2025 HR Compliance Debrief: What Changed, What’s Coming, and How to Prep for 2026

HR didn’t get a break in 2025. Between nonstop legislative and compliance changes, shifting employee expectations, and a recruiting market that refused to sit still, this year tested even the most seasoned HR teams.

Before you close the books on 2025, here’s what you need to know about the most important legislative updates, compliance shifts, and HR lessons from this year, and what they mean for your 2026 strategy. This isn’t just a recap. It’s your roadmap to get ahead of what’s coming, spot hidden risks, and walk into Q1 with a plan that actually works.

Paul Carellis, VP of HR Services at MP, recently led a comprehensive webinar walking HR leaders through the year’s biggest changes. Here are the insights you need.

2025 HR compliance recap: ACA changes, state law updates, and your 2026 prep checklist.

The Biggest HR Headlines of 2025

If there’s one theme that defined 2025, it’s this: constant change. Here’s what dominated the conversation.

The One Big Beautiful Bill packed hundreds of pages of employer-impacting provisions, particularly around tips and overtime taxation. While the complexity has many employers scrambling, the provisions are real and require action heading into 2026.

ACA subsidies faced uncertainty as the year closed. If Congress doesn’t act, subsidies could disappear January 1st, driving healthcare.gov premium rates through the roof and potentially sending more employees looking to join employer group health plans.

Pay transparency laws continued their march across the country. We’re now in the teens for states with these requirements, and more are coming in 2026. If you’re hiring remotely or casting a wide net for candidates, you may already be subject to these laws even if you don’t have employees in those states yet.

Courts and agencies stayed busy, not just passing new laws but changing interpretations of existing ones. Even in a deregulatory environment, precedent-setting court cases can flip your policies on their head overnight.

AI regulation became a hot topic, with some states passing new laws while the federal government floated the idea of executive action to prevent state-level regulation altogether. More on this is coming, including at MP’s dedicated AI webinar next month.

“Forever layoffs” emerged as a new HR buzzword. Instead of one major reduction in force, more companies are conducting continuous mini-layoffs throughout the year. While this might reduce PR impact, it’s creating serious morale and employee anxiety issues.

Return to office mandates surged. Instagram announced a five-day office requirement starting February for a “creative reset.” Government contractors followed suit. If you’re committed to remote work, this could be your opportunity to scoop up talent frustrated by policy changes. If you’re planning your own return to office, proceed carefully with proper HR guidance to avoid accommodation issues.

What You Need to Know About the One Big Beautiful Bill

The legislation passed mid-year in July but applies retroactively to January 1st, 2025. Here’s what employers need to understand.

No Tax on Tips: The Details

The no tax on tips provision is a tax deduction employees claim when filing their personal taxes, not something that impacts their paychecks. Key parameters:

• $25,000 cap on eligible tips
• Income limits: The deduction phases out for individuals earning over $150,000 and married couples earning over $300,000
• Discretionary tips only: This is the critical distinction. The law separates discretionary tips (where customers decide the amount) from service charges. If you automatically add an 18% gratuity for parties of six or more, that’s excluded. If there’s a mandatory service charge on the bill, it’s excluded. Only tips where the customer has full discretion qualify.
• Cash tips definition: Means monetary tips, whether via cash or credit card. Physical items or services used as tips don’t count.
• 2026 reporting requirements: You’ll need to track eligible positions and use specific codes on W-2s.

Strategy for 2026: If possible, update your POS system to separately report discretionary tips versus service charges and automatic gratuities. This will make compliance much cleaner when strict enforcement begins. MP’s payroll services can help you navigate these reporting requirements.

No Tax on Overtime: The Complications

Similar structure to tips, but with important distinctions:

• $12,500 cap for individuals, $25,000 for married couples
• Same income limits as tips provision
• FLSA-required overtime only: This is where it gets tricky. Only overtime required by the Federal Fair Labor Standards Act qualifies. That means:
  • Holiday pay at time-and-a-half? Not eligible (unless it’s also over 40 hours for the week)
  • State-mandated overtime (like California’s over-8-hours-in-a-day rule)? Not eligible (unless it’s also over 40 hours for the week)
  • Only the 40+ hours in a work week overtime counts
• Only the premium counts: If you make $10/hour and your overtime rate is $15, only the $5 premium (the “half” of time-and-a-half) is eligible for the tax relief.

IRS Transition Relief for 2025

Here’s the good news and bad news. The IRS announced several relief measures because even they’re struggling to implement this:

W-2 forms won’t change this year. Despite the regulation calling for new boxes, the IRS confirmed W-2s for 2025 will look identical to 2024. New boxes will likely appear in 2026.

