Regulatory Issues & Challenges Facing Businesses in 2025

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Last Updated: 12/10/2024

Principales problemas regulatorios de 2025: lo que las empresas deben saber y para lo que deben prepararse

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Businesses can expect to hear a lot about taxes in 2025. A tax debate in Congress may determine the course of tax policy, tax credits, tax cuts, and even the corporate tax rate. What happens over the next year and beyond based on any potential legislative or regulatory action might affect you and your business.

Businesses should remain informed and agile because change is coming. What should businesses be aware of moving forward? The compliance analysts at Paychex compiled a list of regulatory issues that could impact businesses most in 2025 to help better prepare employers and HR professionals for what might be coming down the road.

This information is for educational purposes only and should not be considered legal advice. Paychex recommends consulting with counsel before making any decisions that could affect your business.

Top Regulatory Challenges of 2025

The new year's most notable regulatory and legislative challenges are tax policy and taxes, retirement, artificial intelligence and privacy, paid leave, and wage and hour issues.

Let’s take a closer look at each of these issues.

What Will Happen With Tax Credits and Taxes in 2025?

The tax debate will revolve largely around the tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA), scheduled to sunset at the end of 2025. The Congressional Budget Office places the growth of debt on extending provisions from the TCJA over a 10-year period at $4.6 trillion. How this will be paid for – and who is paying – is at the heart of the debate.

Here are just a few provisions within the 2017 Tax Cuts and Job Act that could affect employers unless Congress acts before the end of 2025:

Pass-through tax deduction under Section 199A
Research and development (R&D) expensing
Bonus depreciation

In other areas, changes to the corporate tax rate were part of both candidates’ platforms during the campaign for the White House. It currently is 21% and, unlike other TCJA provisions, will not expire without legislative action. Members of the Republican Party have floated the idea of increasing the corporate tax rate as an offset for other spending proposals. In contrast, others in the GOP, including the president-elect, proposed reductions to the corporate tax.

In addition to the original provisions of the TCJA, other tax policy changes have been discussed, such as exempting tipped income, overtime pay, and social security benefits from federal income tax.

There have been talks of tariffs. However, the potential inflationary pressures that increased tariffs on all foreign-made goods could create must be considered, especially after inflation has dropped nearly a point since reaching a high of 3.5% in March 2024, according to data from the U.S. Bureau of Labor Statistics.

Despite a Republican majority in both chambers of Congress, slim margins are still a factor in getting any legislation passed.

Business owners should also understand that some of the tax proposals could ultimately affect their employees' ability to be away from work – these are wallet issues for employees. Failing to extend the provisions of the TCJA might result in an increase in individual tax rates and bracket range change. Also, the TJCJA changed how taxes are calculated to simplify filing, so reversing that would create additional complexity. Employers should be aware that changes to income tax directly affect employer withholding, how they calculate, and the corresponding employee withholding on Form W-4. States tied to the federal provision might be affected by any changes at the federal level.

Other tax-related impacts involved in the debate could include expanding and increasing the Premium Tax Credit (PTC) to purchase health coverage on the Health Insurance Marketplaces. The PTC triggers potential assessment for certain employers for not offering adequate and affordable coverage under the Employer Shared Responsibility Provision in the Affordable Care Act. The current increased amount of credit is set to expire in 2025.

What Changes Are Expected for Retirement Savings Plans?

The retirement savings crisis in America is real, and efforts to address it at the federal and state levels have had varying degrees of success for nearly a decade. The goal has always been to create retirement-ready individuals. Across all industries, the percentage of employers offering workplace retirement savings plans is increasing, according to a Paychex Special Report using data between January 2018 and December 2023.¹ At the state level, there are several mandates for employers to implement plans in the workplace.

As of Nov. 30, 2024, 11 states have active state-administered workplace retirement programs, with 3 more expected to activate their programs in 2025 (Missouri, Nevada, and Vermont) and another in 2026 (Minnesota).

