Recap of Current Rule and Proposed Changes

The DOL’s current rule on the books — which was issued by the prior administration and has been in effect since January 2021 — offers a flexible standard for determining whether workers are independent contractors under federal wage and hour rules. It has helped shape today’s modern economy, as workers gain flexibility and an opportunity to work for more than one organization and businesses can adapt to shifting landscapes in light of recent labor shortages.

While the current test primarily focuses on two “core factors” — the extent of control exercised by the business over key aspects of the work and the worker’s opportunity for profit or loss — the proposed rule seeks to reinstate a rigid, multi-factor analysis. The focus will be on the “totality of the circumstances,” with an employee-friendly interpretation of how each of its six factors should be applied.

Several factors should not be surprising: the relative amount of investment made by the worker compared to investments made by the business, the permanency of the work relationship, the extent to which the work is an integral part of the organization’s business and whether the worker uses specialized skills to do the job.

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Hidden Landmines?

But where many organizations might get tripped up is with the “control” factor. The DOL’s proposal seeks to examine the nature and degree of the potential employer’s control, including legal obligations, safety standards or contractual or customer service standards that could indicate an employee relationship. While this seems like a standard factor that many organizations have grown accustomed to working with, further exploration reveals a deeper concern.

Buried in the proposal is the statement from the DOL that businesses that merely reserve the right to control certain aspects of the work — even if they don’t actually exercise that control — could be found to have an employee relationship with the worker.

Another subtle reference in the control standard is the statement that “electronic” supervision will be considered a form of control, as opposed to only considering control exercised through human interaction. This obviously is directed at app-based platforms that control service provider activities through automation. Staffing firms with independent contractor service models could be impacted as well.

Expected Impact and Next Steps

This change in rule and interpretation should cause staffing businesses to carefully review the agreements you have in place to determine whether revisions are needed. Process changes may be appropriate as well, particularly where service provider activities are tightly governed by agencies. Of course, there also may be a number of situations where contractors may need to be converted to a different status.

The DOL has announced it will accept comments from the public through November 28 before finalizing the rule. Once the agency has had a chance to review all comments, it will decide whether to revise the proposal before finalization. You can expect any such revisions to be minor in nature and not to impact the overall direction of the current proposal — and almost certainly will not sweep away the hidden landmine discussed above.

Once the process is completed, the agency will publish the revised rule, which will become the new law of the land — which you can expect in early 2023. There’s not much time to adapt to these changes, so your organization will want to start working with your staffing counsel to ensure your written agreements and management protocols are ready for what’s to come.

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Not-so Mini Budget

Kwasi Kwarteng’s statement towards the end of last month saw a wealth of revelations from the Truss administration. Perhaps the greatest shock for the recruitment sector was the repeal of the IR35 regulations. APSCo has been calling for a reversal on Off Payroll or at least a review of the legislation, which we felt was simply unsuitable for the modern world of work for some time. While we were surprised at the unexpected U-turn, it was certainly testament to the success of our public policy and lobbying teams who have worked tirelessly to communicate with the relevant Ministers and Government bodies to voice the concerns of the recruitment sector on this matter.

It was also highly promising to see the recognition that a localized, sector-based skills focus needs to be prioritized to drive growth. Changes to Income Tax and the reversal of plans to increase Dividend Tax will help grow the flexible workforce once again, following a decline in contractor activity post-IR35. And while plans for immigration reviews are in the pipeline, it’s encouraging to note that the government is currently recognizing the need to bolster the country’s skills and resources.

But that doesn’t mean that the talent troubles of the UK are over. In fact, the dearth of skills is still being widely reported. And according to our latest data, talent shortages could be set to increase further in the immediate future as salary increases fail to keep up with inflation.

PREMIUM CONTENT: The Talent Platform Landscape: 2022 Update

Staff Demand Soars While Salaries Drop

When looking at APSCo’s own Recruitment Trends Snapshot, it is certainly interesting to see the changes in pay over the last few years. Looking back on August 2020, when Covid restrictions were first beginning to ease, the number of vacancies and placements across permanent and contract roles had spiked. In fact, the number of permanent jobs added between August 2020 and August 2022 increased by 48%, while contract vacancies rose by 71%. However, despite the growth in demand for staff since Covid hit the country and the current cost-of-living crisis, average permanent salaries dropped by 8% during the same period.

