The heat index says 'don't even try,' so I'm staying indoors and digging into something just as sizzling: mid-year compliance updates!
OK…I know. But stay with me.
This is the perfect time to take stock of what's changed, what needs updating, and what should probably be tossed like that mystery container in the office fridge.
If you handle payroll, benefits, or compliance for your business, this year's updates are especially important. Not only are states rolling out changes to leave, pay, and compliance requirements, but at the federal level, we're also seeing major shifts thanks to Trump's One Big Beautiful Bill.
From overtime and tip tax deductions to expanded benefits and new reporting requirements, you and your employees may be wondering how all this will affect you. Here's your mid-year snapshot of what's changed and what you need to do next.
Quick Look: Key Changes by Area
- Federal: New employee tax deductions, expanded benefits (HSA, FSA, student loan), new "Trump Accounts"
- States to Watch: Big shifts in AK, CA, CO, IL, IA, MO, RI, VT, WA, WV
- Hot Topics: Paid sick leave, equal pay expansions, biometric data laws, job posting transparency
Federal Updates: The Big Beautiful Changes
Let's start at the top. The federal government rolled out some headline-worthy changes this summer, and a few of these should be on your radar if you handle payroll, benefits, or tax reporting.
New Tax Deductions for Employees
Overtime Deduction: Employees can now deduct up to $12,500 of overtime premium pay annually. Married couples filing jointly can deduct up to $25,000.
Tip Income Deduction: Allows deductions of up to $25,000 per taxpayer for reported tips.
Important note: Both deductions reduce federal taxable income only, not Social Security, Medicare, or state taxes.
Expanded Benefits and Accounts
- Health Savings Accounts (HSA) will have expanded eligibility.
- Dependent Care FSA 2026 annual contribution limit increased from $5,000 to $7,500 (or from $2,500 to $3,750 for married individuals filing separately).
- Pre-deductible coverage for telehealth on qualifying plans.
- Student loan contributions by employers are now tax-exempt.
- "Trump Accounts" allow employers to contribute up to $2,500/year for eligible dependent expenses.
Action Items for Employers
Track and Report: Although the overtime and tip deductions primarily affect your employees' individual tax returns, employers must track overtime premiums and tip income separately to ensure accurate reporting on W-2 forms.
Employee Education: Your employees may want to adjust their federal withholding to account for claiming these deductions. Expect the IRS to release more guidance on Form W-4 this fall.
Benefits Review: Review your benefits offerings with your broker or provider to ensure your HSA, FSA, telehealth, student loan repayment, and new Trump Account options are aligned with the latest federal changes and available to eligible employees for 2026.
State-by-State Updates
Now let's zoom in on what's happening at the state level. Even if your state isn't listed this time around, it's worth paying attention to the patterns. Many of these policies reflect growing national trends, and there's a good chance your state could be next.
Alaska (Effective July 1, 2025)
Key Changes:
- New minimum wage ($13/hr) and exempt salary thresholds ($1,040/week)
- Mandatory paid sick leave (PSL)
- Captive audience meeting restrictions
Action Items:
- Ensure PSL accrual, usage, and caps comply with state law (based on company size).
- Provide written notice of PSL rights by July 31, 2025, or at the time of hire.
- Update payroll and leave tracking systems to support PSL compliance.
- Train supervisors on meeting restrictions regarding political or religious topics.
- Confirm all exempt employees meet the updated salary threshold.
California (Effective July 1, 2025)
Key Changes:
- Minimum wage increases for healthcare workers
- Local minimum wage increases in many cities
- LA County Fair Workweek Ordinance applies to large retail employers
Action Items:
- Adjust wages for healthcare workers per employer size and facility type.
- Ensure all local wage minimums are met, especially in cities like San Francisco, Berkeley, Long Beach, and Los Angeles.
- If applicable, review and implement Fair Workweek compliance measures for retail employees in LA County.
Chicago, Illinois (Effective July 1, 2025)
Key Changes:
- Minimum wage increases to $16.60/hr
- Expanded coverage under Fair Workweek Ordinance
- Paid leave payout requirements expanded
Action Items:
- Update paid leave and paid sick leave policies to comply with the new payout requirement for employers with 51+ employees.
- Review wage rates and ensure compliance with new minimums.
- Confirm employee eligibility under the updated Fair Workweek salary/hourly thresholds.
Colorado (Effective July 1, 2025)
Key Changes:
- Consent and written policy now required for collecting biometric data
- Family and Medical Leave Insurance (FAMLI) job protections clarified
- Expanded protections for gender expression (effective May 16, 2025)
Action Items:
- Develop and distribute a biometric data collection policy and obtain applicant/employee consent.
