How to Prepare for HR Compliance in 2025

HR compliance is the foundation upon which a business safeguards its workforce and its reputation. It’s also one of the most important ways in which HR can protect the company itself against potentially ruinous costs, given how steep the cost of noncompliance can be.

Consider: a single worker in Illinois was awarded $95 million in a sexual harassment case simply because the employer failed to handle the complaint correctly. According to HR Executive, the U.S. Department of Labor (DOL) levied more than $26 million in fines against employers last year. Altogether, including penalties, litigation, and other related costs, non-compliance with applicable regulations costs 2.71 times as much as compliance.

As 2025 approaches, businesses need to adopt a proactive approach to HR compliance, grounded in strategic planning and an awareness of emerging risks.

Compliance Risk Management for 2025

In 2025, changes to wage and hour laws, pay transparency regulations, and remote work policies are expected to top the compliance agenda. 

“Be aware that pay transparency is very, very heavy on the minds of state legislatures,” says Janell Stanton, an HR and employment attorney at Minnesota-based law firm Wagner, Falconer & Judd. Thirteen states already have pay transparency laws in effect or set to take effect next year, according to CNN. 

The number of states with such laws is likely to expand in 2025, and most employers are not prepared. “Companies say they’re a little behind, and the reality is, they’re a lot behind,” Brooke Green, head of North American talent solutions for Aon, told Fortune in December. “There’s this false sense that companies have a lot of time to get ready, especially in regard to some laws that don't go into effect until 2026. But when you look at the timeline of the actions that are required to become compliant, it’s pretty compressed.”

Complicating matters, many imminent changes are, well, changing, which can end up taking businesses who aren’t paying attention by surprise. For example, under the Biden Administration, the U.S. Department of Labor (DOL) had planned to raise the salary threshold for overtime pay requirements to $58,656 effective January 1, 2025. This would significantly increase the population of workers eligible for overtime pay. However, a federal judge in Texas blocked that rule last month. Now, will it remain blocked, ultimately go into effect as-is, or go into effect with a changed threshold under the incoming Trump Administration? 

This kind of fast-changing and uncertain regulatory environment emphasizes that HR compliance in 2025 will need a multidimensional approach that can adapt quickly.

Building a Culture of Proactive Compliance

Achieving HR compliance isn’t just a matter of meeting today’s requirements; it’s about preparing for tomorrow’s challenges. Compliance risk management is integral to this effort. Businesses must establish systems to identify potential risks, assess their impact, and develop mitigation strategies—and that starts at the top.

A culture of compliance is dependent on every member of the organization, from the C-Suite all the way to the newest hire. When leaders set a strong example for ethics and compliance, that flows through the entire company.

If nothing else, HR and organizational leaders must properly prioritize compliance. Studies have found that while almost all companies recognize that there are significant risks if they don’t properly prioritize compliance in HR, there is a gap between the number of companies who say it should be a priority and the number who say it is a priority. Closing that gap will go a long way reducing compliance risk. 

Start by conducting a comprehensive compliance audit to identify gaps in your current processes. This audit should cover key areas such as payroll practices, employee classification, benefits administration, and workplace safety standards. Once gaps are identified, update policies and procedures to align with best practices. For example, in response to recent legislative trends, many companies are revising job descriptions to ensure compliance with any new pay transparency laws.

HR Planning That Keeps Companies Compliant

Technology is also playing a pivotal role in HR planning for compliance. Modern HR platforms can streamline tasks such as tracking employee hours, managing benefits, and documenting performance reviews, reducing the risk of errors. With automation, businesses can improve accuracy while freeing up HR professionals to focus on strategic initiatives.

Altogether, more than half (55%) of organizations are using HR technology for compliance purposes, according to the 2024 State of HR Tech report from strategy firm Aspect 43. That’s double the percentage in 2023. For example, KPMG recommends using regulatory tracking software “that offer real-time, automated updates on new regulations and changes to existing ones. These tools can be customized based on specific regulatory bodies and/or topics and often utilize machine learning to scan regulatory databases and news sources for pertinent information.”

Partnering with a PEO can also simplify and strengthen HR compliance programs. That may be why more than a third of organizations outsource some or all HR compliance functionality. PEOs have dedicated HR professionals with extensive knowledge of state and federal labor laws.

By partnering with a PEO, businesses can benefit from access to compliance specialists who stay updated on regulatory changes and can offer tailored advice. PEOs also provide access to advanced HR technology platforms, enabling businesses to automate compliance processes and reduce administrative burdens.

For example, a small business might struggle to navigate multi-state payroll compliance for remote employees. A PEO can streamline this process, ensuring that all wage and hour laws are met while minimizing the risk of errors. Similarly, a PEO can assist in crafting compliant policies around workplace safety, benefits administration, and employee classification.

Most importantly, partnering with a PEO allows business owners to focus on growth and innovation rather than being bogged down by regulatory minutiae.

HR Compliance Requires More Than a Checklist; It Demands a Strategic, Forward-Thinking Mindset.

By understanding the evolving compliance landscape, conducting thorough audits, and leveraging technology, small and mid-size businesses can mitigate risks and build a culture of compliance. Partnering with a PEO adds an extra layer of support, supporting HR compliance with even the most complex regulatory requirements.

The cost of noncompliance is too great to ignore, but the rewards of proactive compliance—ranging from reduced risk to improved employee trust—are well worth the effort. With the right strategies and partnerships in place, your business will be well-equipped to navigate the challenges and opportunities of HR compliance in 2025 and beyond.