The data, provided by the global leader in software for the staffing industry, Bullhorn, also shows a similar picture in pre-Covid comparisons, with remuneration dropping 7% between August 2019 and August 2022. This suggests that salaries across the professional recruitment sector haven’t risen despite the record-breaking inflation rates and increased demand for talent, forcing people to look for new roles that offer them a competitive salary or a pay rise that can protect them from the rising cost of living.

Amplified Skills Struggles

The notion that the cost-of-living crisis isn’t inflating salaries is also supported by the latest ONS labor market statistics, which revealed that total pay between May and July 2022 — when adjusted for inflation — fell by 2.6%.

Increasing salaries while our economic stability is being questioned is understandably unlikely to be a priority or even feasible for many businesses, but to see a decline in pre- and post-Covid salaries is worrying. Since 2019, we’ve witnessed a demand for talent on a significant scale and an initial surge in economic activity as restrictions were lifted, but salaries across the professional, highly skilled sectors haven’t risen in line with this. The result is now being felt across the country. With the impact of Brexit also still playing out, this decline in financial incentives for new hires will only have a detrimental impact on the country’s ability to attract the skills needed to bolster the UK’s economy.

In a post-Brexit and Covid-hit economy, the strength of the labor market will be paramount to the UK’s ability to become — and, crucially, remain — a global powerhouse. While the Chancellor’s Mini-Budget demonstrated steps to help bolster the country’s labor market, more will be needed.

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Holidays Prompt Drop in Recruitment, but Contract Roles Remain Resilient

While the year to date has certainly seen recruitment activity increase, the holiday period in April did have an impact on hiring. According to APSCo’s latest Recruitment Trends Snapshot, there was a general decline in professional vacancies in April, with permanent vacancies down 19% month on month.

The data, provided by the global leader in software for the staffing industry, Bullhorn, did, however, show that in the absence of permanent resources, there has a greater reliance on the temporary workforce with the demand for contract professionals increasing by 2% in the final half of the month, while permanent vacancies fell by 3%. Year on year, contract demand also grew 13% in April. Although this is lower than the 24% annual growth in the contract recruitment market that was reported in March, it does highlight the scale of pressure being placed on this flexible segment of the workforce.

PREMIUM CONTENT: Global Staffing Back Office Software Landscape

Legislation Changes Needed to Support the Temporary Workforce

For recruiters, demand for highly skilled contractors is having a positive impact on revenue, with profits from contractor placements up 31% between March and April. With this flexible segment of the workforce set to play a crucial role in filling resourcing needs for some time yet, we expect to see this positive revenue growth continue.

However, as our own Global Public Policy Director, Tania Bowers, has reiterated, this reliance on the flexible workforce could be at risk due to the continued lack of clarity around the Employment Bill:

“The UK’s employment market is not fit for purpose in the current economic landscape, and APSCo has warned that the long-awaited Employment Bill needs to be pushed forward swiftly if the country is to recover from the impact of the pandemic and Brexit. It’s clear that the future of the labor market needs to be flexible, dynamic and fair, but current legislation is not designed to support this.

“The self-employed have a crucial role to play in the skills short environment that we are experiencing, and ensuring these individuals are adequately supported and able to operate in a flexible manner without being penalized is important. We’re already seeing Off Payroll case law impacting this segment of the market, and the UK is at risk of diminishing its own flexible workforce if action isn’t taken. Self-employed status needs to be defined in legislation that differentiates highly skilled self-employed independent professionals from dependent contractors, workers, other variants of self-employment and the lower skilled, less independent elements of the gig economy.”

Necessity of Data in Uncertain Labor Market

As Joe McGuire, sales and strategy director, analytics at Bullhorn, also highlighted in the recruitment trends snapshot, access to the latest trends and data will also be critical in strengthening the recruitment market:

“There are many things affecting the labor market today, not least rising inflation and the talent shortage, and we will see some fluctuation in macro-level industry data. In these unprecedented times, it is essential to have easy access to real-time data, data about your own business. Understanding how the behavior of your clients and candidates is changing and having the agility to react quickly is what will keep agencies most competitive.”

The professional recruitment sector is set to face tough times as the talent shortage continues to impact recruitment success in an economy that is still adapting to the impact of Covid, Brexit and IR35. APSCo will continue to be the voice of the professional recruitment market, lobbying for the legislation and support our members need to thrive in the new hiring landscape.

