Top Payroll Issues Businesses Must Address in 2025

Staying compliant with evolving payroll regulations is a crucial aspect of business management. As 2025 approaches, companies must navigate a complex landscape of labor laws, tax regulations, and employee benefits programs. The following article highlights the most significant payroll issues businesses need to prepare for in the coming year.

Key Payroll Compliance Concerns for 2025

In 2025, economic factors such as inflation and legislative changes will drive payroll-related challenges. Programs like the Employee Retention Tax Credit and the Inflation Reduction Act have highlighted the importance of tax credits, while worker classification, compensation, and paid leave continue to be hot topics for businesses.

1. Pay Equity

Pay equity remains a critical focus for state and local governments. By the end of 2022, seven states and numerous municipalities enacted pay disclosure laws. This trend is expected to grow in 2025, with more jurisdictions mandating pay transparency and anti-discrimination measures.

Employers should monitor developments in federal and state legislation aimed at reducing racial and gender pay gaps. Examples include initiatives like California’s Pay Data Reporting and Illinois’ Equal Pay Act.

2. Worker Classification Revisions

Worker classification is under increased scrutiny, with the U.S. Department of Labor (DOL) set to implement revised guidelines under the Fair Labor Standards Act (FLSA). These updates will affect how employers differentiate between independent contractors and employees.

Employers must stay vigilant and comply with evolving classification tests at federal, state, and local levels to avoid costly misclassification penalties.

3. Retirement Savings Enhancements

SECURE 2.0 is expected to reshape retirement planning by expanding eligibility for tax credits, raising the required minimum distribution (RMD) age, and mandating automatic enrollment in certain retirement plans. The legislation also includes provisions for student loan payment matching, addressing both student debt and retirement savings simultaneously.

Companies should prepare for these changes to improve employee benefits and enhance retirement savings options.

4. Wage and Hour Regulations

Significant updates to federal overtime rules are anticipated in 2025. The DOL is expected to increase the salary threshold for exempt employees, impacting labor costs and workforce management.

Additionally, more jurisdictions may introduce fair scheduling laws, eliminate sub-minimum wages, and modify tip credit regulations. Sectors like hospitality, retail, and healthcare may experience sector-specific wage regulations like California’s FAST Recovery Act.

5. Paid Leave Expansion

While a federal paid leave program is unlikely in 2025, state-level paid leave mandates continue to grow. States like Maryland and the District of Columbia have already enacted paid family leave laws, with New Hampshire launching an opt-in paid family leave insurance program.

Employers should track state-level paid leave developments to ensure compliance and provide competitive benefits.

6. Privacy and Cybersecurity

The rise of remote and hybrid workforces necessitates stronger privacy policies and cybersecurity measures. With no federal privacy law in place, states continue to expand their data protection regulations.

Businesses must enhance transparency regarding data collection, processing, and disposal to meet employee and consumer expectations.

Preparing for 2025

To stay ahead of regulatory changes, businesses should:

• Regularly review payroll practices and employee classification.
• Monitor legislative developments at federal and state levels.
• Invest in payroll software that automates compliance updates.
• Engage legal and payroll experts to navigate complex regulations.

By addressing these critical issues proactively, businesses can ensure compliance, improve employee satisfaction, and avoid potential penalties in 2025.