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By Chris Babigian
Keeping you informed of regulatory changes for you and your clients is as important as it gets, and 2025 is shaping up to be a significant year for state and federal updates. This blog aims to highlight key changes and developments you may want to monitor.
Please note, regulations can change rapidly. This blog is for informational purposes only. For legal advice, consult your legal representative directly.
September 2025
Federal Rulemaking Roundup: What’s New & Next
After a legislative sprint culminating in the July 4th passage of the One Big Beautiful Bill Act (OBBBA), Congress seemingly exhaled. The early summer urgency gave way to a late summer slowdown with lawmakers stepping back for a monthlong recess. They returned on Sept. 1, only to pause again for a week starting Sept. 23—despite a fast-approaching Oct. 1 deadline to prevent a government shutdown.
Meanwhile, federal agencies have continued to fill the policy void, issuing a steady stream of regulations, guidance and other updates. This dichotomy is typical: In 2024 alone, more than 3,000 final rules were published in the Federal Register, spanning over 45,000 pages. For context, Congress has only enacted 100 laws year to date, half of which are simple commemorative declarations. President Trump single-handedly doubled that output by signing 206 Executive Orders to date.
September 2025 saw several key regulatory developments affecting Professional Employer Organizations (PEOs), HR outsourcers (HROs) and employers.
Notable updates include:
Catch-up Contributions
Status: Finalized Rules
Published: Sept. 16, 2025
Background: Starting Jan. 1, 2026, employees earning more than $145,000 (indexed) in prior-year wages will be required to make catch-up contributions to their 401(k), 403(b), or 457(b) plans on a Roth basis, as mandated by Secure 2.0. The final rules issued by the IRS clarify the operational mechanics of this requirement, incorporating several elements from the proposed regulations released in January 2025, while modifying others to ease implementation.
Key Takeaways: In line with the proposed rules released in January, the final rules:
- Use “Box 3” Social Security (Federal Insurance Contributions Act [FICA]) wages to determine which employees are subject to Roth Catch-up.
- Apply the compensation test by “common law employer,” which may result in different outcomes for an employee contributing through multiple employers in a single Multiple Employer Plan (MEP).
- Prohibit catch-up contributions from subject employees if the plan does not offer a Roth component.
- Permit pretax catch-up contributions from subject employees to the extent they’ve already made elective Roth contributions earlier in the year.
- Allow pretax catch-up elections to be automatically deemed Roth, provided employees can opt-out of making catch-up contributions.
The final regulations also introduce added clarity and administrative flexibility not found in the initial proposal. Specifically, they:
- Require plan documents to disclose automatic Roth treatment. Without this disclosure, subject employees must affirmatively elect Roth catch-up to make any catch-up contributions.
- Permit plans with separate election, concurrent catch-up designs (as opposed to spill-over structures) to treat those catch-up contributions as Roth throughout the year.
- Provide plans with the option to test employee compensation by controlled group or common paymaster, instead of common law employer.
Implications: The Roth catch-up requirement has long required close coordination among HROs, clients and plan administrators. While the final rules introduce helpful flexibility, they also add layers of complexity. HROs must now stay attuned to the specific design choices adopted by each plan—particularly around compensation testing and catch-up election mechanics—to ensure accurate wage evaluation and proper withholding.
Qualified Tips
Status: Proposed Rules
Published: Sept. 22, 2025
Background: Starting with the 2025 tax year, employees and independent contractors may claim a federal income tax deduction for “qualified tips” on their Form 1040 return. This new deduction, introduced via the OBBBA, only applies to tips that are:
- Cash
- Voluntary
- And from customarily and regularly tipped occupations
The law delegates authority to the U.S. Treasury Department to construct a list of occupations and otherwise define the mechanics of this provision.
Key Takeaways: The proposed regulations clarify what constitutes a qualified tip by defining each of these three core components.
Cash tips
- Any payment or payment method with a fixed cash value, including:
– Credit, debit card, check or mobile app payments
– Gift cards
– Casino chips - Amounts received via tip-sharing arrangements, such as tip pooling
- Tip rates established and reported via agreement
Voluntary
- Defined primarily by reference to the definition of a “tip” in Revenue Ruling 2012-18
- Excludes any service charge or automatic gratuities unless a customer is expressly provided with an option to modify the amount
Customarily and Regularly Tipped Occupations
- The Tipped Taxpayer Occupation Classification (TTOC) system, established via the proposed rules, identifies and defines qualifying occupations
- The TTOC loosely aligns with SOC, but offers greater precision
Implications: These proposed rules are the latest addition to the growing wave of OBBBA “no tax” developments. With more rules and administrative challenges likely to follow, employers and HROs should consider how they can incrementally adapt as new developments emerge. This rulemaking offers an early opportunity to examine how employee occupations are classified within a payroll system and re-evaluate whether certain tipped earnings are appropriately categorized as tips under federal standards.
MENA Classification
Status: Agency Action Required
Due Date: Sept. 28, 2025
Background: In March 2024, the Office of Management and Budget published updates to Statistical Policy Directive 15. SPD-15 provides the standard for how agencies must collect race and ethnicity data as part of any federal reporting requirement.
