Cover Package: Regulatory Compliance No Federal Regulatory Relief in Sight

Compliance burdens are a fact of business life.

By Robert J. Grossman February 1, 2013

0213cover.gifA major bone of contention in last year's presidential campaign was what Republicans call "job-killing" regulations.

Former Gov. Mitt Romney pledged to roll back paperwork and environmental regulations and to repeal Dodd-Frank financial reforms and most of the Patient Protection and Affordable Care Act.

But President Barack Obama's re-election means his administration will continue to follow an aggressive regulatory philosophy that draws frequent criticism from the business community and conservatives.

Still, Obama remains boxed in. With the House under GOP control, prospects for passing measures supported by Democrats and unions—such as the Equal Pay Act and the Employee Free Choice Act—are virtually nil.

The president is making overtures to business leaders and will try to engage and cajole them in an effort to win more support and restore economic growth. He is often willing to step in where Congress won't. In many areas, he's prepared to rely on executive powers to move his agenda. The executive order on immigration last August, which allows certain illegal immigrants to apply for work permits and deportation deferral, is an example of such a White House strategy.

On the regulatory front, federal officials will operate under legislative authority already on the books. They will turn up the heat using rulemaking and stepped-up enforcement, pushing to the limit to protect workers.

The fact is, under either party, regulatory agencies deploy a mix of tactics to foster compliance with employment laws. But, even in today's polarized and contentious political climate, moderation rules. The business of government is conducted either center-right or center-left, depending on who is in power.

Burgeoning Burden

In a recent survey, 52 percent of business owners and executives ranked regulatory burden among their top five concerns. One-third of the respondents had been fined or penalized an average of 6.4 times during the previous 12 months for not complying with government regulations, according to a May 2012 report from the ADP Research Institute.

Since passage of the Regulatory Flexibility Act of 1980, federal efforts have been under way to control relentless growth of regulation and compliance activities. They include:

  • Cost-benefit analyses of new regulations.
  • Identification of alternative ways to achieve regulatory objectives.
  • Review of existing regulations.

According to U.S. Office of Management and Budget analysis, "The estimated annual benefits of major federal regulations … from Oct. 1, 2000, to Sept. 30, 2010, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $132 billion and $655 billion, while the estimated annual costs are in the aggregate between $44 billion and $62 billion. These ranges reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated."

As the federal researchers noted, benefits and costs for many rules, such as future benefits of some disclosure requirements, cannot be quantified.

Federal officials will turn up the heat using rulemaking and stepped-up enforcement, pushing to the limit to protect workers.

Despite these purported benefits, small and midsize employers in particular say the costs associated with time, dollars and red tape have grown. A study conducted for the U.S. Small Business Administration found regulatory costs rising to at least $1.7 trillion annually.

This year, for instance, the number of federally mandated coding categories of illness and injury for Medicare reimbursement to hospitals will rise from 18,000 to 140,000. Nine new medical codes for certain electronic health care transactions relate to injuries caused by parrots, and three relate to burns from flaming water skis.

What to Expect

The Obama administration's agenda will feature plenty of new rulemaking with HR implications. Some regulatory proposals are now at the comment stage; others are pending final reviews or are on tap to be issued any day.

Here are some priorities driving regulators in the coming months:

Health care.

By 2014, businesses with 50 or more full-time employees are required to offer health coverage to full-time employees. Under "play or pay," employers that opt out will pay a $2,000 penalty per worker, excluding the first 30.

With health care insurance costs averaging $6,000 for an individual plan, business leaders must weigh the merits of providing insurance or paying the penalty. Currently, only 28 percent of companies that employ large numbers of low-income workers offer health benefits, according to the Kaiser Family Foundation. This financial decision is only one of many steps in complying with health care reform. New regulations set forth the minimum coverage employers must provide to avoid penalties and detail what they need to know to figure out if the law applies to them—how to determine who must be counted as "full time," for example.

Labor law.

Controversy surrounding the National Labor Relations Board will continue through 2013. Critical appointments to senior slots need to be made, but it is believed that filling NLRB vacancies is not atop Obama's to-do list. Nominations will come, but probably later in the spring.