- Train HR and managers on using chosen names and pronouns to avoid misgendering.
- Review leave eligibility timelines for FAMLI and update procedures accordingly.
Iowa (Effective July 1, 2025)
Key Changes:
- Adoptive parents must be treated the same as biological parents
- Drug testing law changes, including new consent and job designation requirements
Action Items:
- Update parental leave and benefits policies to include adoptive parents of children under 6 years of age.
- Clearly designate "safety-sensitive" positions in job descriptions and internal documentation.
- If opting to deliver drug testing information electronically or in person, secure written consent from applicants or employees.
Missouri (Effective August 28, 2025)
Key Changes:
- Missouri's Earned Paid Sick Time (EPST) law, enacted by voters and effective since May 1, 2025, has been repealed
- The repeal takes effect on August 28, 2025
- Employees may continue to earn EPST until that date and can likely use accrued hours after the repeal becomes effective
Action Items:
- If you intend to stop providing sick leave under EPST, update your sick leave policy now to include an end date for accrual (no later than August 28, 2025).
- Monitor state announcements for any additional guidance on post-repeal usage of accrued time.
Rhode Island (Effective Immediately, as of late June/early July 2025)
Key Changes:
- Required accommodations for menopause
- Race now includes traits like protective hairstyles
- Restrictions on employer-sponsored meetings involving political or religious opinions
Action Items:
- Update your Equal Employment Opportunity (EEO) policy to include menopause and racial traits like hair texture and hairstyles.
- Update the required written notice on pregnancy-related accommodations to include menopause.
- Review and revise grooming, dress code, or appearance policies to ensure protected traits are not restricted.
- Train managers and hiring staff on avoiding bias related to hairstyles and cultural expression.
- Allow employees to opt out of meetings about religion, politics, or labor organizing; train supervisors on this restriction.
Vermont (Effective July 1, 2025)
Key Changes:
- Pay range disclosure required in job postings
- Major expansions to family and parental leave laws
- Broader family definitions apply to all leave types, including short-term family leave
Action Items:
- Begin including compensation ranges in all applicable job postings.
- Update family and parental leave policies to cover new reasons (safe leave, miscarriage, foster care, bereavement, military exigency).
- Apply expanded family member definitions consistently across policies.
- Update short-term family leave policy to reflect broader eligibility and uses.
- Train HR on appropriate documentation requests and substitution of paid leave provisions.
Washington (Effective July 27, 2025, except where specified)
Key Changes:
- Equal Pay Act expanded to all protected classes (effective July 1, 2025)
- Paid sick leave now includes immigration-related absences
- Personnel file access rules clarified
- Driver's license requirement limitations
- New Mini-WARN Act for large layoffs
- Local minimum wage increases in Burien, Renton, Tukwila, and Everett (Effective July 1, 2025)
Action Items:
- Update paid sick leave policies to include immigration proceedings.
- Review and revise equal pay, advancement, and nondiscrimination policies.
- Train staff handling personnel file requests on new 21-day response rule and file content requirements.
- Remove driver's license requirements from job ads unless essential.
- Review layoff and closure plans for compliance with the 60-day notice rule under Mini-WARN.
- Ensure wage compliance with new local minimum wage rates.
West Virginia (Effective July 2025)
Key Changes:
- Military spouse hiring preference permitted (Effective July 9, 2025)
- 14- and 15-year-olds no longer need work permits (Effective July 11, 2025)
Action Items:
- Update hiring policies to allow lawful preference for qualified military spouses.
- Replace minor work permit protocols with written parental consent and age certificate process.
Staying Ahead of Compliance Changes
Well, that's your mid-year snapshot! Whether you're updating policies, adjusting payroll practices, or just trying to stay one step ahead, now is a great time to pause, review, and prepare.
Even small changes can have a big impact, especially when it comes to compliance. The key is to stay proactive rather than reactive and catch these changes before they become problems.
Remember: Compliance helps you operate your business with confidence, avoid penalties, and create a workplace where employees feel protected and valued.
Not sure how these updates affect your business? Let’s talk. Whether it's policy updates, payroll changes, or manager training, your payroll provider, benefits broker, or friendly HR consultant (hey, that’s me, btw 🙂) can help. Better to act now than try to fix things later.
Want to understand more about the federal changes driving these updates? Check out this explainer on "How the One Big Beautiful Bill Impacts Small Business Owners."
And watch our webinar recording for even more insight: One Big Beautiful Bill: Tax Updates for 2025+.
