10 Local Legislative Issues Small Businesses Should Be Watching

Local and state business regulations to watch

Many cities and states have enacted rules to either compensate for or mirror federal policies. Here’s a look at some of the most significant trends in states and cities nationwide and what entrepreneurs and small business owners should understand about each.

Minimum wage increases

In recent years, minimum wage increases have been the subject of many local and state policies. While the federal minimum wage stands at $7.25 per hour, it is significantly higher in many states and cities. Some cities have a minimum wage of $15 per hour or more. Wage increases have been mandated by New York City, Chicago and San Francisco, to name a few.

Industries can also dictate minimum wage statutes. For example, in April 2024, the minimum wage for New York restaurant delivery app workers was raised to $19.56 per hour. This rate is before tips and has been adjusted by 3.15 percent due to inflation. Additionally, in April 2025, third-party courier service workers will see a $0.40 wage increase to $19.96 per hour.

According to Carol Wood, head of people operations at Hunter Bell, more city and state increases should be expected as the federal minimum wage remains unchanged. “With the absence of any federal minimum wage increases, it’s likely we’ll see more attempts to increase the minimum wage locally or eliminate the tipped minimum wage,” Wood explained.

Since federal and state minimum wage laws differ — and can even differ by city — business owners must stay abreast of changes and initiatives regarding the minimum wage in their area.

Tipped employee pay

Before 2022, employers could take a wide variety of tax credits on employee tips. However, a final rule from the Department of Labor (DOL) changed that. Under this rule, employers can claim credits only on “work that produces tips as well as work that directly supports tip-producing work.” However, supporting work doesn’t qualify for tax credits if performed for too long.

Another DOL final rule penalizes employers that unlawfully withhold employee tips.

It remains to be seen whether states and cities will follow suit with similar laws. However, California’s state legislature is considering bills concerning wage theft. Unlawfully withholding tips certainly falls under wage theft, and California’s actions on this topic could portend a general trend toward local wage regulation.

Tipped employee pay can change if the minimum wage for a specific type of worker changes. For example, since New York delivery app workers are now expected to earn a livable minimum wage, apps aren’t required to have a tipping option. The New York Deliverista law also now requires that workers be shown their potential earnings, including tips, before accepting the trip. 

However, many delivery workers are noticing a decrease in tips, potentially because customers may assume the higher minimum wage makes tipping less necessary. But because the new minimum only applies to the time workers spend actually delivering meals, not waiting for orders, earning a livable wage can still be challenging. 

COVID-19 vaccination

In November 2021, the Occupational Safety and Health Administration (OSHA) detailed its COVID-19 vaccination policies for employers. These rules required employers with at least 100 employees to ensure all employees are vaccinated or take weekly COVID-19 tests. They also required unvaccinated employees to wear masks and mandated paid time off (PTO) policies for employees to receive vaccinations during work hours. OSHA also required healthcare facilities that accept Medicare and Medicaid to fully vaccinate all their staff members. 

In response, many states stepped in to either ban or enforce OSHA’s mandates, though federal law would supersede any bans. However, in 2022, the U.S. Supreme Court struck down those OSHA requirements.

State-level pandemic-response actions have continued to evolve. For instance, Texas introduced legislation aimed at limiting vaccine requirements for employment, while California has no requirement for providing COVID-19 vaccine exemptions. New York expanded its paid family leave provisions to cover time off for caring for family members affected by COVID-19. However, New York’s COVID-19 quarantine leave legislation is set to expire on July 31, 2025. 

Data privacy and security

The European Union’s General Data Protection Regulation has come ashore. California adopted its own version of a consumer data privacy law, the California Consumer Privacy Act. These laws aim to protect consumer data collected by companies by imposing rules about transparency, data sharing and consumer data management.

In some cases, businesses collecting consumer data could be on the hook for compliance issues if a third-party company mishandles that data on their client’s behalf. This has led to an influx of requests to small businesses from their clients that are subject to the laws, even if they themselves do not collect consumer data.

“Small businesses are getting requests from big companies asking them how they’re complying with rigorous cybersecurity rules, and that’s been a challenge,” explained Mike Trabold, a former compliance director at Paychex. “A lot of SMBs [are] not always well suited to comply with [these rules].”