The current states with active retirement savings programs are California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, New Jersey, Oregon, and Virginia.

Washington currently has a voluntary marketplace option but has passed legislation to implement a state-administered mandated program in 2027.

At the national level, the retirement savings landscape still involves rolling out provisions from SECURE Act 2.0, and there has been talk among legislators to begin the next iteration of legislation – SECURE 3.0.

Under a provision of SECURE 2.0, effective Jan. 1, 2025, employers (with some exemptions) will be required to auto-enroll their employees in any new 401(k) or 403(b) workplace retirement plan established after Dec. 29, 2022. There are additional compliance requirements regarding that provision, including the selection of a contribution rate range and employee notification requirements.

Additionally, employers might be eligible for tax breaks under SECURE 2.0 designed to offset up to 100% of the plan startup costs.

Regarding costs, there is discussion on changing the tax treatment of certain retirement contributions, shifting from pre-tax to post-tax in some circumstances. This could offset other spending options as part of the tax debate.

In August 2024, the Internal Revenue Service issued a notice to provide guidance to employers who offer retirement plans with matching contributions on qualified student loan payments. This allows employees to repay student loans and still save for retirement, with the owner providing a match to the employee retirement account when the participant makes qualified student loan payments.

Also in 2025, the transition from the Saver’s Credit to a Saver’s Match, intended to bolster the retirement savings of low-income workers, will begin in earnest for its 2027 launch under SECURE 2.0. The shift will involve significant infrastructure development and additional guidance for this program, which involves a switch from a credit to an actual direct deposit into a participant’s retirement account.

Is Paid Leave Coming to Your State?

It is unlikely that the incoming Congress will do anything differently when adopting a federal paid leave program. Rather, states have taken the lead because of the lack of federal legislation – 9 as of December 2024, with the District of Columbia making it 10 total jurisdictions – in requiring employers’ participation in state-run paid family and medical leave (PFML) programs.

The following states and the District of Columbia have mandated programs: California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington.

Other states (Delaware, Maine, Maryland, and Minnesota) will launch PFML programs in 2025 and 2026. Most states with mandated PFML programs allow employers to opt out of the state program if they obtain approval for a private paid family and medical leave plan.

Employers also might be eligible for federal tax credits for certain voluntary or supplemental paid family and medical leave programs through the end of 2025.

In addition to the paid family and medical leave laws in states across the country, there are more than 40 jurisdictions with Paid Sick and Safe Leave (PSSL) laws, and several more jurisdictions making PSSL available in the next year, including Alaska, Missouri, and Nebraska as a result of recently approved ballot measures.

For multi-jurisdictional employers, this creates complexity and requires additional effort in staying up to date with all applicable compliance requirements.

Wage and Hour Labor Laws

One of the biggest wage and hour issues has been the U.S. Department of Labor’s 2024 Overtime Rule, which was vacated on Nov. 15. The U.S. District Court for the Eastern District of Texas ruled that the DOL exceeded its authority under the statute in the Fair Labor Standards Act (FLSA). As a result, the minimum salary thresholds for the FLSA’s executive, administrative, and professional (EAP) and highly compensated employee (HCE) exemptions revert to the threshold amounts under the agency’s 2019 Overtime Rule.

Such rulings could become more common, especially after the decision by the U.S. Supreme Court in 2024, commonly referred to as the Loper Bright decision. It reversed a long-standing doctrine that said courts should defer to the interpretations of government agencies when Congress left ambiguity in a statute.

Hundreds of thousands of businesses nationwide will also be dealing with minimum wage increases at the state, local, and even industry-specific level scheduled for Jan. 1, 2025. Businesses in 23 states should be prepared for minimum wage increases; Michigan has two hikes slated. These changes affect businesses' budgets and employees’ paychecks, so it is crucial that employers stay on top of payroll compliance changes. In the meantime, the federal minimum wage remains unchanged since 2009.