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As our working lives changed, so did candidate compliance and screening with everything moving online. Initially as a temporary measure, the Home Office shifted from in-person Right to Work (RTW) checks to allowing documents to be scanned digitally. On April 6, 2022, new legislation regarding RTW checks took effect that allows for screening to be carried out permanently online. This shift will be facilitated by certified digital identity service providers (IDSPs) using Identification Document Validation Technology (IDVT) to carry out digital identity checks on behalf of employers and recruiters.

This decision by the Home Office to continue to allow online checks cements the notion that hybrid working is evidently here to stay.  Digital RTW checks enable businesses to access a geographically wider talent pool and onboard candidates more quickly so as to avoid missing critical hires.

What Are IDSP and IDVT?

The change in regulation allows job applicants and existing employees to send digital, scanned copies for RTW and Disclosure and Barring (DBS) checks on live British and Irish passports through an app or email, rather than via sight of original documents (although this is still permitted if preferred).

Recruiters are required to use a certified IDSP using IDVT to ensure full compliance when checking documents. Access Screening, a long-standing provider of automated compliance software to staffing firms and HR professionals across all industries, is working with its integrated partners in the certification process of their technology.

Why Automate Screening?

The requirement to understand, document and maintain compliance as an employer around identity checks is paramount, especially with increasing compliance burdens of programs such as the EU Settlement Scheme. With new visas to help attract talent from overseas in sectors like academia, science and tech, there is an additional layer of complexity alongside many other background checks that calls for effective management of candidate screening to avoid fines or reputational damage.

For recruiters that need to undertake a host of additional sector specific background checks, such as in the healthcare and construction industries, automating screening with all data visible within one platform will improve efficiencies and mitigate risk. It is also likely to be a more cost-effective solution by implementing certified screening software in-house.

PREMIUM CONTENT: Most Complex Contingent Markets Globally 2022

Transforming Candidate Onboarding

The new legislation is forcing the digital agenda. However, aside from being able to continue to perform digital RTW checks, there are numerous added benefits of automating screening processes.

Speed and accuracy are both proven to be improved with onboarding times reduced by up to 50%. Alerts for ongoing document updates keep both the employer and candidate compliant. Plus, given the prevailing candidate short market, the quick validation of documentation and references allows for a smooth candidate experience, decreasing the risk of counter job offers.

Every business will have its own specific requirements, and the technology can be easily configured to meet these needs and accommodate the employer branding. Not least, screening software makes the application of any new or changing legislation much easier since the rules will be already set up within the technology.

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According to evidence presented to the House of Lords Finance Bill Sub-Committee, many businesses have invested considerable time and resource into implementing IR35 correctly. For those businesses, the end of HMRC’s soft-landing period will not be a significant cause for concern, but an opportunity to reflect and review their current IR35 solution. However, for others, it is a trigger point that will help ensure a robust and compliant IR35 approach is in place.

Some organizations are feeling a false sense of security, according to recent Brookson research of 500 business leaders responsible for IR35. Our Reassessing IR35: The unspoken opportunity for growth report found that while 87.6% of midsize to large companies believe they understand the “reasonable care” requirements set out by HMRC and are confident they’re compliant, many have relied upon questionable IR35 solutions.

For example, 47% of businesses relied upon HMRC’s Check Employment Status Tool for contractor status determinations, while 42% relied upon other automated online tools. However, online automated tools such as CEST have been found responsible for recent public sector fines – clearly demonstrating they are not fail-safe; as with any automated tool, they are only as useful as the level of skills and knowledge of the person using it.

A third of businesses also asked agencies (31%) or contractors (35%) to make IR35 status determinations. This is against the instruction of the new off-payroll working rules; we strongly recommend seeking a robust solution that can meet the needs of the organization as soon as possible.

PREMIUM CONTENT: IR35 Off-Payroll Working Rules: Updated FAQs for Buyers

Reviewing IR35 Solutions

Positively, when asked in the fourth quarter of 2021, 25% of midsize to large businesses now responsible for the IR35 compliance of their contractors had already reviewed their solution, 31% planned to do so before January 2022, and a further 27% planned a review before April 2022. This clearly demonstrates the diligent approach the majority of organizations are taking to ensure compliance.

The end of the soft-landing also coincides with plans by 90% of companies to extend their use of contractors over the next 12 months to support business growth. This will see IR35 solutions increasingly replied upon, and where solutions are robust and compliant, could provide businesses with a competitive edge and the ability to offer roles outside of IR35 where appropriate.

