ESTA Amendment Submitted to Gov. Whitmer- What it Means for Employers This Morning

READ THE LATEST ON THE ESTA

The Michigan House and Senate recently agreed on bills to amend both the Michigan Improved Workforce Opportunity Wage Act and the Earned Sick Time Act (ESTA). The bills have been submitted to Governor Whitmer for signature.  

Varnum attorneys are analyzing these changes that are expected to be approved and signed into law. Stay tuned for a more comprehensive advisory regarding these changes to follow.

In the meantime, employers who planned to roll out ESTA policies and programs today should pause their efforts in light of this development. The ESTA amendments may impact many employer policies and approaches to ESTA compliance. More will be clear shortly based on the Governor’s review and analysis of the changes.

Varnum’s Labor and Employment Practice Team will continue to monitor updates and action on these bills.

U.S. Senate Advances KOSMA Bill Targeting Social Media Use by Minors

U.S. Senate Advances KOSMA Bill Targeting Social Media Use by Minors

Varnum Viewpoints:

KOSMA Restrictions: The Kids Off Social Media Act (KOSMA) aims to ban social media for kids under 13 and limit targeted ads for users under 17.

Bipartisan Support & Opposition: While KOSMA has bipartisan backing, critics argue it could infringe on privacy and First Amendment rights.

Business Impact: KOSMA could affect companies targeting minors, requiring compliance with new privacy regulations alongside existing laws like COPPA.

While COPPA 2.0 and KOSA are discussed more frequently when it comes to protecting the privacy of minors online, the U.S. Senate is advancing new legislation aimed at regulating social media use by those 17 and under. In early February, the Senate Committee on Commerce, Science and Transportation voted to advance the Kids Off Social Media Act (KOSMA), bringing it closer to a full Senate vote.

KOSMA Restrictions

KOSMA would prohibit children under 13 from accessing social media. Additionally, social media companies would be prohibited from leveraging algorithms to promote targeted advertising or personalized content to users under 17. Further, schools receiving federal funding would be required to limit the use of social media on their networks. The bill would also grant enforcement authority to the Federal Trade Commission and state attorneys general.

Bipartisan Support & Opposition

KOSMA has received bipartisan support, with advocates such as Senator Brian Schatz (D-HI), who introduced the bill in January, citing the growing mental health crisis amongst minors due to social media use. Supporters argue that while existing laws like COPPA protect children’s data, they do not adequately address the considerations of social media since they predate the platforms. However, much like similar state laws that have come before it, KOSMA is rife with opposition as well. Opponents argue that this type of regulation could erode privacy and impose unconstitutional restrictions on young people’s ability to engage online. Instituting a ban as opposed to mandating appropriate safeguards, opponents argue, infringes on First Amendment rights.

Business Impact

Although KOSMA only applies to “social media platforms,” the definition of this term could be interpreted broadly and potentially include many companies that publish user-generated content within the scope of KOSMA’s restrictions. KOSMA identifies specific types of companies that would be exempt from the definition of social media platforms, such as teleconferencing platforms or news outlets. If KOSMA were to go into effect, companies across the country that are knowingly collecting data from minors or targeting them with personalized content or advertising would have an additional layer of regulatory consideration when assessing their privacy practices pertaining to the processing of data related to minors—on top of existing federal and state laws.

Varnum’s Data Privacy and Cybersecurity team is well-equipped to help companies navigate these challenges, ensure compliance with evolving privacy laws, and safeguard the rights and safety of younger users. Please contact us if you have questions on the myriad of children’s privacy laws and how they may apply to your company’s practices.

Corporate Transparency Act’s Reporting Obligations Revived

Corporate Transparency Act's Reporting Requirements Revived
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Once again, Beneficial Ownership Information (BOI) reporting obligations under the Corporate Transparency Act (CTA) have been revived. On February 17, a federal judge lifted the stay he had ordered on January 7 in Smith v. U.S. Department of the Treasury, 6:24-cv-00336 (E.D. Tex.), which had prevented the Government from enforcing the BOI Rule on a nationwide basis.

On February 18, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released a notice that announced the following key updates:

  1. Unless subject to a later deadline, the new deadline to file an initial, updated and/or corrected BOI report with FinCEN is now March 21, 2025.
  2. Before March 21, 2025, FinCEN may “further modify deadlines” for entities that do not pose significant national security risks. If FinCEN does so, it will provide yet another update “recognizing that reporting companies may need additional time to comply[.]”
  3. Importantly, “FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” This is the strongest signal yet that the current Administration will seek formal amendments to the BOI Rule, although no details regarding proposed changes have been publicly released.

