The SESCO Report – December 2016
What Can Business Expect From Trump's Presidency
For the past eight (8) years, businesses have had to operate in a challenging environment. These challenges range from stifling regulations, high taxes, a cloudy immigration system, escalating healthcare costs, free trade and many other challenges. Although it is left to be seen how a Trump presidency will effect the U.S. economy, the following are some of the major economic policies that have been discussed and/or promised by President-Elect Trump.
Healthcare (Affordable Care Act)
Trump’s election virtually assures major changes to the Affordable Care Act, or Obamacare. Likely targets for elimination include the requirement that individuals buy health insurance and that employers with 50 or more employees are required to offer it. Look for the Trump administration to work toward allowing insurers to sell across state lines which creates more competition. The Trump administration is also likely to create a federal high-risk insurance pool for people who are ill and unable to obtain private insurance, and to give grants to states for Medicaid. Certain popular provisions in Obamacare would be retained, such as allowing children to stay on their parents’ health plans until the age of 26 and guaranteeing coverage to people with pre-existing medical conditions.
There is a good chance for a broad tax reform deal, featuring across-the-board tax cuts, if legislation can be moved through the Senate via the reconciliation process, which allows Congress to bypass procedural hurdles. Odds appear favorable to such an approach.
Trump has vowed to slash taxes and compress the tax code to three (3) brackets from its current seven (7). Under his proposed plan, top earners will pay taxes of 33%, as opposed to the current top individual rate of 39.6%. He’d also decrease corporate taxes to 15%. S-Corps and other pass-through entities like LLCs, would have a top tax rate of 15%. Trump would also go easy on companies that have been stashing cash overseas. Owners would be allowed to repay trade earnings, which would be subject to a one-time 10% tax. He would also close inversion loopholes that allow corporations to defer taxes by banking funds overseas. Instead, companies would pay taxes on income at the time it is earned.
Trump will take immediate steps to suspend immigration from Syria, pending more controls. Other action on stemming immigration will need cooperation from Congress; moderate republicans there will take a cautious approach. But if Congress balks, look for Trump to take executive action. As for Trump’s plan to build a wall along the border between the U.S. and Mexico, it will run into opposition in Congress. Moreover, such a wall would have to traverse private lands, tribal lands as well as public property — a significant hurdle. The chances are good for additional spending to go for more electronic surveillance along the border. Also watch for more movement toward mandating E-verify either across more individuals states or from federal action.
Due to Trump’s immigration promises, we expect to see a ramp-up in workplace enforcement actions, including both I-9 audits and raids by the U.S. Immigrations and Customs Enforcement Agency. We also anticipate that Trump will move to cancel the work authorization granted under DACA (Deferred Action for Childhood Arrivals) and counteract any immigration reform measures put in place by the Obama administration.
Trump promised that he will mandate E-verify to check the employment eligibility of all workers in the country if elected. He also stated that he would alter temporary work Visa programs (such as H1-Bs) which allow employers to bring on highly-skilled foreign workers.
Trump has previously criticized the Dodd-Frank Act for suppressing economic growth and permitting banks from giving loans and supporting businesses. Look for this next administration and Congress to tweak financial regulations to help small banks and deregulate certain types of businesses.
There is little chance of ditching the North American Free Trade Agreement, though some modifications are a good bet. NAFTA benefits many U.S. exporters who have built deeply intertwined networks with trading partners in Canada and Mexico. The President-Elect will also focus heavily on keeping U.S. manufacturing jobs from being shipped abroad as noted above.
Trump has proposed a moratorium on all new regulations. Small business groups such as the National Federation of Independent Business, say 45% of business owners consider regulations a very serious problem in today’s market. That is up from 17% in 2001. With that in mind, expect our participation in things like the Paris Agreement, to limit emission greenhouse gasses worldwide, to go out the window. We can also expect a thorough review of President Obama’s Executive Order revising the Department of Labor’s guaranteed salary threshold from $23,660 to $47,476. As communicated by SESCO, this increase was due to be effective December 1st and, of course, has been delayed via an injunction by a federal judge. This injunction will carry us into the Trump administration and we fully expect significant changes and/or a full repeal of this Executive Order pushing the decision making back into Congress.
It’s probably safe to forecast that Trump’s victory will likely slow down the tide of aggressive pro-union and anti-employer developments at the National Labor Relations Board (NLRB), and in time will probably lead to a more employer-friendly panel of board members. Specific examples of current NLRB doctrine that could be slowed include the encroachment on employer property rights, the expansion of the Concerted Protected Activity Doctrine and the enlargement of the concept of employee status as it plays out in the contexts of joint employer and temporary worker cases, supervisory status matters, and for hire education students.