Federal agencies are not required to adopt these changes until 2029 and are afforded some flexibility in how they are adopted. However, the U.S. Equal Employment Opportunity Commission and 24 other entities were specifically directed to submit action plans to the OMB by Sept. 28, 2025.
Key Takeaways: The March 2024 updates make numerous changes to the pre-existing standard and includes:
- The addition of a new classification for “Middle Eastern or North African” (MENA)
- A new format that combines race and ethnicity into a single question and permits multiple selections
- Detailed subclassifications and write-in options
SPD-15 also provides two additional, simplified questionnaire approaches that omit subclassifications and free-form entry, which agencies may adopt where appropriate.
Notably, California and Illinois have also already incorporated the MENA classification into state-level pay data reporting, creating a misalignment with federal EEO-1 reporting.
Implications: Employers subject to EEO-1 reporting should closely monitor the release of the EEOC’s SPD-15 action plan—or any signal of delay—before making sweeping changes to employee data-collection practices. Prematurely adopting all revised SPD-15 features ahead of the EEOC guidance could create misalignment and complicate federal reporting. In the absence of clear direction, a more measured approach—such as adding a MENA option to existing race and ethnicity fields—may help satisfy emerging state-level requirements without disrupting federal compliance frameworks.
U.S. Labor Department Regulatory Agenda
Status: Aspirational Roadmap
Release Date: Sept. 4, 2025
Background: The U.S. Labor Department recently issued a news release highlighting its current and future rulemaking priorities. The full list of nearly 150 initiatives are incorporated in the Spring 2025 Unified Agenda, a semiannual governmentwide roadmap, published this month.
Key Takeaways: The Labor Department characterizes the central theme of its roadmap as reducing unnecessary burdens on employers and employees. This includes efforts to revisit or review:
- The Executive, Administrative and Professional Fair Labor Standards Act (FLSA) exemption
- Form 5500 reporting
- Joint Employer status classification
- Independent contractor classification
- Pension Linked Savings Accounts under Secure 2.0
- Service Contract Act regulation modernization
Implications: Many initiatives in the Unified Agenda are purely exploratory, signaling areas of interest rather than concrete regulatory action. Accordingly, these entries often lack substantive detail about what a future proposed rule might include should it ever even come to fruition. However, roadmap transparency affords stakeholders, including HROs and trade associations, an early opportunity to engage in the rulemaking process via public comment or advocacy.
State And Local Roundup: Effective Now!
Numerous state and local HR requirements are set to take effect by the end of October. These include:
Oregon
Requirement: Age Inquiry Restrictions
Effective Date: Sept. 28, 2025
Overview: Prior to an interview, employers may not inquire about an applicant’s age, date of birth or graduation dates unless relevant to the position or required by law.
California
Requirement: Automated Decision Safeguards
Effective Date: Oct. 1, 2025
Overview: Amendments to the Fair Employment and Housing Act regulations now expressly prohibit discriminatory practices via automated decision systems, including artificial intelligence. Notably, proof of system bias auditing can be used as an affirmative defense. The rules also increase the record retentions standards for employment decisions from two to four years and extend the requirement to automated decision data.
Michigan
Requirement: Small Employer Earned Sick Time (EST)
Effective Date: Oct. 1, 2025
Overview: Small employers in Michigan, except recent startups, are now subject to the Earned Sick Time Act, which took effect in February 2025. Under the law, which delayed implementation for businesses with 10 or fewer employees until Oct. 1, 2025, employees must accrue at least one hour of leave for every 30 hours worked.
Cleveland
Requirement: Pay Transparency
Effective Date: Oct. 27, 2025
Overview: Employers with 15 or more in-city employees must also disclose “salary” ranges in job postings. This requirement does not extend to existing employees or transfers. The new rule also prohibits inquiries of the applicant’s job history.
Massachusetts
Requirement: Pay Transparency
Effective Date: Oct. 29, 2025
Overview: Employers with 25 or more in-state employees must disclose the pay range for any position in job postings and to existing employees upon promotion, transfer, or request.
August 2025
We’ve Entered the ‘Summer of Leave’
Across the U.S., state and local policymakers remained active this summer adopting new rules on everything from Artificial Intelligence (AI) in employee and candidate evaluations to gender and age discrimination to pay transparency to tax reporting. However, perhaps no topic has been hotter this summer than earned sick leave, where at least nine jurisdictions either amended or released new regulations to their existing programs.
Better put on some sunscreen; things are definitely heating up.
Philadelphia
Effective Date: May 27, 2025
Recent Developments: POWER Act
Key Updates: This wide-reaching bill introduces several nuanced updates to Philadelphia’s Promoting Healthy Families and Workplaces Ordinance, including:
- Record Keeping: Employers must maintain, for at least three years, documentation of employee hours worked (by date), sick leave usage and corresponding payments.
