New Laws and Shifting Practices Continue to Reshape the Workforce
Navigating the evolving landscape of compliance is no small feat, and we’re here to help you stay informed, prepared, and ahead of the curve.
Part 1 of our “2025 Compliance Watch” series unpacked some headline-making legislation and how it impacts HR leaders and SMB owners. (If you skipped over Part 1, no worries – you can read it here!)
In Part 2, we’re looking into some pivotal changes and new legislation that are shaping the year. Together, we can stay ahead of these compliance challenges and prepare your organization for whatever comes your way.
Paid Family and Medical Leave (PFML) Programs – 2025 Changes
The landscape of PFML is still fragmented across the country, with many states deciding if – and how – they want to implement structured paid family & medical leave. Federal adjustments to PFML isn’t looking likely, so multi-state businesses and those with remote employees will have to keep tabs at the state level. This can make it even more complicated when states act on independent timelines.
However, a few noteworthy changes are coming into effect to provide better support for employees and their families. PFML is crucial to creating a supportive work environment and ensuring employee well-being, so we’re excited to see these changes coming.
Key Changes to PFML Programs
As mentioned earlier, these changes are not necessarily coming from the US Department of Labor, but they are happening predominantly on a state-by-state basis.
- Expanded Coverage: Many states like California and Colorado are expanding PFML programs to cover a broader range of family members. This includes not just spouses, children, and parents, but also siblings, grandparents, and domestic partners. These changes recognize the diverse family structures in our society and provide greater flexibility and support for employees caring for their loved ones.
- Funding Adjustments: Some states are adjusting the payroll tax rates to ensure the sustainability of the PFML funds. It’s essential to stay updated on the specific changes in your state and ensure that payroll systems are adjusted accordingly.
- Increased Duration and Benefits: Several states like Delaware, Florida, and Maine already have proposed adjustments aimed at increasing the duration of leave and the percentage of an employee’s salary covered during leave. Those who proposed these enhancements want to reduce financial stress on employees during critical times, helping them return to work more focused and engaged.
What Can Your HR Team Do
- Review State-Specific Regulations: Get familiar with the PFML regulations in each state where your employees work. States may have different requirements and updates, so it’s crucial to stay informed.
- Communicate Changes Clearly: Keep your employees informed about their rights and the benefits available to them. Clear communication can help in reinforcing your commitment to their well-being.
- Update Internal Policies: Revise your leave policies to reflect the latest changes. Ensure that managers and HR staff are well-trained and prepared to handle PFML requests effectively.
H.R. 560: Second Job Tax Relief Act of 2025 – Legislation to Exclude Certain Wages from Taxation
The dynamic nature of the modern workforce means that many employees take on second jobs to meet their financial needs or pursue personal interests. Introduced by Congressman Don Bacon of Nebraska, the H.R. 560: Second Job Tax Relief Act of 2025 is legislation designed to alleviate some of the tax burdens associated with secondary employment.
What This Means
- Exempt Wages: The legislation allows certain wages from second jobs to be excluded from federal income tax. This can provide significant tax savings for employees juggling multiple roles and help them retain more of their hard-earned money.
- Stipulations and Caps: It’s important to note that tax relief applies up to a certain income threshold. Employers and employees must understand the specific caps and reporting requirements to ensure compliance.
A Potential Action Plan for SMBs
- Educate Your Workforce: Inform your employees about this tax relief opportunity and how it can benefit them. Providing resources and guidance on claiming this exemption can be a great support.
- Coordinate with Payroll Teams: Ensure that your payroll teams are aware of these changes and can process the exemptions correctly. This might involve updating payroll software and systems to accommodate the new regulations.
- Stay Informed: Keep an eye on any additional guidance or updates from the IRS regarding the implementation of this act to ensure smooth compliance.
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Restrictive Covenant / Non-compete Bans
In 2024, the Federal Trade Commission banned the use of restrictive covenants like non-compete agreements that restrict who former employees could go to as a future employer.
Additional changes are expected to come this year with the overall objective being to provide most employee types more freedom in where they can go after leaving a business, and they are part of larger updates to trade secret and employee mobility laws.
What Business Leaders Need to Keep in Mind
- Review Existing Agreements: Assess current employee agreements to ensure they comply with the latest state regulations. It’s essential to identify agreements that may now be unenforceable. Again, the only exception on non-competes per the FTC’s ruling are at the Senior Executive level.
- Update Employment Contracts: Revise your standard employment contracts to align with current laws. Ensure that any restrictive covenants are compliant, reasonable, and necessary.
- Explore Alternatives: Focus on protecting your business through alternative means, such as confidentiality agreements and non-solicitation clauses, which are often more acceptable and enforceable.
Independent Contractors & Freelance Partners
For some businesses, freelancers and independent contractors can feel like part of an extended family. However, as helpful as they can be for businesses, they can be tricky for HR professionals to navigate. In 2025, pay attention to evolving contractor classifications at the state level.
Additionally, the gig economy is expected to keep growing. From Uber drivers and Doordashers looking to create a side hustle to freelance designers working for an SMB, new regulations are popping up that provide guidance and protection for gig workers. While the language around “gig work” is still evolving, businesses should keep an eye on gig work discourse.
What Can Businesses Do for Freelance & Contractor Compliance
- Conduct Audits: Regularly audit your workforce classifications to ensure compliance with current laws. (Misclassification can lead to significant penalties and back taxes.)
- Clear Contracts: Make sure that independent contractor agreements clearly outline the nature of the relationship and provide autonomy for the contractor, in line with legal requirements. Clear contracts also align with global pushes for reliable payment infrastructures for contractors.
- State-Specific Laws: Be aware of state-specific regulations, as some states have more stringent criteria for classifying independent contractors. (New York and California, we’re looking at you!)
Maintaining Compliance Agility
In a recent webinar with Namely, Chief Research Officer for Lighthouse Research & Advisory Ben Eubanks shared that 48% of HR professionals and payroll teams say that staying on top of compliance is the leading skill required. With what seems like a new compliance requirement popping up in a different state every day, this is not surprising!
Adding hybrid work may lead teams to think compliance matters less because fewer people are in-office. However, remote work can actually lead to a higher need for compliance! The key is to stay vigilant and adaptable.
Moving Forward Together
Navigating the complex world of HR compliance can feel overwhelming, but you’re not alone. At Namely, we’re committed to being your trusted partner every step of the way. By staying informed, prepared, and proactive, you can turn these compliance challenges into opportunities for growth and innovation.
And remember the big picture: each compliance measure we tackle is a step towards creating a more supportive, fair, and inclusive workplace. As you lead your organizations into 2025 and beyond, Namely is here to help you not just keep up but get ahead. If you’re tired of fighting through another year (or even another quarter) of compliance changes, let’s connect!
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