However, 17% of businesses will not be reviewing their solution before April, 4% of which do not have an IR35 solution in place. This is concerning, particularly when considering the broader approaches that some businesses have taken to IR35. While 71% determined IR35 tax status of contractors via individual assessment on a contractor-by-contractor basis, 41% are also using more manageable role-based assessments and 25% have applied a blanket decision across their whole workforce or subsets of the workforce. By using a blanket approach to IR35 determinations, end hirers risk being left behind as competition for talented contractors continues to increase.

Ongoing Responsibility

Beyond the initial solution put in place for managing IR35, ongoing status determination checks will be necessary, which forms a key part of the end-hirer’s reasonable care responsibility.Data surrounding how often businesses plan to review the status determinations of their contractors was positive – companies plan to review contractor status’ each month (22%) or every three months (39%), while only 30% plan to review every six months and 8% once a year. Ongoing reviews of status determinations is a distinct feature of reasonable care, so it’s important that all hirers regularly review contractor determinations in case of role changes.

April marks a clear milestone in the private sector’s IR35 journey and provides an opportunity for all organizations to review the IR35 solution they have in place. This period of reflection will also enable end hirers to iron out any teething issues with their IR35 approach and be sure that it will provide an effective framework for accessing the benefits of the flexible workforce and importantly, will meet the needs of a growing and agile business.

MORE: The potential IR35 compliance/confidence gap

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Make no mistake, the labor shortage is real. The US workforce will continue to shrink in the coming decade as more people retire, and less people have children. Currently there are approximately 10 million jobs, and only 8 million people looking for work. The pandemic has amplified the issue, but it has been a long-term trend and it will continue to affect every aspect of our economy over the next decade.

In the staffing industry, we feel the labor shortage impact on a daily basis. We have more clients than temporary workers and more orders than people to fill them. We struggle with I9s and E-verify, seeking to do the right thing while watching others skirt the rules. We are frustrated by the lack of lawful access to millions of undocumented workers who are forced to live in the shadows and work in the underground economy. While we see some effort being made at the federal level to help via such measures as increasing the number of H-2B visas in the coming months, those are stop-gap measures and not long-term solutions.

PREMIUM CONTENT: North America Internal Staff Survey 2022: Initial Findings

You don’t have to be a rocket scientist to solve this problem. Immigration reform is the elegant solution that will give employers across all sectors and industries access to a legal workforce with people who are ready to fill jobs that are left open because there are just not enough working Americans to fill them. Meanwhile, there are 14 million people who are already in this country, ready, willing and able to contribute but cannot legally do so.

There is a deafening silence among our nation’s leaders on this issue. Of course, Covid-19, infrastructure and voting rights are all important issues that need to be addressed. But the fact that immigration reform is not at the top of the agenda for either party is astonishing.

The business community should call upon our leaders to take up this issue and create lasting immigration reform. Now. Not after elections, not next year. We simply can’t afford to wait. And when our leaders prioritize this critical issue, political theater must be put aside. We should demand a meaningful policy debate focused on creating a path for citizenship for millions of immigrants already here. Our future depends on it.

MORE: Recruitment market remains resilient despite talent shortage

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While Amazon is hardly in danger of being put out of business, the e-commerce behemoth recently faced 75,000 individual arbitration lawsuits that could result in more than $375 million in filing fees alone. Likewise, a federal judge recently ordered DoorDash to pay $9.5 million in filing fees for 5,000 employment arbitrations. Another federal judge mandated that Postmates pay over $10 million in filing fees for similar cases. All of these exorbitant fees originated from a simple clause that’s present in almost every employment agreement: the dispute resolution clause.

As an HR manager, staffing professional or contingent workforce manager, you may not think it’s necessary to review the fine print of every employment agreement – but, in reality, you may be the last line of defense between a ministerial employee dispute and a time-consuming, costly legal battle. The fact is that your legal team is likely a step removed from being intimately involved in the negotiation and acceptance of employment agreements. So, it’s very important that you understand the nuance and specifics of these agreements, particularly if they are individualized based on the employee.

Dispute Resolution Clauses: What They Are and Why They Exist

First, it’s imperative to understand why dispute resolution clauses exist. While parties rarely enter into agreements with the intent that they fail, provision needs to be made for the worst-case scenario in any agreement. In the employment context, it would be naïve to believe that every employment relationship is going to work out.

As an HR manager, staffing professional or CW program manager, the last thing on your mind when placing a new hire is the potential for a future legal battle. But what happens if there is a dispute between employee and employer? The outcome often depends on the specific language within the employment contract’s “dispute resolution clause” which dictates where and how disputes will be decided.