Transition relief for employers. The IRS is asking for a “good faith effort” to report eligible tips and overtime for 2025. They understand systems may handle things differently or not compute everything 100% correctly. They won’t penalize employers for errors or failing to produce this information for tax year 2025.

Transition relief for employees. The IRS published guidance (with bolded examples) showing employees how to report tips and overtime even if they don’t receive a clean statement from their employer. As long as employees aren’t being fraudulent and make a good faith effort, the IRS will look the other way for 2025.

Expect strict enforcement starting 2026. Transition relief only applies to 2025. Starting with the first payrolls of January 2026, employers need to be ready. Get your systems updated now.

Action steps for January 2026:

• Separate discretionary tips from service charges in your reporting
• Report FLSA overtime separately from state-mandated overtime, holiday pay, and other premium pay
• Ensure proper job codes are in place for W-2 reporting by year-end 2026

ACA Changes: Less Paperwork, Same Compliance

For employers subject to ACA requirements (generally those with 50+ full-time equivalent employees in the previous year), several changes are coming.

Penalty increases for 2026. The penalties are going up modestly but noticeably. If you’re not in compliance, it’s getting more expensive.

Affordability threshold relief. The percentage of employee pay required for employee-only coverage hit an all-time low last year at 8.39%. It jumped to over 9% this year and will approach 10% for 2026. This gives employers more wiggle room as health insurance premiums have increased significantly. Learn more about ACA compliance requirements.

The big development: 1095-C distribution changes. Thanks to the Paperwork Burden Reduction Act and Employer Reporting Improvement Act, most employers no longer have a mandatory requirement to distribute 1095-Cs to employees.

Important notes:

• You still need to create 1095-Cs
• You still need to correct them
• You still need to file them with the IRS
• You just don’t have to mail them to employees (with exceptions)

To qualify for this relief:

• Post a notice on your company intranet that 1095-Cs are available upon request
• Provide a phone number, email, and physical address where employees can request them
• Respond to requests promptly

California exception: If you have employees in California, they still need to receive 1095-Cs because California has an individual mandate.

90-day response window for 226J letters. Previously, if you received an ACA penalty notice from the IRS, you had 30 days to respond. These letters often require extensive research and calculation. Many employers didn’t notice the mail for a week or two, leaving just days to respond. The new law establishes a 90-day window, which is far more reasonable.

Six-year statute of limitations. Previously, there was no time limit on how far back the IRS could penalize employers for ACA violations. The new regulations formally establish a six-year statute of limitations. You no longer need to worry about getting a letter about 2020, for instance.

Federal Agencies: What’s Shifting

ICE and Immigration Enforcement

Workplace inspections have been surging. The most critical action you can take: make sure your I-9s are up to date, compliant, and correct.

ICE often uses administrative I-9 audits as a foot in the door. If they don’t like what they see, it can evolve into further investigations. Getting I-9s right puts you in good shape to reduce further action.

Temporary Protected Status (TPS) updates. The federal government has been terminating TPS status country by country. Recently terminated countries (some held up in court) include Honduras, Nicaragua, Venezuela, Afghanistan, Cameroon, and Haiti. Countries like Ukraine still have active TPS.

If you have employees from terminated countries working off an Employment Authorization Document (EAD), monitor their status closely. When TPS is terminated, there’s a last eligible employment date. Depending on court rulings, consult with an immigration attorney about whether to continue employment or take other action.

H-1B visa $100,000 fee clarification. There’s been confusion about this. Here’s what applies:

• If someone has an existing visa they’re renewing, the fee doesn’t apply
• If someone has another visa type (like a student visa) transitioning to employer-sponsored H-1B, the fee doesn’t apply
• The $100,000 fee only applies to foreign citizens living abroad with no current visa seeking to come here on H-1B

There are exemption request processes available. If you have H-1B workers or are looking to obtain some, work with an immigration attorney. MP’s HR consulting team has immigration law experts available and can connect you with the right resources.

Did you know 19 states have new minimum wages starting Jan 1? Here’s your complete 2026 compliance guide.

Department of Labor Updates

The DOL is looking to deregulate in key areas including healthcare and federal contractor requirements.

Return of opinion letters. When someone writes in asking for a ruling on their specific situation, the DOL now publishes official opinion letters. These provide excellent insight into the DOL’s views on topics and how to handle certain situations. Several new opinion letters have been issued this year.

Independent contractor standard. The Biden-era independent contractor standard is officially out. We’re back to the previous standard, which is more relaxed and has fewer measurable items for determining independent contractor versus W-2 employee status.