Businesses and others impacted by the CTA should prepare now to meet the March 21 deadline.

In the meantime, numerous cases challenging the CTA, including Smith, will continue to work their way through the legal process and Congress might take preemptive action. On February 10, the U.S. House of Representatives unanimously passed H.R.736, which would give FinCEN authority to extend the compliance deadline for pre-2024 reporting companies to January 1, 2026. A companion bill in the U.S. Senate. Bills to repeal the CTA remain pending as well.

Varnum’s CTA Taskforce is closely tracking these developments and will provide updates as they become available. For background on BOI reporting, please refer to Varnum’s CTA Resource Center.

Michigan’s Earned Sick Time Act: What Employers Should Know

Michigan's Earned Sick Time Act: What Employers Should Know
READ THE LATEST ON THE ESTA

As of today, Michigan’s Earned Sick Time Act (ESTA) is slated to take effect this Friday, February 21, 2025. Guidance on the Act as written is available on the Michigan Department of Labor and Economic Opportunity Wage and Hour Division’s website or in Varnum’s recent advisory on Common Questions from Employers regarding ESTA.

However, both the Michigan House of Representatives and the Michigan Senate have proposed amendments to ESTA that, if enacted, would significantly revise the Act. Both sets of proposed amendments differ substantially from each other. The provisions of these competing sets of legislative amendments have been summarized in a recent advisory. So far, the Michigan House has passed its proposed amendments and sent them to the Michigan Senate for consideration. The Michigan Senate has held hearings on its own set of proposed amendments but has not passed its amendments – or the House’s proposed amendments – as of yet.

Governor Gretchen Whitmer has urged both House and Senate leaders to reach a compromise on the proposed changes prior to ESTA’s effective date of February 21. She has also called for a delay in the Act’s implementation date until July 1, 2025, to give the legislature time to work out a compromise and Michigan businesses time to comply. Both House Speaker Matt Hall and Senate Majority Leader Winnie Brinks have expressed a commitment to reaching a compromise by the February 21 deadline, but a compromise on the ESTA amendments may not be possible by the end of this week due to the significant differences between the competing legislative proposals.

Given this present uncertainty, employers should be prepared to comply with the current form of ESTA on Friday, February 21, 2025, but should refrain from formally rolling out any changes to the policy prior to Friday in the event the Michigan legislature does act before that date.

Varnum’s Labor and Employment Team will continue to monitor ESTA as lawmakers attempt to reach a compromise agreement.  

Cafeteria Plan, Meet 401(k) Plan

IRS Allows New 401(k) Contributions through Cafeteria Plans

Varnum Viewpoints

The IRS’s recent ruling offers increased flexibility for employers in structuring 401(k) contributions within cafeteria plans, benefiting both employers and employees.

  • More Employee Benefit Choices: Employers can now make discretionary contributions more ways, including combining some 401(k) and welfare benefit choices.
  • Opportunities for Competitive Benefits: The ruling enables employers to design more tailored, competitive benefits packages, enhancing employee satisfaction and retention.

The IRS has surprised employers with a new interpretation of how 401(k) contributions can be made in connection with a cafeteria plan. Many employers offer cafeteria plans, allowing employees to choose from various health and welfare benefits or taxable compensation. Historically, the IRS’s “contingent benefit rule” has prevented employers from offering a similar choice to employees regarding 401(k) plan contributions, because the rule prohibited other benefits from being contingent on 401(k) plan benefit elections. However, the IRS’s new ruling now allows an employer to make a discretionary contribution that employees may allocate to different plans, including a 401(k) plan, without the contribution being included in the employee’s taxable income.

What Did the Proposed Plan Look Like?

An employer asked the IRS for its ruling on several proposed plan amendments, which would change the discretionary contributions to the 401(k) plan without changing the safe harbor non-elective contribution. Specifically:

  • The proposed amendment to the 401(k) plan allowed eligible employees to choose where to receive an annual, irrevocable employer contribution — in the employer’s 401(k) plan, the employer’s Health Reimbursement Account (HRA), the employer’s Educational Assistance Program (EAP) or the employee’s Health Savings Account (HSA). If no employee election was made during open enrollment, the contribution would be made to the 401(k) plan. Employees could not receive the contribution as cash or a taxable benefit.
  • An amendment to the EAP proposed allowing student loan payments to be made directly from the EAP to the lender if the employee allocated the employer contribution to the EAP.
  • The proposed amendment also allowed employees to allocate the employer contribution to the EAP or as an employee’s HSA contribution but prohibited receiving other benefits from the EAP or making pre-tax payroll contributions to the HSA, until after March 15 of the following year. This timing would prevent contributions greater than the limits set under the Code.