PREMIUM CONTENT: North America Legal Update Q3 2021

Available Forums Choices for Dispute Resolution

Typically, the clause provides for state/federal courts in a particular state or one of the large alternative dispute resolution (ADR) providers like the American Arbitration Association (AAA) or the Judicial Arbitration and Mediation Services (JAMS). There may also be smaller regional ADR players that are named. Unfortunately, there is almost always a common thread across all these agreements: They are almost always boilerplate provisions inserted into agreement after agreement with little justification.

Court vs. Arbitration: Why Forum Choice Is Critical for Resolving Employee Disputes

There are very specific and important reasons why you would choose a particular forum. Before selecting a forum, internal stakeholders should consider the following:

• Are you concerned about class actions? Arbitration clauses can include class action waivers requiring that any lawsuit that is brought be brought solely on an individual basis.
• Do you care about the potential publicity surrounding the litigation? Litigation in court is a matter of public record. Anyone can access the pleadings and general information in the court file.
• Would you prefer to handle litigation remotely? Some courts have become fairly adept at managing litigation on Zoom, while some ADR organizations remain slow to adopt technology.

One of the biggest misconceptions about dispute resolution clauses is that they need to be simple and repeatable. In reality, dispute resolution clauses can be based on whatever particular outcome you are seeking if there is litigation, while keeping in mind that the forum and procedures must be fair and efficient for employees.

Diffuse Dispute Resolution Time Bombs with Careful Planning and Preparation

The focus of any dispute resolution provision should be fundamental fairness and expediency. But they also must be crafted and tailored to the needs of the business. Failing to thoughtfully draft your dispute resolution provision can land you in the same world as Amazon, Doordash and Postmates. As an HR manager, you can evaluate and help draft these employment agreements, in particular the dispute resolution provisions, to ensure that the interests of your employees and your organization are front, center and aligned.

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Escobar is one example. However, he is quick to note that the situation in Mexico is still too new to gauge the true impact of the law on the workforce solutions ecosystem.  Martín Padulla, founder and managing director of staffingamericalatina, an independent organization covering the Latin American labor market and an associate of Staffing Industry Analysts, concurs.

Employment Numbers. There are preliminary indicators of the law’s effects, though. For example, Mexico’s Social Security Institute, or IMSS, noted that as of Aug. 31, the share of permanent employment in Mexico was at an 11-year high. However, Padulla and others caution it is still too soon to make a determination and the numbers shouldn’t be relied upon. While the law went into effect on April 24, there was a transition period until Aug. 1, which was extended to Aug. 31 just before the initial Aug. 1 deadline.

Rolling’s Escobar, who also previously has served as president of AMECH, the Mexican association of staffing firms, says, “I don’t think that we can have a real assessment at this stage of the effects of the law.”

Staffing with a Twist

The Law. The new business reality involves staffing firms operating in Mexico unable to supply workers within the country unless they are providing specialized services and are registered.

A legal update by Staffing Industry Analysts noted the law defines outsourcing, or subcontracting, as when a legal entity such as a company makes its employees available for the benefit of another. The only exception to the law is the subcontracting of specialized services that are not part of the corporate purpose or main economic activity of the client company.

“Staffing firms may no longer supply staff unless they are providing specialized services and are registered,” according to the report. The deadline for that was Aug. 31. “Otherwise, a staffing supplier is limited to acting as an employment agent in the recruitment, hiring and training of staff who must be employed directly by the client.”

Real repercussions. But there are concerns about going forward given the law and the uncertainty in the economy. Escobar cites a large retailer that no longer allows independent companies to send staff to promote products in its stores. Instead, the retailer has hired its own internal staff and manufacturers must now pay the retailer to promote their products in its stores.

Still, “we are not close to seeing the real impact,” Escobar says.

PREMIUM CONTENT: Latin America Legal Update: Q2 2001

He expresses concern, though, about the number of people in Mexico living in poverty, which has grown by 50 million since the start of Covid. Will the law actually make it more difficult for them to find formal work?

Staffing options. For staffing firms that do plan to provide specialized services — beyond just providing talent — under the law, they must be registered with the government, according to a report by SIA. “Otherwise, a staffing supplier is limited to acting as an employment agent in the recruitment, hiring and training of staff who must be employed directly by the client.”

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What does this mean for the industry?

