appropriate compensation—especially if your business typically requires long hours. If you don’t already have a system in place for workers to track their hours, now is the time to start one.
How you proceed depends on your needs and your industry. Some businesses may choose to cut back on or eliminate overtime hours for employees. Others might raise wages so employees formerly in the “hourly/non-exempt” range—anyone earning less than the minimum exempt salary in your state—earn enough to join the salaried bracket.
A weekly $684 paycheck (the national cutoff for overtime exemption, for anyone whose state isn’t on the list above) is still much lower than the national median weekly earnings in the United States, which the Bureau of Labor Statistics reports was around $957 in the first quarter of 2020. So this legislation is a major step towards higher pay for workers.
Commissions and bonuses can count towards up to 10% when calculating a worker’s total salary for overtime purposes if your business has a commission-based structure.
And one from 2020…Small Business Reorganization Act
The Small Business Reorganization Act came from the US Department of Justice in 2019 and took effect in February 2020. Congress passed it as an amendment to the infamous Chapter 11 of the federal Bankruptcy Code.
Small business owners often take on a lot of debt as they’re getting started. And as the coronavirus pandemic takes its toll on the economy, more businesses will likely join them. Some owners will be staring down the possibility of bankruptcy.
Enter the Small Business Reorganization Act, designed to increase options for small business debtors. Business owners who owe less than $2.7 million can choose to file for “subchapter V” of Chapter 11 bankruptcy. Once the coronavirus hit, Congress upped the limit to include business owners with up to $7.5 million in debt.
This process, usually long and expensive, has become quicker and more efficient. Among other perks, the act lets debtors retain control of their businesses with the goal of “reorganizing” and reopening as soon as financially possible.
According to the 2021 legislation, you’re not eligible to apply for a PPP loan if you’re in the bankruptcy process.
A small business filing for Chapter 11 bankruptcy can now take advantage of:
- Fewer requirements and potentially lower filing costs (for instance, debtors don’t need to file a disclosure statement or pay for a creditor committee).
- A private trustee named by the bankruptcy court to help with payments and restructuring.
- Exclusive rights to file a reorganization plan — previously creditors could file their own plans.
- Ability to control their business during the bankruptcy process.
This new path should make the difficult process of bankruptcy and rebuilding a lot easier.
How this affects business owners
2021 is set to be a tough year for small businesses as they rebound from 2020 losses.
Bankruptcy isn’t anyone’s first choice, but the Small Business Reorganization Act makes the process of filing for Chapter 11 more manageable. The changes are designed to increase business owners’ control and decrease creditors’ control of the process. You and your appointed trustee choose your rebuilding plan, and you save cash on filing costs. The Brookings Institution estimates the act will help up to 70% of bankruptcy-declaring small business owners in the post-pandemic fallout.
How will these regulations affect you? With changes to the PPP loan qualification process, a lot of businesses will be newly eligible to borrow. For instance, if you’re a sole proprietor, you can now potentially access PPP funding.
And if bankruptcy is on the horizon, the new path carved out by the Small Business Reorganization Act may be the smartest route to take. Look into EIDL grants and CDFI loans if your business is in a low-income community—increased funding for these programs means you may qualify this year if you didn’t last year.
For many workers, the new laws mean greater earning and bargaining potential. If your state raised its minimum wage and your employer doesn’t pay you at least that rate, shop around for a workplace that will. Similarly, if you’re newly eligible for overtime pay, make sure you get it — document your hours carefully.
Even if you aren’t affected by the changes, it never hurts to brush up on your employment rights as a worker.