Meanwhile, court challenges are pending regarding the validity of the president's prior NLRB recess appointments. In the balance: the legitimacy of recent board decisions and rules, many of which are viewed as pro-union. They include:

  • The "quickie election" rule that proposed shortening the time period before a certification election must be held.
  • The Specialty Healthcare decision that permitted micro-bargaining units to select union representation.
  • A rule proposing that employers must post an explanation of workers' rights to organize under the National Labor Relations Act (NLRA).

When the court issues are resolved and a full board, with at least three members, resumes or is appointed, the NLRB will be controlled by Obama appointees. If the earlier board's actions are nullified by the court, the NLRB may revisit them and then move ahead with actions that will make it easier for unions to organize.

The board is likely to continue to interpret the NLRA expansively. The act grants rights to most U.S. workers, not just unionized workers, a fact that many small and midsize employers and their workers may not know. For example, many are unaware that, under Section 7, they can't fire people for discussing terms and conditions of employment. The NLRB and its general counsel's office will be examining work rules and personnel and social media policies in nonunion and union facilities to ensure compliance with the act.

Equal employment opportunity.

The U.S. Equal Employment Opportunity Commission will continue to attack "systemic" discrimination, looking for patterns and practices that affect protected classes. The EEOC's goal is to make headlines when it wins or negotiates eye-popping settlements, as it did with regularity last year. In November 2012, the commission announced that it concluded fiscal 2012 with record recoveries against employers. It secured $365.4 million in monetary damages, a $700,000 increase from fiscal year 2011 and the highest level of monetary relief ever reported.

Focused on eliminating systemic barriers in recruitment and hiring that adversely affect protected groups, investigators will be examining screening tools such as pre-employment tests, criminal background screens and online searches that tell employers the age of applicants. A regulation that would potentially limit employers' ability to check credit reports without demonstrating a valid business need remains under consideration.

Disparate pay, job segregation and harassment will also be priorities, as will issues related to the enforcement of the Americans with Disabilities Act.

Wage and hour laws.

Expect increased enforcement of wage and hour violations as well as more audits to determine if employers are properly classifying workers.

Under the Fair Labor Standards Act (FLSA), the Wage and Hour Division of the U.S. Department of Labor will be expanding record-keeping requirements. The DOL's long-delayed "right to know" rule may finally be issued and may compel employers to provide employees details about how their pay is calculated. The rule might require a "classification analysis" for each worker an employer excludes from FLSA coverage or deems ineligible for overtime. Are these workers independent contractors or employees? Are they full- or part-time workers? Exempt or nonexempt? In addition, auditors will target employers that fail to pay college interns properly.


New regulations for the U.S. Occupational Safety and Health Administration's (OSHA) Injury and Illness Prevention Program are anticipated this spring. Employers will be required to identify workplace hazards and take corrective or protective measures. Employers may even be asked to address ergonomic issues, which have been on OSHA's back burner since the Clinton administration, and their impact on health and safety.

Common Pitfalls: The Devil Is in the Details

By Jonathan A. Segal

Here are 10 common or potential regulatory hurdles that may confound employers:

1. Under the Fair Labor Standards Act (FLSA), a meal period of less than 30 consecutive and uninterrupted minutes is work time unless "special conditions" exist. Be prepared to litigate hard to establish those special conditions. Bon appetit.

2. What constitutes "exercise of discretion and independent judgment" for the administrative exemption? The FLSA definition is as clear as mud.

3. The FLSA does not permit docking pay for exempt employees who are ready, willing and able to work when the employer shuts down, for example, for holidays or weather emergencies. Don't jeopardize exempt status by treating these employees like nonexempts.

4. Expect more age discrimination claims as some Baby Boomers postpone retirement and others re-enter the workforce.

5. Under the Americans with Disabilities Act, the U.S. Equal Employment Opportunity Commission all but suggests that employers should assume that an employee has a disability, ensure nondiscrimination and make accommodations where reasonable. Expect the EEOC—and probably many courts—to spend less time on threshold coverage questions.

6. When it comes to making hiring decisions based on criminal records, the EEOC prefers that employers make individual assessments. The agency's aggressive position will be tested in the courts.

7. Family and Medical Leave Act regulations allow employees to take extraordinarily short periods of leave. Unscheduled intermittent leave continues to flummox employers, but call-in policies can help.

8. Employers cross the border into problematic territory for not purging I-9 forms when permitted, if such forms are not in compliance.

9. The Uniformed Services Employment and Reemployment Rights Act requires employers to work to re-employ service members. They have to track factors from compensation to promotions employees would have received had they not been on military leave.