It’s also fair to assume that Trump will be inclined to repeal a host of Executive Orders supporting unions at the expense of federal contracts, including the so-called blacklisting order and other provisions that impose contractual obligations on successor employers doing business with the federal government.
Other promises include bringing labor law into the 21st century by requiring transparency so that union members know how their dues are being used, limiting veto power of union officials, and supporting right-to-work laws permitting workers to opt out of forced membership.
We anticipate that pay equity will remain a hot issue in employment law. Many states have enacted equal pay laws, not to mention the EEOC’s adoption of new EEO-1 reporting requirements which will soon require employers with 100 or more employees to report pay data to the federal government. While pay equity is not at the top of Trump’s agenda, it will remain a key issue in terms of legislation and litigation because the die was cast under the Obama administration and pay equality has taken hold as an important workplace issue.
By all appearances, Trump will have the opportunity to fill at least one (1) vacancy on the Supreme Court (the seat previously held by deceased justice Antonin Scalia). If Trump has the opportunity to nominate a replacement, it is fair to assume that the conservative status quo will be restored to the Supreme Court, especially if he nominates one of the nominees he has already touted as Scalia’s possible replacement. This would move somewhat reliable conservative Anthony Kennedy back to his former role as serving as the fifth (5th) swing vote in tight cases.
Future vacancies cannot be predicted but it is worth noting that the three (3) oldest justices, Ginsburg (83), Kennedy (80), and Breyer (78) — are liberal. Statistical models suggest a 40% chance that there will be one (1) vacancy before 2020 and a 20% chance that Trump will be able to appoint two (2) additional justices besides the current vacancy.
This reality is extremely important when you consider the innumerable workplace law issues that could come before the Court over the next four (4) years. Arbitration provisions, class action litigation, union agency shop fees, the overreach of Title VII, immigration programs, Wage and Hour law, and administrative agency powers are just some of the issues likely to confront the Supreme Court in the very near future.
While the Clinton campaign included proposals for expanding the Family and Medical Leave Act to include up to 12 weeks of paid family and medical leave for parental leave purposes or to care for a seriously ill family member, and to implement an earned paid sick day plan for American workers, Trump did not provide specifics regarding any such plans. Therefore, it is difficult to predict what the next four (4) years will bring when it comes to employment leave for workers.
Based on comments made during the campaign, President-Elect Trump will likely streamline the Occupational Safety and Health Administration (OSHA), repeal some or all of its recent rules on increases penalties and reporting requirements, and refocus the agency on high-hazard enforcement.
SESCO believes that it is likely Trump will reverse course on OSHA’s penalty increases, which in some cases recently saw penalty amounts rise by 80%. Even if he decides not to appeal the penalty increase rule in its entirety, look for Trump to at least remove the rules requirement that OSHA’s maximum penalties increase each year to account for inflation.
Second, we will likely see an elimination of of the electronic reporting rule slated to take effect on July 1, 2017. This rule will require certain employers to report injury and illness information to OSHA, which will then post this information online for public viewing on its website.
SESCO also believes that Trump will take several other steps to reduce the role of OSHA. He may seek to create more state plans or provide existing state plans more jurisdiction. Trump may find expansion of state OSHA plan jurisdiction as an opportunity to shrink the federal agency and save tax payer dollars. Trump may also scale back the federal whistleblower oversight of OSHA, which currently enforces the whistleblower provision of approximately 22 statutes.
Under a Trump administration, these changes would allow OSHA to focus on a high-hazard industry enforcement, accident and fatality inspections and safety outreach consultations with employers.
Affirmative Action and Federal Contractor Compliance
Many SESCO clients must comply with the Office of Federal Contract Compliance Programs (OFCCP) 11246 as a federal contractor or subcontractor to the federal government. At this stage, it is very difficult to predict what’s in store for these rules and regulations under President-Elect Trump. He has been sending conflicting messages about affirmative action.
While some of his more inflammatory statements would suggest a general resistance to expanding diversity and perhaps a lack of affection for affirmative action, his attempts to gain union support may mean that he will support some of the OFCCP’s initiatives that are favored by unions. This includes such initiatives as the union organizing posters that are required to be posted by federal contractors, and the first right of refusal for some union employees after a federal contract is assumed by a successor.
Non-Competes and Other Post-Restrictive Covenants
Recently, the currently Obama administration issued a “call to action” to gut the power of non-competes. However, we predict that the Trump administration will no longer be exhorting the states to legislate in this area.
Given his business background, it seems unlikely that President-Elect Trump will support legislation that is designed to take a tool out of the hands of business owners. Employer restrictive covenants including non-compete agreements are enforceable in most states throughout the country so long as they are reasonably tailored to the specific threats posed by the employee, and are not overly broad or unduly lengthy in their duration. As a successful business person, Trump not only seems unlikely to continue pushing states to dial back on the use of non-competes, we also suspect that he would veto Congressional efforts to limit the use of non-compete agreements against low-wage workers.
