2023 Laws and Regulations That Change Payroll Processing
2023 Laws and Regulations That Change Payroll Processing

The emergence of COVID-19 led to substantial alterations in the workplace, including the adoption of a hybrid work model and the enforcement of compensation entitlements for individuals affected by the virus, all of which were supported by US labor regulations.

Given the circumstances, notable adjustments are being made to labor policies in the United States, rendering some of the policies diligently adhered to in 2022 which were obsolete in 2023.

In this article, we’ll look into the new and updated employment laws that employers should be aware of.

So without further ado, let’s get started.

3 Changes in Federal Labor Law

In order to get the payroll right and avoid payroll processing challenges, employers must know and follow new employment laws. Here are the federal labor law changes of 2023:

1. Employee Overtime Exemption to Be Increased

The federal Fair Labor Standards Act mandates that employees must receive a minimum salary of $684 per week or $35,568 per year to be considered exempt from overtime pay, with some exceptions. The current administration under President Biden has suggested that the salary threshold for white-collar exemptions may be increased, but as of writing, no proposal has been published by the U.S. Department of Labor. IBN Tech closely monitors any updates regarding federal overtime regulations, and all our clients are promptly informed of any changes as soon as they are made public. If you want to get the update, sign up for our newsletter.

Meanwhile, several states and localities have changed their minimum salary thresholds for exemption:

Source: PGC Group

Moreover, though an employee working in a computer-related occupation must earn at least $27.63 per hour or $684 per week to be considered exempt from receiving overtime pay as per federal regulations, the following states have changed the exemption requirement for their state:

Colorado: $31.41 hourly (proposed, yet to be finalized through legislation)

California: $53.80 hourly, or $112,065.20 annually

2. 401(k) Limit Increases

The federal ‘highly compensated’ threshold will be raised from $135,000 to $150,000. As a result, individuals who earned $150,000 or more in 2022 will not be eligible to contribute to their 401(k) plan in 2023. Moreover, modifications have been made to both the Traditional 401(k) and the Roth 401(k):

Traditional 401(k)

Employee contribution cap: $22,500 (a $2,000 increase from 2022)

Catch-up deposits for individuals of and over 50 years: $7,500 (a $1,000 increase from 2022)

Roth 401(k)

Maximum yearly contribution: $6,500 (a $500 increase from 2022)

IRA catch-up contribution limit for individuals of and over 50 years: Remains at $1,000

3. HSA Contribution Tend to Increase

The yearly federal inflation-adjusted cap on HSA contributions for self-only coverage will rise from $3,650 to $3,850, while the limit for family coverage will increase from $7,300 to $7,750.

If employees select a qualifying medical plan, this presents a pre-tax advantage, as they can allocate income to this account before taxes, reducing their taxable income for the year and saving pre-tax funds for any qualified health and wellness expenses.

State-Wise Payroll Laws and Regulations Update

Here is a state-wise list of employment laws that have come into effect during the latter half of 2022 or are scheduled to take effect in 2023:


Minimum Wage

Starting January 1, 2023, all employers in California will have to pay a minimum wage of $15.50 per hour to their workers, irrespective of the number of employees. Additionally, numerous cities and local governments have established their own minimum wage regulations that exceed the state minimum wage.

Mandatory Bereavement Leave

Starting January 1, 2023, California law mandates that eligible employees must receive five days of unpaid bereavement leave following the death of a qualifying family member. Eligibility requires 30 days of prior employment, and the leave can be taken intermittently within three months of the family member’s death. The employer can request documentation of the death and burial services. Moreover, the employee can use paid vacation, sick leave, personal leave, or compensatory time off during this period.

2023 Pay Transparency Law

The new law mandates that if an employer has a workforce of 15 or more employees, they must provide the pay scale for any job opening in both internal and external job postings.

In case the employer uses a third party to publish or announce the job posting, they must provide the pay scale to them, which must include it in the job posting.

To be noted that the term “pay scale” refers to a range of hourly wages or salaries, as per California Labor Code section 432.3, and does not include bonuses, equity, or any other form of compensation.

The law also enforces the following:

An employer must provide employees with the pay scale for their current position upon request.

Private employers with at least one employee in California and a workforce of 100 or more must submit an annual pay data report to the California Civil Rights Department (formerly known as the Department of Fair Employment and Housing) that includes median and mean hourly rates based on race, ethnicity, and gender for each job category. These reports will be publicly accessible.

Employers will be subject to civil penalties if they violate this law, with fines of $100 for the first omission and $200 for each subsequent omission for each employee not included in the report.

California Privacy Rights Act

Starting on January 1, 2023, businesses that fall under the regulation must furnish a comprehensive privacy policy during the time of personal and sensitive personal information collection of job applicants and employees.

District of Columbia

Universal Paid Leave (Washington D.C)

Effective from October 1, 2022, the District’s Universal Paid Leave Act has been amended to increase the amount of leave eligible employees can take for prenatal, family, and medical reasons from 6-8 weeks to 12 weeks. It is worth noting that the District, not the employer, will provide payment for this leave, and the employee’s job will be secure while they are away.


Bereavement Leave for Child Loss

Starting from January 1, 2023, covered employers are obligated by law to grant up to 10 days of unpaid leave for various reasons, including but not limited to miscarriage, failed adoption matches, a diagnosis that adversely affects pregnancy or fertility, and stillbirth.

Eligibility and coverage will follow the same guidelines as those outlined by the federal Family Medical Leave Act (FMLA). Although this leave is unpaid, it’s essential to note that employees on leave will have job protection during this period.


Vacation Pay and Final Wages

Effective January 1, 2023, Maine has implemented “An Act Regarding the Treatment of Vacation Time upon the Cessation of Employment,” which mandates that employers with 11 or more employees in Maine must compensate their employees for all accrued vacation pay at the time of separation, no later than the employee’s next scheduled payday.

Rhode Island

Wage Discrimination

Starting January 1, 2023, it is illegal for employers to compensate any of their employees at a wage rate lower than that of other employees who perform comparable work, regardless of their age, race, sex, sexual orientation, gender identity or expression, disability, color, religion, or country of origin. For the purpose of this law, “comparable work” refers to work that requires comparable levels of responsibility, skill, and effort and is performed under similar working conditions.

Salary History Ban

Effective from January 1, 2023, employers are prohibited from utilizing an applicant’s wage history as a factor when considering them for employment, and they may not request such information from the applicant. This law aligns with those already in New York, Ohio, Colorado, and California.

Pay Range Disclosure

Employers must furnish applicants with the wage range for the position they are applying for upon request. Employers should provide this information before any compensation discussion takes place.

Washington State

Pay Range Transparency

From January 1, 2023, employers with a minimum of 15 employees must include the wage scale or salary range and a basic description of benefits in job opening postings. A job posting refers to any announcement that aims to attract job seekers, whether directly from the employer or indirectly through a third party. This requirement mirrors those established in New York, California, and Colorado.

Looking for the Payroll Laws and Regulations of Your State?

You should contact us if you’re looking for the payroll laws and regulations related to your state. We can help you streamline your employee payroll and keep you compliant with the latest laws, among other outsourcing payroll service benefits.

We offer other payroll processing services in addition to streamlining your employees’ pay and ensuring you follow state-specific laws and rules. They include automating payroll calculations, handling payroll taxes, offering direct deposits, making payroll reports, and helping administer employee benefits.

By partnering with us, you can free up valuable time and resources that would otherwise be spent on managing payroll in-house, allowing you to focus on other critical areas of your business.

Contact us or give us a call at +91-20-67680404, 24×7.

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