- Tipped Employee Pay: The city will now set a fixed hourly sick-leave rate for tipped employees, updated annually. This rate is based on the average wage across select industries in Philadelphia County. Through June 30, 2026, the rate is $16.86.
Alaska
Effective Date: July 1, 2025
Recent Developments: FAQs & Proposed Regulations
Key Updates: In June, the Alaska Labor Department issued both FAQs and proposed regulations, adding some clarity to its sparsely defined sick leave program, which took effect July 1. Notable provisions in the proposed regulations include:
- Frontloading Option: Employers may frontload leave as long as the amount ultimately aligns with hours worked.
- Rate of Pay: Sick leave must be paid at the employee’s regular rate of pay, calculated using the same method as overtime.
- Carryover Alternative: Employers may allow employees to cash out unused sick time instead of carrying it over to the next year.
Chicago
Effective Date: July 1, 2025
Recent Developments: Paid Leave and Paid Sick and Safe Leave Amendments
Key Updates: As part of amendments announced on June 3, Chicago’s Paid Leave Ordinance now grants in-city employees a private right of action for employer violations—a remedy previously available for Paid Sick and Safe Leave only. Additionally, the amendments expand payout obligations for “medium employers” (defined as having 51 to 100 covered employees). These employers are now required to pay out all unused paid leave upon termination, which aligns with the large employer requirement. Previously, medium-sized employers were only required to pay out up to 16 hours of unused leave.
Minnesota
Effective Date: July 1, 2025 & Jan. 1, 2026
Recent Developments: SF 17
Key Updates: Enacted June 14, this omnibus bill includes an assortment of small adjustments and clarifications to the state’s Earned Sick and Safe Time program. These include:
- Advancement of Leave: If an employer advances or front loads leave, and the amount is less than the employee would have accrued based on hours worked, the employer must make up the difference.
- Replacement Workers: While an employer cannot require an employee to find a replacement or trade shifts when out on leave, employees are now explicitly permitted to do so voluntarily.
New York City
Effective Date: July 2, 2025
Recent Developments: Notice of Adoption
Key Updates: On June 2, New York City formally incorporated the state’s existing paid prenatal leave mandate into the city’s Earned Sick and Safe Time Act rules. For NYC employers, this means the city’s ESSTA obligations – such as written notice to employees and pay-period use and balance disclosures – now also apply to prenatal leave.
Missouri
End Date: Aug. 28, 2025
Recent Developments: HB 567
Key Updates: Missouri’s Earned Paid Sick Time program, which was enacted via ballot initiative in 2024 and just began on May 1, was repealed by HB 567. As of Aug. 28, employers are no longer required to accrue or provide paid sick leave to in-state employees.
Maine
Effective Date: Sept. 24, 2025
Recent Developments: LD 55
Key Updates: Enacted on July 1, LD 55 overturns prior FAQ guidance by eliminating the rule that counts carry-over hours toward the annual accrual cap under Maine’s Earned Paid Leave program. Employees can now accrue up to at least 40 hours annually, regardless of any unused time carried over from the prior year.
Nebraska
Effective Date: Oct. 1, 2025
Recent Developments: Legislative Bill 415
Key Updates: Nebraska’s earned sick leave mandate, which starts Oct. 1, was amended in June to soften the impact to in-state employers. These changes include:
- Employer Size Exemption: Businesses with 10 employees or fewer are not required to provide earned sick leave.
- Employee Exemptions: Minors under 16, seasonal employees and agricultural workers are all excluded from leave accrual.
- Accrual Delay: New hires must complete 80 hours of work before they begin accruing sick leave
Subject employers must still provide a written notice to employees and display the mandated poster by Sept. 15.
Pittsburgh
Effective Date: Jan. 1, 2026
Recent Developments: Paid Sick Days Act Amendments
Key Updates: Formally enacted on July 7, the amendments to Pittsburgh’s Paid Sick Days Act increase plan accrual requirements beginning in 2026, as indicated below:
- Accrual Rate: One hour for every 30 hours worked (currently 35)
- Annual Accrual Limits:
Large Employers (15-plus): 72 hours per year (currently 40)
Small employers: 40 hours per year (currently 24)
The Story of the Summer: OBBBA
Last month’s newsletter explored the consequential provisions of the One Big Beautiful Bill Act (OBBBA) set to impact Professional Employer Organizations (PEOs) and employers in 2026.
But the provisions themselves are just the beginning of the story. The OBBBA repeatedly directs the U.S. Treasury Department to establish the rules and structure necessary to effectuate its provisions. In other instances, future regulatory guidance may add clarity to broadly written requirements with varying interpretations. Meanwhile, states that conform to the Internal Revenue Code must decide whether to adopt some, or all, of the OBBBA’s tax changes into their own state income tax schema.
While details are still limited, the IRS has recently released three minor updates that provide some initial insights into the future operational mechanics at the federal level.
IR-2025-82
Release Date: Aug. 7, 2025
Details: In this short news release, the IRS indicates: “Form W-2, existing Forms 1099 and Form 941 and other payroll returns will remain unchanged for TY 2025.” Instead, the IRS is focused on changes for Tax Year 2026 “to how tips and overtime pay are reported.”