Nineteen states, including Virginia, Delaware, Indiana, Iowa, Kentucky, Maryland, Minnesota, Nebraska and Colorado, have enacted similar comprehensive data privacy laws as of June 2024. As states and cities adopt more data privacy and security measures, businesses must become increasingly aware of such measures in jurisdictions where they do business. These laws typically cover all users in a given region, so even if your company doesn’t operate there, it will be on the hook for any user data it collects from IP addresses in that location.

Being aware of the rules and how strict they might be is essential to avoiding hefty fines.

Sexual harassment policies and training

Because of the #MeToo movement, many states and cities expanded their regulations and policies about sexual harassment training. New York and Delaware are among the states that have passed laws with specific training requirements, while cities like New York City moved to tighten policies surrounding aspects like disclosure, channels through which to escalate complaints, and tighter penalties for violating sexual harassment policies.

“We’ve seen a bunch of states either pass or contemplate some very specific, targeted incremental regulatory requirements related to [sexual harassment],” Trabold noted. “That’s a trend that has started to snowball a little bit and have a direct impact on businesses.”

Pay equity legislation

Under the Obama administration, the Equal Employment Opportunity Commission (EEOC) issued updated federal requirements for pay equity and salary reporting by businesses. The measure required companies with 100 or more employees to submit pay data based on their workers’ W-2 earnings. In 2017, the pay data collection rules were suspended for review by the Office of Management and Budget, and the pay data issue came to an end in 2020. But in 2024, the EEOC is trying to bring back the pay data collection rules for the second time since 2016.

Still, pay equity legislation has moved forward at the local and state levels. States, such as California, Maryland, Massachusetts, New York and Oregon, have passed laws expanding employer obligations and penalties regarding equal pay, especially surrounding gender pay disparities. Hawaii and Illinois have introduced new regulations mandating that job postings include salary range and employee benefits disclosures. These laws often impact smaller businesses more than a federal rule change would.

“At the federal level, reporting was only for [businesses with] 100-plus employees, but a lot of the state- and local-level [laws] are really for all businesses,” Trabold explained. “It’s [often] a pretty low threshold, so most or all businesses will have to do this type of reporting.”

Paid leave laws

Another big push in local and state governments has been for paid family and sick leave laws. Today, several dozen states and localities have adopted paid sick leave laws. Thirteen states and the District of Columbia have adopted paid family leave beyond the purview of the federal Family and Medical Leave Act too.

According to Trabold, a significant concern surrounding these laws is their patchwork nature from location to location. Some only cover paid sick leave, while some only address paid family leave. This leads to questions regarding which employees are eligible, to whom the law applies, and differences around recordkeeping, especially for employers with multiple locations.

“For example, in California, there are closely situated cities that have these requirements,” Trabold noted. “So, if you run a pizza place that has a number of locations in these cities with somewhat different requirements, do you adopt the most generous [requirement] or just have each location abide by [the] particular requirement of [the] city you’re located in?”

In New York, a measure to expand paid leave to include 12 weeks of bereavement made it to former Gov. Andrew Cuomo’s desk, but Cuomo vetoed the bill. If signed, it would have bolstered the state’s existing paid leave laws.

Some multi-location employers in localities with paid leave laws simply abide by the most stringent law, regardless of which one applies where. Others alter operations from location to location based on standing regulations.

Healthcare reform

Healthcare reform is a topic long discussed on Capitol Hill, but Republican efforts to “repeal and replace” the Affordable Care Act (ACA) have thus far stalled. Whether spurred by the uncertainty of federal action or just the general complexity of healthcare policy, lower layers of government often spearhead projects of their own.

“There’s tremendous ambiguity [on healthcare policy] at the federal level,” Trabold said. “States in reaction and anticipation are going out and doing their own things that employers might have to react to or be aware of.”

These laws and proposals have included attempts to gain greater latitude regarding ACA mandates, as seen in Massachusetts. There have also been proposals to stabilize healthcare markets, such as those in Minnesota and Alaska. While single-payer healthcare systems are often championed by the progressive wing of the Democratic Party, a recent proposal in Alaska to implement a single-payer system was struck down in 2024 with a 23 to 14 vote.