10. Proposed rules for the Labor-Management Reporting and Disclosure Act would make those who advise employers "indirect persuaders." That means an employer might have to report that a lawyer gives advice on how to stay union-free. This arguably is a government intrusion into attorney-client privilege.

The author, a contributing editor of HR Magazine, is a partner with Duane Morris, a Philadelphia-based law firm.

But the debate about this "find and fix" program is just heating up, and the new regulations may not come to pass. Opponents point to employers' costs and time lost in developing and implementing the plans. They also question their necessity.

The agency is expected to issue a final rule that requires industries rated in the bottom quartile in workplace safety to complete OSHA logs. The "most dangerous" quartile list is revised every 10 years. Lobbyists for some industries that may appear on the list for the first time—such as new auto dealerships—are objecting to the dubious distinction as well as the additional paperwork and reporting.

The number of OSHA inspections is expected to continue to trend upward, as is the number of citations issued.

Federal contractors.

The Office of Federal Contract Compliance Programs' authority covers the estimated 25 percent of employers that do business with the federal government. This year, the OFCCP plans to focus on discrimination against veterans and people with disabilities. New regulations may increase reporting requirements.

One proposed regulation would require federal contractors to conduct more in-depth analyses of recruitment and placement actions under the Vietnam Era Veterans' Readjustment Assistance Act. It would also compel numerical targets to measure effectiveness.

In furtherance of Section 503 of the Rehabilitation Act, the agency has proposed establishing a "national utilization goal of 7 percent for the employment of individuals with disabilities on each job group of a contractor's workforce."

Applicants would be asked to self-identify as having disabilities, and contractors would have to survey their workforces annually for disability status.


The U.S. Department of Homeland Security's Immigration and Customs Enforcement (ICE) can be expected to continue its aggressive audit campaign, holding employers responsible for administration of I-9 forms that must be compiled and maintained for all workers. From ICE officials' perspective, these audits are proving more effective and less disruptive than raids.

In 2011, failure to execute the I-9 form or comply with its complex requirements led to more than $10 million in fines. There were 2,500 audits—a fivefold increase in just three years—and the number is projected to grow. Currently, ICE is holding back a revised I-9 form. Originally scheduled for implementation in August 2011, the form is being delayed after a deluge of employer objections during the comment period.

Inconsistent enforcement is a problem. In some regions, ICE officials are more enforcement- and fine-oriented. In others, they are more willing to bargain the amount of fines and to be flexible in setting employers' deadlines.

Comprehensive immigration reform also may resurface in 2013. If it does, some politicians may seek to make use of E-Verify mandatory for all employers. Use of E-Verify is already mandatory in some states.

Prospects are not favorable for employers longing for regulatory relief. Even without congressional support, the administration is taking action.

Fiscal Cliff Hangover

Meanwhile, the deal reached by the Obama administration and Congress to address last year's "fiscal cliff" has implications for employers. Budget cuts will require the government to pare down, and that means agency budgets are likely to take hits. To take up the slack, the administration will be looking to beef up whistle-blower rewards and protections, in effect deputizing workers to substitute for shrinking staff. Whistle-blower cases are projected to double this year. The Department of Labor's fiscal 2013 budget would allocate an additional $5 million above last year's OSHA funding to carry out whistle-blower programs for 21 statutes.

With fewer investigators, agencies will defer more to plaintiffs' lawyers as stand-ins for prosecutors when violations occur, waiting for them to initiate and pursue individual and class actions.

Funding cuts may cause the aggressive investigatory and auditing initiatives from executive agencies to pack less of a wallop. On the other hand, as agency officials fight for funds, they will bolster their cases by demonstrating outcomes tallied by number of audits, fines collected, citations issued and judgments won.

Either way, prospects are not favorable for employers longing for regulatory relief. Even without congressional support, the administration is taking action through executive orders, rulemaking and vigorous enforcement. Employers will have to dig in and do their best to comply. Best advice is to keep informed, meet reporting deadlines and complete paperwork carefully.

The author, a contributing editor of

HR Magazine, is a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.


Hire the best HR talent or advance your own career.

Move your HR career forward.

Apply for the SHRM-CP or SHRM-SCP exam today! Applicants now have the option to test from home.

Apply for the SHRM-CP or SHRM-SCP exam today! Applicants now have the option to test from home.



HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.