Implications: The OBBBA itself does not explicitly mandate changes to Form 941 quarterly returns. However, IR-2025-82 suggests the possibility that changes may nonetheless be on the horizon. Conversely, the OBBBA does require employers to report “qualified” tips and overtime on W-2s and 1099s, including for the 2025 tax year. Without modifications to this year’s formats, further guidance will now be necessary to define employer reporting obligations.
2026 Draft W-2
Release Date: Aug. 15, 2025
Details: Notable proposed changes to the 2026 W-2, for reporting in 2027, include:
- New Box 14B, “Treasury tipped occupation code”
- New Box 12 Codes:
- TA – Employer Trump Account contributions (a new savings vehicle for minors; see the July 2025 blog for more information.)
- TP – Qualified Tips
- TT – Qualified Overtime
Implications: The U.S. Treasury Department is required to provide a list of occupations that qualify for the No Tax on Tips deduction by Oct. 2. The description of Box 14B suggests the IRS may use a unique standardized reporting classification system for this purpose instead of the existing Standard Occupational Classification (SOC) structure. The creation of a new box for reporting will also likely trigger downstream schematic changes to W-2 e-file formats.
2026 Draft W-4
Release Date: Aug. 21, 2025
Details: The proposal introduces a substantial expansion of the Step 4(b) Deductions Worksheet to accommodate newly established OBBBA tax deductions. Key additions include fields for:
- Estimated qualified tip and overtime income
- The new car loan interest deduction
- The new senior deduction
- Existing above-the-line deductions, such as educator expenses
Additionally, itemized deductions are now separated out by expense type and accompanied by detailed guidance on applicable limitations and thresholds.
Implications: If adopted, the approach signified by the draft W-4 will seamlessly integrate the new OBBBA tax deductions into the existing tax withholding framework. Employees will be responsible for adjusting their own withholding by accurately completing a new W-4 with the revised Step 4(b). While HROs and employers should provide clear communication and support, they are otherwise relieved from performing any new, burdensome payroll-to payroll calculation.
July 2025
OBBBA Is Underway: The Payroll Implications of the One Big Beautiful Bill Act
On July 4, President Donald Trump signed H.R.1, enacting into law the massive reconciliation package dubbed the “One Big Beautiful Bill Act.” For the Trump administration, the OBBBA is a significant victory; it advances key initiatives and campaign pledges in part by:
- Permanently extending 2017’s temporary income tax rate cuts.
- Significantly increasing funding for immigration enforcement.
For PEOs and HROs, however, the OBBBA presents new opportunities and challenges. Headlined by the “No Tax on Tips” (See: “Ready for a Hot Tip”) and “No Tax on Overtime” provisions, the bill includes various payroll and benefits requirements that will impact operations as early as later this year. Here are some of the key tax provisions, along with relevant tax credit modifications.
The OBBBA Provisions You Need to Know Now
No Tax on Tips
Effective Dates: 2025-2028
Details: Employees and contractors can now claim an above-the-line federal income tax deduction for “voluntarily paid” tips earned in “customarily” tipped occupations. The deduction is capped at $25,000 and phases out for high earners.
Impact: Employers and HROs will be required to:
- Identify “qualified tips.”
- Report the tips and employee occupations on W-2s and 1099s.
- Adjust federal income tax withholding, as necessary, beginning Jan. 1, 2026.
What’s Next: The IRS must publish a list of eligible occupations by Oct. 2, 2025, as well as define the reporting and withholding mechanics.
No Tax on Overtime
Effective Dates: 2025-2028
Details: Employees can now claim an above-the-line federal income tax deduction for overtime premiums required under the Fair Labor Standards Act. The deduction is capped at $12,500 for single earners and $25,000 for joint filers and phases out for high earners.
Impact: Employers and Service Providers will be required to:
- Identify federally required premiums.
- Report the premiums on W-2s.
- Adjust federal income tax withholding, as necessary, beginning Jan. 1, 2026.
What’s Next: As with the “No Tax on Tips” provision, IRS guidance is necessary to define the reporting and withholding mechanics for overtime premiums. The IRS may also define methodology for determining qualified overtime in various scenarios, including for tipped employees.
ERTC Credit Modifications
Filing Deadline: Jan. 31, 2024 (retroactive)
Details: The OBBBA cracks down on Employee Retention Tax Credit claims for third and fourth quarter 2021 by:
- Increasing penalties for promoters.
- Extending the “assessment” period from the IRS to the latter of six years and April 15, 2028.
- Changing the filing deadline retroactively from April 15, 2025, to Jan. 31, 2024.
Impact: While certified PEOs are specifically excluded from the definition of “promoters,” the OBBBA does not exclude PEOs from liability for credits improperly claimed based on client representations.
What’s Next: The IRS must continue to clear its backlog of valid ERTC claims. Guidance for nuanced timing scenarios, such as post-deadline supplemental filings, could also add clarity for PEOs.