Other areas of interest include pay transparency laws that primarily promote pay equity and mitigate discrimination based on protected categories, including gender, age, and race. An employer’s compliance requirements under pay transparency laws might include disclosing compensation details and benefits information at some point during the hiring process.

Businesses with employees in a handful of states including Minnesota, Vermont, Illinois, Massachusetts, and New Jersey will be ensuring compliance with new pay transparency obligations when state-level legislation becomes effective in 2025.

AI and Privacy

Artificial intelligence (AI) is entrenched in many businesses. Employers are trying to leverage its power to help run their businesses more efficiently—from simple tasks like writing an email to more vital ones such as recruitment and hiring. The use of AI raises questions about privacy and balancing the role of human judgment in a digitized workplace. Meanwhile, businesses using AI are attempting to comply with a patchwork of federal and state regulations.

With everything moving so fast, businesses should be aware that for all the incredible positives, AI can present problems.

Some of the common shortcomings include:

Injecting bias into hiring and other employment decisions
AI-generated misinformation
Threatening copyright protections
Weakening personal privacy protections
Cybersecurity risks

So, it is critical for businesses to know whether their AI provider compliance and security practices meet industry standards. They should understand:

Data breach protocols
Data classification
Access controls
How data is encrypted
How and where data is stored
How AI systems are using their data
Compliance with regulations
Ethics, transparency, and bias prevention approaches

The Biden Administration issued an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence in 2023, but most of the federal activity has been focused on retrofitting guidance across various government bodies simply because the technology is a moving target. The incoming administration will likely change the direction of regulation in this space, and, as a result of the Supreme Court’s decision in Loper Bright, other federal regulations in the AI environment might become more vulnerable to litigation.

Historically, certain administrations have taken a laissez-faire approach to regulating businesses. So, absent comprehensive federal action, businesses should anticipate a 2025 ramp-up in AI regulation at the state level to comply with international standards.

And while the speed at which AI transforms, the laws and regulations can only try to keep pace. For example, Colorado signed the first-of-its-kind AI legislation in 2024, but it is expected to be modified prior to its effective date in 2026.

California continues to lead the nation in artificial intelligence regulations. Gov. Newsom signed bills focusing on a range of issues including privacy. The California Consumer Privacy Act has been amended to cover AI systems that are “capable of outputting personal information.” This means AI tools that generate personal information must also comply with California’s privacy law. The amendment serves to strengthen consumer protections. The law is effective Jan. 1, 2025.

How To Mitigate the Impact of Regulatory Changes

Running a business comes with challenges, both seen and unforeseen. Compliance requirements that accompany legislative and regulatory action at the federal, state, and local level are not always on the radar. There are strategies an employer can implement to help their business stay ahead of the curve.

Consult with legal advisors
Use technology that tracks regulatory issues
Train staff to follow news sources and alerts
Work with an HR service provider

Staying on top of an ever-changing regulatory landscape and staying compliant could require a combination of some or all these approaches.

What Are Government Regulations?

Federal and state governments consist of regulatory bodies (agencies) that issue rules, regulations, and guidance to implement and enforce legislation. Employers must understand the legislation and the implementing regulations to mitigate the risk of noncompliance.

The Importance of Staying Compliant With Laws and Regulations

Laws and regulations affect how businesses pay their employees, classify their employees, provide paid time off to their employees, and keep their employees and workplace safe, to name a few. Employers who understand and adhere to their compliance obligations under federal, state, and local laws and regulations help protect and enhance their businesses in many ways.

Avoid lawsuits, fines, and penalties that could accompany noncompliance
Mitigate potential risk with a proactive approach that helps identify issues
Build a customer base by demonstrating ethical behavior
Promote growth and improve market access by following industry-specific requirements
Improve recruitment and retention by building a reputation based on trust and adherence to the law

¹Road to Retirement: A Paychex Special Report, 2023

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Compliance Taxes Retirement Human Resources