The new tax law passed winter of 2018 has been very controversial for a number of reasons. Critics say it’s going to increase the federal deficit by $1.5 trillion and its benefits are going to flow primarily to huge corporations and the very wealthy. Others say it’ll fuel economic growth with more business investment and hiring. But what hasn’t been talked about as much is how its provisions could impact the workplace and employers’ practices.
One big change comes in the area of employee sexual harassment claims. Until now, employers who settled such claims could deduct the amount they paid the accuser from their taxable income, even if the settlement was to be kept confidential under a nondisclosure agreement.
The tax bill eliminates this deduction. The idea behind this change is to discourage confidential settlements of sexual harassment claims. If employers settle these claims knowing that the public won’t find out about what happened and how much they paid, the feeling is that they won’t have much incentive to address the issue in the workplace. On the other hand, if they know they won’t be able to deduct the costs of these settlements, presumably, they’ll be more likely to take a proactive approach to stop such behavior in the first place.
It’s always been an employer’s responsibility to have good policies in place to address this issue, but it’s more important than ever with the new law, so it’s a good idea to talk to an employment lawyer and review your own policies to make sure you’re doing everything you can to prevent such misconduct.
Another big change is the new “paid leave credit.” Under the Family and Medical Leave Act, workers at companies of a certain size are entitled to 12 weeks of unpaid leave each year to deal with personal illness or take care of a sick family member. Under the new tax law, employers who offer paid leave instead can take a tax credit on a portion of the wages they pay to workers on leave as long as they’re paying these workers at least 50 percent of their normal wage. Obviously, the purpose is to encourage companies to offer paid family and medical leave without forcing them to do so. However, employers should note that this credit will only be available for two years before Congress takes another look at it.
A third major change is the elimination of the deduction employers have been taking for subsidizing their workers’ commuting costs. Before the new law, companies could provide parking and transit passes of up to $225 per month for their employees and then deduct these costs from their corporate taxes. But that’s no longer true. The logic behind this change is that many employers are getting a big corporate tax cut so they no longer need smaller individual deductions like this that make the Internal Revenue Code more confusing.
Employers that have been taking the deduction on employee commuting costs may now decide not to cover these costs anymore, leaving it up to employees — who can pay for commuting costs with pre-tax income — to cover these expenses themselves. That could lead to employees wanting more pay to replace this lost benefit.
This is all just the tip of the iceberg. Other provisions could potentially impact employer operations too. Talk to an employment attorney where you live to learn more.