PFML Credit Enhancements
Effective Date: Jan. 1, 2026
Details: Beginning in 2026, the Paid Family and Medical Leave credit available to employers is now enhanced to:
- Allow calculations based on premiums, instead of wage payments.
- Factor compensation from state programs into credit threshold determinations.
Impact: Employers that provide less than 50% wage replacement to employees on leave may now qualify for the credit if supplemental payments from a state program bring total compensation above the 50% threshold.
What’s Next: Modifications may be forthcoming to Form 8994, the credit reporting structure, to reflect these changes.
Additional Tax Deductions
Effective Date: Jan. 1, 2025
Details: Beginning with the 2025 tax year returns, which are filed in 2026, the OBBBA:
- Increases the child tax credit from $2,000 to $2,200, indexed for inflation.
- Establishes a new $6,000 tax deduction for seniors through 2028.
- Permanently increases the standard deduction.
- Temporarily increases the State and Local Tax (SALT) deduction cap through 2030.
Impact: These changes will likely be factored into the IRS withholding tables for 2026, resulting in a lower withholding for many employees. Employees opting to take advantage of the increased SALT deduction may also seek to complete a new W-4.
What’s Next: Watch for minor W-4 and withholding table modifications for 2026 with possibly more substantive changes thereafter. State withholding may also be impacted as many jurisdictions conform with the federal tax code.
HSA Enhancements
Effective Date: Jan. 1, 2026
Details: The OBBBA reclassifies select benefit offerings in order to facilitate greater Health Savings Account (HSA) flexibility.
- Bronze and catastrophic plans offered through the Affordable Care Act (ACA) exchange are now formally recognized as high-deductible health plans.
- Low-cost Direct Primary Care Service Arrangements (DPCSAs) are no longer treated as health plans, and their fees are now deemed to be medical expenses.
Impact: Bronze and catastrophic enrollees will now be HSA-eligible. Meanwhile, DPCSA enrollees are no longer barred from HSA enrollment, and may now use HSA funds to pay the monthly program fees.
What’s Next: The DPCSA modifications open the door for PEOs to offer more robust, personally tailored solutions. Whether they spur adoption remains to be seen.
FSA & Fringe Benefits
Effective Date: Jan. 1, 2026
Details: Notable Flexible Spending Account (FSA) and fringe benefit modifications include:
- The employer-paid student loan benefit, set to expire at year end, is now permanent. Contributions structured under a Section 127 educational assistance program will remain tax exempt up to the annual limit (currently $5,250).
- Dependent Care FSA annual contribution limits jump from $5,000 to $7,500 and from $2,500 to $3,750 for married couples filing separately.
Impact: Plan documents and payroll system modifications may be necessary to accommodate both of these changes.
What’s Next: Originally introduced as a short-term relief measure under the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, the student loan benefit’s shift to a permanent offering may prompt employers to reassess its strategic value. PEOs should anticipate a possible increase in client interest and adoption.
Trump Accounts
Effective Date: July 4, 2026
Details: The OBBBA establishes a new savings vehicle for minors, officially named “Trump Accounts.”
- Employers may contribute to the accounts of minor employees and dependents beginning July 4, 2026.
- Employer contributions are tax exempt and capped at $2,500.
- Account contributions from all sources in aggregate are capped at $5,000.
Impact: Trump Accounts will quickly become widespread, potentially encouraging employer participation. Accounts will be automatically established at birth and, for children born between 2025 and 2028, funded with $1,000 from the federal government. PEOs will need to determine whether to take an active or passive role in helping clients manage employer contributions.
What’s Next: The U.S. Treasury Department has been tasked with creating the infrastructure for this new program. Meanwhile, the contribution limits appear to be defined as lifetime per employee, and not annually per qualifying minor. Expect IRS clarifying guidance on this point.
Read 25 Payroll & HR Legal Developments to Watch in 2025
In January, we compiled a list of 25 payroll and HR-related legal developments to look out for in 2025 from employee verification to pay transparency.
June 2025
Days Away From the OBBBA
As summer heats up, so does the spotlight on the One Big Beautiful Bill Act (OBBBA), a sweeping federal tax reconciliation bill with far-reaching implications for everyone from tipped workers to tech innovators. After a rapid series of revisions, the bill cleared the House on May 22. However, on June 16, the Senate Finance Committee proposed numerous substantive amendments, and a comprehensive new version of the OBBBA is now swiftly advancing in the Senate. With Independence Day fast approaching, the symbolic appeal of delivering a finalized bill to President Donald Trump for a July 4 signing could prove compelling enough to bridge any remaining divides—both between the chambers and within the Republican party.
UPDATE: President Trump signed the bill on July 4.
Notably for PEOs and employers, one or more iterations of the OBBBA have included provisions for:
- “No tax” on tips and overtime, which establishes new federal income tax deductions.
- Employee Retention Tax Credit (ERTC) fraud prevention, including enhanced penalties and early termination measures.
- Greater flexibility in employer-sponsored benefits, including Individual Coverage Health Reimbursement Arrangement (ICHRA), Health Saving Account (HSA) and Flexible Spending Account (FSA) offerings.