“It’s really unusual that you a restrict a form of work that you know is formal,” said Martín Padulla, managing director of staffingamericalatina and an SIA partner. His firm studies the Latin American staffing market.

To begin with, the rules — which take effect in September — prohibit traditional staffing with the exception of allowing companies to supply “specialized services” outside of a client company’s primary business. As a result, client companies will have to focus on a key objective or one competency in order to continue using staffing firms. For example, a company that sells T-shirts might focus on sales, leaving the T-shirts production, washing, logistics, etc. to staffing firms under the specialized services bucket. Staffing firms are not going to invoice personnel, instead they will invoice specialized services.

Some fear the legislation could thrust more people into informal work. People who work through staffing firms would lose their jobs. All this amid the recovery from Covid that needs to take place. The fact is  a large percentage of companies in Mexico that use staffing firms are small companies.

PREMIUM CONTENT: Largest Staffing Firms in Mexico: 2020 Update

It’s a few bad apples that have spoiled the staffing barrel. There are unfair competitors who are causing difficulty in the market, and the government has decided to go after the industry as a whole rather than just the bad actors, says Padulla. “I think they (the government) achieved their objective in terms of the political issues,” he says. “They show the reform as very beneficial for the workers; of course, it is not true.”

Further, the law doesn’t go far enough to remove the bad actors who cause the problems in the first place and are likely to remain.

On the bright side, Padulla believes the law could, in fact, highlight the importance of staffing. It could lead to a new framework for temporary employment and, in the long term, ratification of ILO Convention 181 that sets guidelines for governments when implement rules regarding temporary staffing.

And in the meantime, staffing firms are scrambling to get things moving as the legislation has provided no time for employers to restructure their operations. Consequences of not complying with the law:  fines and the ability of the government to deduct taxes.

For more on the legislation, see this report by law firm Littler Mendelson in JD Supra.

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Per diems are generally tax-free for the employees and deductible by the employer. They are used as a reimbursement of ordinary and normal business expenses incurred by the employees, while they are traveling for business away from home. Normal business expenses include items such as meals, lodging, and incidental expenses. The General Services Administration creates tables each year that reflect an amount per day that is generally thought to be sufficient to cover lodging, food, and incidental expenses in your travel location based on average market rates.

Merely implementing a per diem plan does not in and of itself make such payments tax-free to employees. The plan must be deemed a “qualified per diem plan” in order for the reimbursement payments to be considered tax-free. Failure to properly administer a per diem plan that is intended to be qualified, will have adverse tax implications for both employees and the employer.

The below requirements must be satisfied in order to have an accountable plan in the eyes of the Internal Revenue Service:

• Have a business purpose: Make sure the expenses are ordinary and necessary
• Maintain accurate records: No receipts required, but the employee must maintain a log which records days worked away from home, the location of the work, and the business purpose

Things you should think about when implementing an accountable plan:

• Consider the employee’s “tax home”: Per diem expenses are only allowed when the employee is traveling away from their tax home and for less than one year
• Do not treat per diem allowances as salary alternatives: Do not give the employee the choice of accepting a higher wage with no per diem or lower wage with a higher per diem
• Do not provide an allowance in excess of the IRS-approved rates: This could be reclassified as income to the employee

PREMIUM CONTENT: North America Temporary Worker Survey 2021: How often do temps use rating sites and which do they use?

An item unique to the staffing industry is the reimbursement of the per diem expenses, from the customer, along with the wages of the temporary employee. These expenses, under Internal Revenue Code §274(e)(3), are deemed reimbursed expenses for costs directly related to the fulfillment of a contract. Therefore, the costs are fully deductible to the company and not subject to the deduction limitation that “normally” goes with deductible business meals.  Normally is in quotations as the Covid-19 Relief Bill signed into law on Dec. 27, 2020, gave a slight reprieve to businesses for the 2021 and 2022 calendar year. With this new legislation, businesses will be permitted to fully deduct business meals that would normally only be 50% deductible.

In order to make sure you are compliant with IRS rules, you will need to follow a few important items. First, the per diem expense reimbursement must be separately stated on each invoice. They cannot be blended into the employee’s pay rate being charged to the customer. Second, you should review your customer agreement to ensure it does not expressly identify the party that will be subject to the “normal” 50 percent business meal limitation. Even with the new, temporary legislation that was signed into law, giving permission to fully deduct business meals for 2021 and 2022, it is still recommend to separately state the per diem expense on each invoice.

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