Wage and hour enforcement changes. The wage and hour division announced they’re no longer seeking liquidated damages. They’re strictly going after actual back pay or missed pay for violations, not tacking on liquidated damages on top.

EEOC Focus Areas

EEO-1 filings still required. If you’re over 100 employees or a federal contractor of certain size, you still need to complete EEO-1 filings.

Pregnant Workers Fairness Act changes coming. The new EEOC commissioner has indicated changes are forthcoming regarding eligibility for abortion-related accommodations, fertility treatments, menopause, and other issues that aren’t directly pregnancy-related but fall under the PWFA umbrella. Watch for formal drafts soon.

Visa worker enforcement focus. One enforcement priority for 2026 is examining workforces that hire visa workers to ensure companies aren’t illegally preferring or giving preference to non-American workers. Even if you’re doing everything correctly, it may be worth consulting a professional to ensure proper documentation and audit readiness.

National Labor Relations Board

With quorum restored, expect the NLRB to get busy. Key changes already:

Non-compete agreements: The NLRB views non-competes as valid and legal documents (note: this differs significantly from state-level trends).

Captive audience meetings: Mandatory meetings to dissuade employees from unionizing have seen relaxed regulations.

AI and severance agreements: Relaxation on both fronts from the NLRB perspective.

However, states are stepping up where federal agencies step back. New Jersey has new restrictions on captive audience meetings. Several states have active non-compete legislation. When you see federal deregulation, turn your eyes to the states.

Supreme Court and Lower Courts: Cases That Matter

The Supreme Court had a busy 2025 session with several landmark employment law cases:

Ames v. Ohio Department of Youth Services addressed discrimination claims from majority groups (sometimes called “reverse discrimination”). The ruling: there’s no higher threshold or burden of proof for majority groups versus minority groups under Title VII of the Civil Rights Act. The “background circumstances” precedent requiring majority group members to show a history of discrimination was eliminated. Discrimination is discrimination, regardless of which group it affects.

EMD Sales could have created stricter standards for FLSA exemptions (determining who’s exempt from overtime). The court’s decision made no changes to exemption standards. Business as usual continues.

Trump v. CASO addressed universal injunctions by lower courts. Previously, a court ruling on an agency regulation might create a universal injunction affecting all employers in a district or nationwide. The Supreme Court ruled that only the parties in a given case are subject to injunctions. Universal injunctions are unconstitutional.

Stanley determined that former employees are not protected by the Americans with Disabilities Act once they’ve left the organization or retired. The ADA only protects current employees.

Massachusetts Wage Act case: A significant ruling for Massachusetts employers. An employee received a retention bonus weeks after termination (violating the requirement to pay all wages due at termination). The court ruled that bonuses do not count as wages under the Massachusetts Wage Act. Wages are limited to payment for services rendered: hourly wages, salary, and commissions. Bonuses aren’t subject to the automatic triple damages provision, though they may still be required based on contract terms.

Current Supreme Court session cases to watch:

• Presidential authority to remove agency officials: Can the president fire agency commissioners? This question arose after several DOL commissioners were terminated early in the administration.
• Tariff authority: How much authority does a president have to issue or change tariffs? Critical for employers doing importing/exporting.

State-Level Compliance: The Real Action

Here’s the reality of federal deregulation: when federal rules relax, states step in with their own. For multi-state employers, this creates a complex compliance matrix. Tommy in California operates under different rules than Pam in Florida, Paul in Massachusetts, or Katie in Pennsylvania.

Mid-2025 Changes (In Case You Missed It)

Many laws start July 1st, not just January 1st. Here’s what launched mid-year:

Minimum wage increases (July 1): Alaska, Oregon, Washington DC

Pay transparency (July 1): Vermont and Washington (Massachusetts started October 29th)

New Hampshire breastfeeding accommodation: Employers must provide time and space for mothers to pump during the first year after birth.

Indiana school meeting leave: Protected leave for employees to attend their children’s school meetings.

Colorado biometrics privacy: New protections regarding biometric data.

California healthcare minimum wage: $24/hour industry-specific minimum (pairs with $20/hour fast food minimum).

Alaska paid sick leave: New program launched.

Alabama overtime tax exemption: Expired July 1st (was similar to federal no-tax-on-overtime but applied at payment).

Non-compete landscape shifts:

• Florida: Choice Act allows more non-compete options for employers
• Wyoming and Virginia: Banned non-competes entirely

January 1, 2026 Changes

19 states with minimum wage increases: Arizona, California, Colorado, Connecticut, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, Virginia, and Washington.

Salary threshold impacts: Several states tie exempt worker salary thresholds to multiples of minimum wage. With minimum wage increases, salary thresholds rise in Alaska, California, Maine, New York, and Washington.