- A moratorium on Artificial Intelligence regulation, potentially removing barriers to the use of AI in HR-related decision-making.
State Tax Developments
As the OBBBA debate continues to capture the nation’s attention this week, a series of subtle but significant changes to state tax programs have advanced with little recognition.
These include:
Delaware:
PFML
What: New Proposed Regulations
Date: June 1, 2025
Details: Delaware’s existing Paid Family and Medical Leave (PFML) regulations have posed significant logistical challenges for service providers, requiring constant employee count monitoring and potential contribution rate changes from one pay period to the next—neither of which align with the state’s reporting framework. On June 1, the state Department of Labor released proposed regulations intended to simplify this process and align with how employers report data. Once finalized, employee counts will be determined on a quarterly basis; and any rate changes, triggered by a shift in headcount, would take effect at the start of the following quarter.
Alabama:
Overtime Exemption
What: New FAQ Guidance
Date: Sunsets June 30, 2025
Details: While a federal overtime tax deduction may be on the horizon, Alabama’s state overtime exemption sunsets on June 30. As recently as June 4, the Alabama Department of Revenue (DOR) reaffirmed longstanding guidance that overtime wages must be paid by June 30 to qualify for the exemption. However, the DOR has since updated its position: any overtime earned on or before June 30 will now qualify, even if paid in July. These exempt amounts may be reported on the July A-6 monthly return. Payroll processors may need to pivot to accommodate this change, which effectively extends the exemption for many employees.
Oregon:
Payroll Tax Reporting
What: HB 2236
Date: Effective Jan. 1, 2026
Details: On June 9, Oregon enacted HB 2236, making it a State Unemployment Tax Act (SUTA) choice jurisdiction for PEOs. Beginning with the Jan. 1, 2026, tax year, PEOs may elect, client by client, to calculate and report SUTA on either a client or PEO basis. As a combined reporting state, this flexibility resolves a longstanding Paid Family and Medical Leave (PFML) issue: currently, clients that independently classify as small employers in Oregon are nonetheless subject to the large employer rate when aggregately reported under the PEO umbrella.
Maine:
PEO SUTA Reporting
What: LD 706
Date: Effective Jan. 1, 2026
Details: With the passage of LD 706 on June 10, Maine will transition from a PEO-level to a client level State Unemployment Tax Act (SUTA) rate and reporting structure beginning Jan. 1, 2026. This shift aligns the state’s unemployment tax framework with its Paid Family and Medical Leave (PFML) program, where final regulations published in December formally define the “client company” in a PEO relationship as the employer for PFML purposes.
The PEO Regulatory Push-Pull
A defining strength of the PEO industry has always been its ability to guide small and medium-sized businesses (SMBs) through the challenges and opportunities of a rapidly evolving regulatory landscape. But in 2025, the industry isn’t just responding to change—it’s helping define it. With growing visibility and advocacy, led by the National Association of Professional Employer Organizations (NAPEO), PEOs are playing an increasingly active role in influencing policy outcomes. Read our PrismHR Blog post for an in-depth numerical look at the regulations shaping—and being shaped by—the PEO industry this year.
May 2025
Updates on Employee Verification Requirements
With the recent shift in national immigration policy, service providers and employers need to be mindful of the implications of stricter enforcement, as well as new and pending requirements associated with employee verification.
I-9 Updates
On April 2, U.S. Citizenship and Immigration Services (USCIS) released a new version of the I-9. The latest iteration contains only minor verbiage changes from the prior version, including:
- Replacing “gender” with “sex” in accordance with Executive Order 14168.
- Reverting “non-citizen,” which was introduced in 2023, back to “alien” to align with Executive Order 14159.
- Updating the DHS Privacy Notice, which now states the Department of Homeland Security “may share the information you provide on this form and any additional requested evidence with authorized organizations.”
With this latest update, the following three distinct versions of Form I-9 are in use:
- Aug. 1, 2023, Edition, released on that date and expiring July 31, 2026.
- Another Aug. 1, 2023, Edition, subsequently released Aug. 2, 2024, and expiring May 31, 2027.
- Jan. 30, 2025, Edition, also expiring May 31, 2027.
Importantly, USCIS has stated that all versions remain valid until their respective expiration dates. As a result, transitioning to the latest format is voluntary, pending further guidance.
PrismHR Onboarding currently supports the version expiring July 31, 2026, and will transition to the latest edition prior to this date.
Federal E-Verify Updates
On March 26, Sen. Chuck Grassley (R-Iowa) introduced the Accountability Through Electronic Verification Act, a bill that seeks to mandate the use of E-Verify for all private employers. However, this proposal joins a long list of previous E-Verify bills, all of which have failed to advance, including the Mandatory E-Verify Act of 2024.
Meanwhile, the USCIS continues to promote E-Verify+. Initially launched for select employers last year, this platform offers key enhancements, including the ability to complete I-9 forms directly through its portal. However, the platform currently lacks integration and employer agent support.