How Did the IRS Respond?

The IRS provided several helpful rulings on the changes proposed by the employer. Specifically, the IRS ruled that:

  • The proposed 401(k) plan amendment would not cause the plan to violate the contingent benefit rule (described above).
  • The employer’s contribution would not be considered an employee pre-tax contribution, which would be subject to the lower elective deferral limit, rather than the much larger annual additions limit.
  • The allocation of the employer contribution to the HSA would be excludable from the employees’ taxable income.
  • The EAP amendment would not affect the treatment of tuition or loan payments made under the EAP as excludable from the employee’s taxable income.
  • The employee’s ability to allocate the contribution between different programs would not prevent the EAP from qualifying as an EAP under section 127 of the federal tax code.

IRS “private letter rulings,” like this one, are technically directed only at the requesting employer and cannot officially be followed as precedent. However, because they often guide practitioners on the IRS’s perspective on issues, this ruling increases flexibility for employers designing competitive benefits packages. If you are interested in considering plan design options using this increased flexibility, please contact your Varnum Employee Benefits attorney.

Insurtech in 2025: Opportunity and Risk

Insurtech in 2025: Opportunity and Risk

The explosion in artificial intelligence (AI) capability and applications has increased the potential for industry disruptions. One industry experiencing recent material disruption is about as traditional as it gets: insurance. While some level of disruption in the insurance industry is nothing new, AI has been accelerating more significant changes to industry fundamentals. This is the first advisory in a series exploring the legal risks and strategies surrounding disruptive insurance technologies, particularly those leveraging AI, known as Insurtech.

What is Insurtech?

Insurtech is a broad term that encompasses every stage of the insurance lifecycle. Cutting-edge technology can be instrumental in advertising, lead generation, sales, underwriting, claims processing and fraud detection, among others. Generative AI can assist in client management and retention. Insurtech can augment traditional forms of insurance such as car and health insurance, and facilitate less traditional forms of insurance, such as parametric insurance or microinsurance at scale.  

Legal and Regulatory Risks of Insurtech

As Insurtech continues to evolve, designers, providers and deployers must be aware of the legal and regulatory risks inherent in the use of Insurtech at all stages. These risks are particularly heightened in the insurance world, where vendors and carriers process an enormous amount of personal information in the course of decision-making that impacts individuals’ rights, from advertising to product pricing to coverage decisions. 

The heavily regulated nature of the traditional industry is also enhanced in the Insurtech context, given overlapping regulatory interests in regulating new technology applications. These additional layers of oversight – which in traditional applications may not be as much of a primary concern – include the Federal Trade Commission, states’ Attorneys’ General and in some jurisdictions, state-level privacy regulators.     

Building Compliance for Insurtech Solutions

Designing, providing and deploying Insurtech solutions requires a multifaceted, customized approach to position agents, vendors, carriers and indeed any entity in the insurance stack for compliance. Taking early action to build appropriate governance for your Insurtech product or application is critical to building a defensive regulatory position. For entities that have an eye on raising capital, engaging in mergers or acquisitions, or other collaborative marketplace activity, such governance will minimize friction that can impede success. 

Additionally, consumers are increasingly attentive to data privacy and AI governance standards. Incorporating proper data privacy and AI governance regimes from day one is not only a forward-thinking business decision to mitigate risk and facilitate success; it is also a market imperative. 

Looking Ahead: Risks and Opportunities in 2025

Over the next few months, we will take a closer look into more discrete risks and opportunities that Insurtech providers and deployers need to keep in mind throughout 2025. Follow along as we explore this exciting area that in recent years has demonstrated enormous potential for continued growth.

Contact a member of Varnum’s Data Privacy and Cybersecurity Practice Team to discuss how your business can ensure compliance.

Registration for H-1B Lottery

Update February 14, 2025: U.S. Citizenship and Immigration Services (USCIS) announced the initial registration period for the fiscal year 2026 H-1B cap will open at noon Eastern on March 7, 2025, and run through noon Eastern on March 24, 2025. For any questions, please contact your Varnum immigration attorney.