Connecticut paid sick leave expansion: Drops to 11+ employees (previously higher threshold).

New Hampshire unpaid family medical leave: Specific to birth or adoption of a child, creates a bank of unpaid hours for doctor’s visits and other eligible reasons.

Rhode Island new hire notice: Starting January, all new hires need a comprehensive notice including rate of pay, conditions of employment, and certain policies. If you have Rhode Island employees, verify you’re prepared for this.

Texas AI regulations: Set to start, though the pending executive order on AI may impact these.

Key Trends to Watch

Pay transparency is growing fast. More states are picking this up. Even if you’re not required to comply yet, consider doing it anyway. Studies show that job seekers, especially younger generations, skip postings without pay ranges. If competitors are using pay transparency and you’re not, you’re at a competitive disadvantage.

County-level variations emerging. Pennsylvania is floating the idea of county-specific minimum wages (Philadelphia higher than rural areas). This could significantly complicate compliance if other states follow suit.

AI regulation uncertainty. The One Big Beautiful Bill’s final version didn’t include language chilling state AI laws. Now we’re waiting on the executive order to see what federal action looks like and how it impacts state regulations.

Child labor laws going both ways. Some states are getting more restrictive (hours, permitted jobs), others are loosening requirements (work permits, etc.). If you hire minors, stay on top of these. Child labor violations carry some of the most expensive penalties.

Your 2026 Compliance Checklist

Here’s how to close 2025 strong and set yourself up for 2026 success:

1. Audit your I-9s NOW. Yes, it’s labor-intensive. But it’s far less stressful than scrambling when DHS shows up demanding all I-9s and payroll records within 2-3 days. If you find errors during your own audit, correct them compliantly and add a memo noting the audit date and corrections made. Employers who’ve done this proactively haven’t faced penalties when files were later audited.

2. Conduct a proactive wage and hour review. Many states are actively conducting wage and hour audits, whether from complaints or random selection. Do the work. Make corrections. Show good faith effort. Even if violations are found later, demonstrating you’re trying to comply goes a long way toward reasonable outcomes.

3. Watch the courts. The Supreme Court is set to rule on significant employment law cases soon. Lower courts are equally busy and set precedent too. Stay informed, or at minimum, stay tuned to resources like MP’s webinars that keep you updated.

4. Take advantage of ACA relief. If you’re a good candidate for it and your payroll provider offers it, consider opting out of printing 1095 forms. Don’t forget: you still must approve forms and file with the IRS. But you may eliminate the distribution step this year.

5. Plan return to office carefully (if applicable). Think through disability accommodations, distance considerations, schedule structure (full or hybrid), and pushback management. Work with HR professionals to avoid issues.

6. Explore work share programs if considering layoffs. If you’re facing tough times but hope to retain workers, investigate your state’s work share program. It reduces employee schedules, they receive reduced pay and benefits from you, then supplement with unemployment funds. It’s a way to avoid layoffs entirely.

7. M&A due diligence. Mergers and acquisitions are surging. If you’re looking to merge or be acquired, do due diligence now. Clean up issues before you have a letter of intent out there.

8. Monitor employee count thresholds. If you’re growing, watch what new regulations you become subject to. If you’re hiring remotely or in new states, work with someone who can familiarize you with state-specific requirements. Each of the 50 states has its own employment law rules.

9. Invest in manager and supervisor training. Your managers and supervisors are a crucial layer. Legally, they’re seen as agents of your company. Making sure they act compliantly, don’t discriminate, and avoid illegal actions keeps you and your business out of hot water.

The IRS is giving transition relief for tips/overtime reporting in 2025, but strict enforcement starts 2026. Are you ready?

How MP Can Help

At MP, we’re not here to replace HR. We’re here to empower it. Our team of SHRM-certified HR professionals partners with you to provide strategic guidance, clarity on compliance, and the kind of support that helps your team thrive.

We offer:

• I-9 audits and review services
• ACA compliance support and filing assistance
• Multi-state payroll and compliance management
• Comprehensive wage and hour reviews
• Manager and supervisor training
• Proactive HR consulting (not waiting for you to ask)

Powered by the isolved platform, we provide industry-standard technology with personal service.

We pick up the phone when you call. We even call you sometimes. Because we believe in proactive HR partnership, not reactive firefighting.

Next steps:

• Watch the full webinar recording
• Join our upcoming webinars on HR compliance and AI
• Request a demo to see how MP can help

2025 tested HR teams. 2026 will bring its own challenges. But you don’t have to navigate this alone. Let’s tackle it together.