State E-Verify Updates
Several states—including Idaho, Indiana, Kansas, Montana and Texas—are actively considering their own legislation to require private employers to use E-Verify. Among these, Texas Senate Bill 324 has made the most progress, recently advancing from committee to the full Senate for deliberation.
Florida lawmakers are also progressing HB 955, a bipartisan measure aimed at expanding the state’s E-Verify mandate to include all private employers. Currently, Florida’s requirement applies only to businesses with 25 or more employees. If enacted as written, the new mandate would take effect on July 1, 2025.
I-9 Technology Compliance
Did you know that in 2010, the Department of Homeland Security issued finalized rules regarding how I-9s are completed and stored electronically? Learn more about these rules and other technology considerations for HROs in the PrismHR blog, “6 Ways You Can Help Your Clients Stay in I-9 Compliance.”
5-Minute Survey:
I-9 Audits & Management
Given the current state of immigration enforcement, we want to learn more about your experiences with I-9 completion, management and audits. Share your thoughts by taking this 5-minute survey. Your feedback helps inform future product development and training content.
March 2025
2025 Payroll & HR Forecast Update
In January, PrismHR published a list of 25 compliance topics to watch in 2025, ranging from payroll, onboarding, benefits and more. Since then, a variety of finalized and pending new rules have continued to shape many of these topics—adding a mixture of both clarity and uncertainty. Highlights include:
ACA Reporting
Jurisdiction: Federal
What’s New: IRS Notice 2025-15
Details: The Paperwork Burden Reduction Act, enacted last December, allows employers to provide Form 1095s to employees only upon request. While the act mandates that employers create a clear request process, it offers minimal guidance on what this entails. IRS Notice 2025-15, issued in February, addresses this gap. Relying in part on existing regulations, the Notice requires employers to outline the request process on their website, and include contact phone number, email address, and mailing address.
Secure 2.0
Jurisdiction: Federal
What’s New: Proposed Regulations
Details: In mid-January, the IRS released proposed Secure 2.0 regulations concerning auto-enrollment and new Roth catch-up requirements for highly compensated employees, set to take effect on Jan. 1, 2026. Notably, the proposed rules clarify that when determining whether an employee is highly compensated, Certified PEOs (CPEOs) and other service providers are excluded from the definition of “employer.” Instead, the determination is based on wages earned under the “common law” employer sponsoring the plan.
Paid Family Medical Leave
Jurisdictions: Maryland, Pennsylvania
What’s New: Request for Delay, Advancing Legislation
Details: Payroll contributions for Maryland’s Family and Medical Leave Insurance (FAMLI) program are currently scheduled to begin on July 1, 2025. However, on Feb. 14, the Maryland Department of Labor announced plans to collaborate with legislators to postpone the start date to Jan. 1, 2027. Meanwhile, Pennsylvania House Bill 200 aims to establish the state as the 14th with a comprehensive PFML program. Introduced on Feb. 12 with bipartisan support, the bill is already advancing through the legislative process.
Pay Data Reporting
Jurisdictions: California, Illinois
What’s New: Specification Updates, Proposed Legislation
Details: On February 3, California introduced minor updates to its 2025 Pay Data Reporting requirements, including the addition of Middle Eastern and North African (MENA) as a race/ethnicity category for the first time. Soon after, Illinois adopted similar changes, including incorporating MENA into its template on March 7. Pending legislation in California, SB464, introduced on Feb. 19, would expand its requirements even further in future years by adding sexual orientation as a reporting category and extending reporting to public employers.
Paid Sick Leave
Jurisdictions: Michigan, Missouri, Nebraska
What’s New: Litigation, Pending Legislation
During the November election, Missouri voters passed Proposition A, a ballot measure establishing earned paid sick time for all in-state employees beginning May 1. However, its future remains uncertain due to ongoing legal challenges. On March 12, the Missouri Supreme Court heard oral arguments in McCarty v. Secretary of State, a case questioning the constitutionality of the ballot initiative. Additionally, on March 13, the Missouri House of Representatives approved HB 567, which seeks to repeal the paid sick time requirement. The bill now awaits full deliberation in the Senate.
In Nebraska, Legislative Bill 415 advanced through procedural votes in the state legislature on March 28. If enacted, the bill would modify, but preserve, the Nebraska Healthy Families and Workplaces Act, the state’s paid sick time statute set to take effect on October 1. Key changes include requiring employees to complete 80 hours of service before accruing sick time, and relieving employers of any obligation to pay out unused time upon employee separation.
These developments come on the heels of amendments to Michigan’s Earned Sick Time Act, which were signed into law on February 21, the day the Act took effect. For more insights into the fast-paced and late-breaking lead-up to these amendments, visit the PrismHR blog post, “Under the Weather? Not Much Time, Clarity on Michigan Paid Sick Leave Changes.”