U.S. Citizenship and Immigration Services (USCIS) has not yet announced dates, but the annual electronic registration process for H-1B cap-subject petitions should open in March 2025. The USCIS registration fee is now $215.  USCIS will select by random lottery process 85,000 petitions for the H-1B cap (65,000 for the general category and 20,000 for the U.S. advanced degree category). Applicants selected should be notified by March 31 and will have until June 30 to submit the H-1B petition.

Varnum’s immigration attorneys have started to collect information to prepare for the March registration period. Employers with employees on F-1 Optional Practical Training (OPT) or candidates requiring cap-subject H-1Bs should contact us to prepare for the registration.

Navigating the Tariff Landscape: Updates on U.S. Imports from Canada, Mexico and China

Navigating the Tariff Landscape: Updates on U.S. Imports from Canada, Mexico and China

Update March 6, 2025: After a 30-day pause, the tariffs discussed below went into effect on both Canadian and Mexican imports on March 4, 2025. Since then, the U.S. government has rolled back the tariffs’ applicability. On March 5, tariffs on imports by certain automotive OEMs were paused, and on March 6, tariffs on most imports from Mexico (specifically, those previously compliant with the U.S.-Canada-Mexico trade agreement) were paused for another 30 days, through April 2, 2025. As of this publication, tariffs on Canadian imports remain in effect, but reports indicate those may also be paused temporarily soon. Please contact your Varnum attorney for more details.

On February 1, 2025, President Trump signed orders imposing a 25% tariff on imports from Canada and Mexico and a 10% tariff on imports from China. The tariffs are set to take effect on Tuesday, February 4.

Following a discussion with Mexico’s President Claudia Sheinbaum on Monday, February 3, President Trump announced a 30-day pause on the tariffs for Mexico. Canadian Prime Minister Justin Trudeau and President Trump announced that they had reached an agreement for a similar 30-day pause later that evening.

History

A president can raise tariffs without congressional approval in certain circumstances, such as if there is a threat to national security, a war or emergency, harm or potential harm to a U.S. industry or unfair trade practices by a foreign country. President Trump is using the International Emergency Economic Powers Act to impose these tariffs. Tariffs saw their first major resurgence since the 1930s during President Trump’s 2017-2020 term, and President Biden continued to use tariffs during his administration.

Tariffs are generally imposed as a percentage of a good’s value or as a fixed amount on a specific item when it crosses an international border. The tariff is paid by the importer. The increase in cost may cause a variety of effects such as:

  1. Importing companies finding alternate sources for the goods,
  2. Importing companies passing the price increase on to consumers,
  3. Exporting companies lowering the product price to maintain the importer’s business, or,
  4. Exporting companies relocating to other jurisdictions to avoid tariffs altogether.

Updated Tariffs

Mexico Tariffs

Following the 30-day pause referenced above, the new tariff will be at a rate of 25% on the value of the good, in addition to any other import fees. The order indicates that tariffs will cover all imported merchandise.

Canada Tariffs

Following the 30-day pause referenced above, the new tariff will be at a rate of 25% on the value of the good, in addition to any other import. The order indicates that tariffs will cover all imported merchandise other than “energy or energy resources” which will be subject to a 10% rate instead.

“Energy or energy resources” includes crude oil, natural gas, lease condensates, refined petroleum products, uranium, coal and critical minerals among other energy sources.

China Tariffs

The new tariff will be 10% on the value of the good, in addition to any other import fees. The order indicates that tariffs will cover all imported merchandise from China.

Client Guidance

The increased costs from tariffs may be challenging for many businesses and the following actions serve as a baseline for navigating the current landscape as you navigate these new tariffs.

  • Notify customers if increased costs of tariffs will be passed down to them and inform them that any tariff-related price hikes will be reflected on invoices. Failure to pay may result in supply disruption.
  • Review contracts with suppliers and customers to determine how the cost of the new tariffs will be allocated. Look for price-adjustment clauses, force majeure language or other relevant terms.
  • Begin negotiations with suppliers or explore sourcing options from different countries.
  • Importers should review import compliance policies.

Varnum’s attorneys continue to monitor these developments. If you have questions regarding tariffs or would like further guidance, please contact a member of Varnum’s Corporate or Tax Teams.