In contrast, Minnesota has introduced legislation to create a public option aimed at expanding access and reducing costs while following the ACA provisions. Integral to these efforts is Section 1332 of the ACA, which allows states to apply for waivers from specific ACA requirements. Waivers are intended to encourage experimentation and innovation in healthcare policy.

State collection of online retailer sales tax

In June 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, to close a sales tax loophole that disallowed states from collecting sales tax from out-of-state online retailers that sold products in those states. Brick-and-mortar retailers long maintained that the rule granted an unfair advantage to online retailers; the Supreme Court ruled in their favor.

As a result, many states have been considering how they will collect sales taxes from out-of-state online retailers. In an environment where governments at every level need every revenue stream, businesses that sell online should know the states in which they sell will collect sales tax.

“If you’re an entrepreneur with an online sales presence, that whole sales tax piece could be very, very impactful,” Trabold cautioned. “Most states right now are evaluating how they’ll administer it, and what we’re seeing is that [sales tax on out-of-state online retailers] is a tempting revenue source for states.”

Some states, Trabold added, might set thresholds under which an online retailer would not be subject to state sales taxes. Other states might not. For those small businesses selling out of state over the internet, state policies that arise post-South Dakota v. Wayfair will be crucial to keep an eye on.

State retirement plans

With the announcement that the Treasury Department would wind down the Obama administration’s myRA retirement saving initiative, concerns around the dearth of Americans’ retirement savings were renewed. State retirement plans have been cropping up as an avenue to provide access to retirement savings accounts to employees who don’t have a 401(k) plan or the ability to open an IRA or another employee retirement plan.

“There is no traction at [the] federal level around workplace savings programs, so a lot of states have their own plans,” Trabold said.

So far, 20 states and two cities have passed some kind of retirement savings legislation. Oregon, Illinois and California have enacted state-sponsored Roth IRA programs. Additionally, Vermont and New York have modified their retirement programs to join other states with auto-IRA programs. 

“Talk around retirement plans has slowed a little bit [because of] some movement at the federal level about potential legislation that would make it easier for small businesses to start retirement plans,” Trabold added. “In D.C., there might be some agreement on it, so some states might take a wait-and-see attitude. So there’s a temporary hiatus, but it’s definitely worth keeping an eye on.”

Importance of staying up to date with local and state legislative issues

Keeping informed about local and state legislative changes is essential for businesses to prevent closure and guarantee success.

Trabold advises entrepreneurs to remain aware of what’s happening in the broader regulatory environment. “A lot of states and cities [are starting] to gear up to make some changes for [deregulation] they anticipate at the federal level,” Trabold explained.

Consider the following reasons it’s crucial to stay current with local and state legislative issues:

• Compliance and legal obligations: Staying updated on current policies helps businesses comply with laws and regulations, avoiding legal issues and fines.
• Financial planning: Knowledge of legislative changes helps businesses accurately plan, as new laws can impact taxes, wages and other financial obligations.
• Competitive advantage: Awareness of legislative changes can provide a competitive edge, allowing businesses to adapt swiftly, capitalize on new opportunities and avoid financial pitfalls.
• Advocacy and influence: Businesses can participate in advocacy efforts to help influence policies that affect their industries and communities.
• Risk and reputation management: Staying informed helps businesses protect their reputation by mitigating risks associated with legal and regulatory changes, ensuring continuity and stability.
• Community engagement: Awareness of local legislative issues fosters a positive community and promotes a more informed and proactive citizenry, contributing to better governance.

Navigating the complex landscape of state and local regulations

While federal policies often dominate the news, state and local regulations critically impact small businesses. Entrepreneurs must stay informed about these laws to ensure compliance and seize opportunities. Key changes, like minimum wage increases, COVID-19 policies, data privacy measures and paid leave laws, require close attention. Vigilance in tracking state and local legislative changes is essential for business success.

Amanda Clark contributed to this article. Source interviews were conducted for a previous version of this article.