February 2025
Under the Radar 2025 State Developments
President Donald Trump’s second term in office has kicked off with a whirlwind of activity, marked by 70 executive orders, aggressive immigration enforcement and rapid downsizing of federal agencies. While these high-profile actions have captured the headlines, state rule-makers have simultaneously also released a variety of new requirements with often immediate impact to service providers and employers. These changes include:
Michigan: Earned Sick Time and Minimum Wage
Enacted: Feb. 21
Effective: Feb. 21
Michigan lawmakers spent months working on amendments to the state’s new sick time and minimum wage requirements. However, it wasn’t until the Feb. 21 start date that Senate Bill 8 (minimum wage) and House Bill 4002 (earned sick time) were passed. Both bills contain significant changes to the original rules, and reflect last-minute compromise not included in earlier versions of proposed amendments. Notably, the amendments:
- Delay the sick time start date for small employers to Oct. 1.
- Remove the unpaid sick time provision.
- Gradually decrease, but do not phase out, the tip credit.
California: Pay Data Reporting
Release Date: Feb. 3
Due Date: May 14
Since the start of pay data reporting in 2021, the California Civil Rights Department has amended its FAQs and reporting structure annually. This year is no different, as Middle Eastern and North African (“MENA”) was added as a distinct race/ethnicity category for the first time. However, for 2024 reporting, employers are permitted to follow existing race and ethnicity guidelines from the federal Equal Employment Opportunity Commission (EEOC), which currently classifies MENA employees under the category of “white.”
Ohio: Pay Stub Protection Act
Enacted: Jan. 8
Effective: April 8
Starting April 8, Ohio employers are required to provide employees with an itemized wage statement each pay period—either in written or electronic form. HB 106 lists a series of mandatory details, which generally align with other jurisdictions, and include:
- Gross wages
- Deductions
- Hours worked
- Rates of pay
For hourly employees on semimonthly or biweekly pay cycles, the hours worked must be broken down by workweek to clearly distinguish any overtime hours for the week.
New York: NYS-45 Quarterly Reporting
Release Date: Jan. 30
Due Date: April 30
Last August, the New York Department of Taxation and Finance (DOTAF) announced significant revisions would be forthcoming to the NYS-45 for reporting in the first quarter of 2025. Specifically, all three components of the NYS-45 will now be filed together on one tax return, and, on Part C, state and local income tax withholding will be reported separately for each employee. The DOTAF recently released file specifications outlining the structure and formatting of these changes.
January 2025
2025 Payroll Compliance Outlook
In 2025, a growing list of familiar payroll and HR trends, like earned sick leave and pay transparency are set to hit new jurisdictions. Meanwhile, the return of President Donald Trump carries the potential for significant federal reform—and uncertainty. While each year brings new payroll and HR requirements, 2025 is sure to create unique challenges and opportunities for PEOs, Staffing and other HRO providers. To help you navigate the new year, PrismHR has published a new white paper on the 25 Payroll & HR Legal Developments to Watch in 2025. You’ll also get a sneak peek at some of the key regulatory developments on the horizon in our blog post, “5 HR-Related Regulatory Developments to Keep an Eye on for 2025.”
Late Breaking Developments
Over the past month, several new rules and regulations have been introduced—all with immediate impact—including the following items:
ACA Paperwork Burden Reduction Act
Enacted: Dec. 23, 2024
Details: The act establishes an optional “alternative” approach to disseminating Form 1095s to employees. Employers can now choose to provide employees with their Form 1095s only upon request, so long as they provide clear notice of the process. While employers can take advantage of this provision immediately, the IRS has yet to formalize details on what constitutes acceptable notice.
Louisiana Income Tax Emergency Rules
Enacted: Dec. 23, 2024
Details: On Dec. 4, Louisiana enacted HB10, Act 11, which, effective Jan. 1, instituted a flat income tax structure and replaced the personal exemption and dependent credit with a standard deduction. To accommodate these changes, Emergency Rules with new tax withholding tables were published on Dec. 23, and a new L-4 withholding certificate was subsequently released in early January. An updated L-4 will be available on the PrismHR platform on Jan. 18, while tax withholding updates were released earlier this year.
ACA Employer Reporting Improvement Act
Enacted: Dec. 23, 2024
Details: The act codifies the IRS longstanding approach to electronic delivery of Form 1095, as outlined in Publication 5223. Specifically, employers are not required to mail or hand deliver paper copies to any employees who opt for electronic delivery only. The Act also sets a six-year statue of limitations for employer penalties and extends the penalty-notice response deadline to 90 days.
Massachusetts Pay Data Reporting FAQs
Enacted: Jan. 13, 2025
Details: The FAQs reiterate that employers with 100 or more Massachusetts employees in the prior year must submit their last EEO-1 report (presumably their 2023 submissions) to the state by Feb. 3, 2025. Of note, submissions must be made via a web portal that has not yet been published, a link to which will be added to the FAQs when available. Additionally, the report must be in PDF, JPG or PNG format, suggesting that employers must submit the PDF produced via the EEOC portal, and not the data file upload to the EEOC.
Chris Babigian is PrismHR’s compliance strategy manager. A graduate of Boston University School of Law with a focus in taxation, Chris spent five years handling motions, appellate briefs and trial discovery for a civil litigation firm. In 2014, Chris transitioned to PrismHR, where he translates regulatory requirements into software solutions.