While Trump did not specifically address this issue during his campaign, he required his campaign staffers and even volunteers to sign confidentiality and non-compete agreements.
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Of course the future is difficult to predict. However, we do know that the Trump administration views business and industry and their impact on the U.S. and global economy quite differently than our current administration. Thus, clients are breathing a “sigh of relief” in hopes and in expecting a more pro-business, pro-growth business environment which will ultimately benefit business owners and managers, their employees and their families and the overall U.S. economy. Of course, SESCO’s role will be to provide updates and guidance as employers navigate through potential changes in labor law regulations. At this point if we had one piece of advice, that would be for those who are so inclined to continue to communicate with their U.S., state and local elected officials as changing the culture and attitude (regardless of political party) will be difficult. Thus, continued communication of your expectations, wants and needs as business owners and managers must continue to help transform our political landscape.
Preparing for 2017
As 2016 winds down, it is time to start planning for 2017 and beyond. For business owners this means getting financially prepared for the new year to maintain and keep your business up and running for the long haul. Consider the following SESCO tips and also consider allowing SESCO to help facilitate a business planning retreat with your family, board, key managers and/or leaders.
1. Challenge your current business plan. Most businesses have some sort of business plan that addresses:
- A summary/vision of your business
- A S.W.A.T. Analysis
- Financial projections
- Specific goals
This basic information is necessary to support business decisions. It is always wise to challenge your business and strategic plans to ensure that it supports and is guiding your business as expected.
2. Focus on profitability. Companies should focus on how to become more profitable.
Either revisit or create a sound financial model by paying close attention to your expenses, especially expenses that you can control such as labor costs, benefits, growth, etc. Build projections from the bottom up, checking results from the top down and find your breaking point. It may not be perfect, but these basic steps can guide in boosting profits. Also remember that bigger is not always better and that some businesses are more profitable remaining small, focused and nimble.
3. Set a savings goal. By January 1, you should have a savings goal in place. This goal should be measureable, realistic and timely. For instance, it could be establishing an emergency fund that can keep your business operational for 3-6 months.
4. Evaluate business processes. Audit or assess your business processes. This will allow you to determine what areas are effective and running smoothly and which ones are not. Businesses who establish effective processes and systems are much more efficient and profitable.
5. Review all insurance policies. Personal liability, property, workers’ compensation, product liability, vehicle and other insurances should be reviewed annually. You may be paying for unnecessary coverage or there may be more favorable policies available from competitors.
6. Challenge the status quo. Don’t be complacent! That is one of the likeliest ways to kill your business. Start thinking of how you can boost gross margins, how to leverage your most profitable products or services and how to target high-profile customers.
7. Create a budget and stick to it. Always have an annual budget and communicate the annual budget to key leadership. It’s obvious, but budgets address inappropriate for frivolous spending and also can help reach savings and profitability goals. There are a number of budgeting methods like incremental budgeting, zero-based budgeting and top down budgeting. Identify the budgeting method that best works for you and create a budget and monitor for success.
8. Cut expenses, even if revenue is solid. Cutting expenses is tough, especially if revenue is good and you aren’t having any cashflow struggles. If there are expenses you feel are unnecessary or just make you cringe, then get rid of them.
SESCO Client Feedback
“Bill, I just wanted to thank you once again for meeting yesterday. It made all the difference in the world as I now feel we have a comfortable handle on the matter.” ~ Tammy Rush, CEO/Director — Lighthouse Independent Living, Inc.
“Hi Bill, this is a very belated note to thank you for presenting the webinar to our members on the overtime rule. Now that it has been blocked, it will be interesting to see how it will play out. It sounds like employers shouldn’t assume it will be permanently barred, so we appreciate you providing information to help them have a plan to move forward if necessary.” ~ Cindy Sheridan, CAE, Chief Operating Officer — PHCC Educational Foundation
Special Thanks to New SESCO Clients!
Mountain View, CA
Nie Funeral Home
Ann Arbor, MI
Johnson City, TN
Lenoir City Ford
Lenoir City, TN
NOVA of Virginia Aquatics
Main Street Tire and Auto
St. Thomas Credit Union
Childers Oil Co
Lions Volunteer Blind Industries
Johnson City Kubota & Equipment
Johnson City, TN
Austin Construction Company
Gleaning for the World
First Team Auto Group
Al White Motors
SESCO would like to take this opportunity to thank you for your continued partnership. It is clients like you who make our jobs a pleasure and keep our company successful. May your holiday season be filled with the Love, Peace and Happiness that the true meaning of Christmas brings.
We wish you and yours a Merry Christmas and a prosperous and successful New Year!
The SESCO Staff