KEY COMPLIANCE DEVELOPMENTS PEOS MUST NAVIGATE IN 2025

If your head spins due to the breakneck pace of regulatory changes that have taken place since President Trump took office for the second time on January 20, 2025, you are not alone. As PEOs navigate the world of HR and payroll compliance in 2025, we face an increasingly challenging compliance landscape. The most common question we receive here at Armhr, particularly from owners of multi-state businesses, ask: “How do I become an expert on the laws of each state quickly and comfortably enough to focus on my business rather than the noise surrounding it?” The answer requires strategic planning and specialized expertise.

Drawing from my legal background and current role as Director of Client Services at Armhr, I’ve identified the most significant compliance developments that PEOs should prepare for this year. These changes not only affect how we operate but present both challenges and opportunities in how we serve our clients.

1. THE E-VERIFY+ EVOLUTION

Digital Transformation of Employment Verification

E-Verify+’s expansion significantly shifts employment verification processes. This digital platform integrates Form I-9 completion into the verification service and allows employees to carry their verification to subsequent employers. Since its trial launch in May 2024, adoption has grown substantially with over 2,500 employers registered by November.

For PEOs, this transformation creates an opportunity to differentiate service offerings. While the current system has limitations and remains invitation-only by USCIS for now, expected improvements in 2025 will make E-Verify+ increasingly valuable. PEOs should prioritize mastering this system and developing implementation strategies for their clients, particularly as we may see dramatically increased I-9 audit activity under the new administration.

2. HEIGHTENED PRIVACY LAWS

Navigating the Multi-State Privacy Maze

Several states have enacted laws regarding employer privacy, including California, Colorado, Connecticut, Florida, Indiana, Maryland, Minnesota, Montana, New Hampshire, Nebraska, New Jersey, Oregon, and Rhode Island, with varying levels of protection and regulation.

Most recently, California proposed the California Location Privacy Act, which would severely restrict the use of GPS and other tracking tools to manage California employers’ workforce. For employers that rely on such technology to monitor timekeeping and productivity, this will necessitate partnership with PEOs to adhere to the law while exploring new performance management tools.

3. HEIGHTENED IMMIGRATION ENFORCEMENT IMPACT

Preparing Clients for Renewed Scrutiny

The return to heightened immigration oversight under the current administration will directly impact PEO operations. During the previous Trump administration, ICE initiated nearly 6,500 Form I-9 audits in 2019 and targeted 15,000 in 2020 before the pandemic. This represents a six-fold increase compared to recent years.

PEOs must prepare clients for this renewed scrutiny by implementing rigorous I-9 compliance protocols, conducting internal audits, and considering voluntary E-Verify adoption as a preventative measure. This creates an excellent opportunity for PEOs to demonstrate value through compliance expertise.

4. EXECUTIVE ORDERS AND STATE LAW CONFLICT

Navigating Legal Contradictions

On his first full day in office, President Trump penned an executive order entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” This order includes provisions seeking to end “DEI discrimination and preferences” throughout the government and in the private sector. Another executive order released the same day requires federal agencies to “remove all statements, policies, regulations, forms, or other internal and external messages that promote or otherwise inculcate gender ideology.” Shortly after this order was signed, the EEOC removed numerous guidance documents from their site, including those regarding the enforcement of Title VII in a manner that protects LGBTQ employees.

In keeping with “the only thing constant is change,” a federal court judge issued an injunction against several elements of the orders two months after they were signed. Further complexity arises from the overturning of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc, which shifts interpretation of ambiguous agency rules (including EEOC and DOL) to the courts rather than the agencies themselves.

PEOs will play a crucial role in bringing employers up to speed with these rapid changes and helping them determine which take precedence for their workforce.

5. PFML PROGRAM COMPLEXITY

Coordinating Across State Lines

The Paid Family Medical Leave landscape continues to evolve rapidly with Delaware and Maine launching programs on January 1, 2025, Maryland’s program starting July 1, 2025, and Minnesota joining in 2026. This brings the total to 13 states plus Washington, D.C. with mandatory PFML programs.

Delaware’s program presents particular complexity for PEOs, as contributions begin after small employers reach 10 active in-state employees and increase when they reach 25. However, the state’s quarterly reporting structure doesn’t account for mid-quarter rate changes or employee terminations, creating potential reconciliation challenges for PEOs.

Of special concern to our industry is whether the PEO or client is defined as the employer for PFML purposes. Thanks to NAPEO’s advocacy, Delaware and Maine have clarified that clients—not the PEO—are considered the employer, maintaining client flexibility for private plans. However, Oregon takes the opposite approach.

6. STATE PAY DATA REPORTING REQUIREMENTS

Adapting to Expanded Reporting Obligations

The trend of state-specific pay data reporting continues to grow, with Massachusetts joining California and Illinois in requiring large employers to submit detailed reports on employees’ race, ethnicity, gender, wages, and hours worked.

PEOs should anticipate ongoing changes to these requirements. California has revised its requirements every January since inception in 2021, and New York City is considering adopting its own standards. Moreover, the new state laws in this area will likely differ from existing EEO-1 requirements due to the aforementioned changes in federal law regarding nomenclature on gender designations. PEOs that streamline and automate this reporting process at a state level will provide significant value to clients with operations in multiple jurisdictions.

PROACTIVE COMPLIANCE AS A COMPETITIVE ADVANTAGE

The 2025 compliance landscape presents significant challenges for PEOs but also creates opportunities to deliver exceptional value to clients. By staying ahead of these regulatory changes, developing robust compliance processes, and leveraging technology effectively, PEOs can transform compliance from a burden into a competitive advantage.

At Armhr, we focus on creating systematic, repeatable processes, establishing governance frameworks for platform-wide configurations, and standardizing critical workflows to navigate this environment efficiently. Our approach emphasizes not just compliance, but using our high-touch expertise to help clients focus on growing their businesses with confidence.

As we face these challenges together, PEOs that invest in compliance capabilities and effectively communicate their value to clients will position themselves to thrive in 2025 and beyond.

Call to Action

• Conduct a Compliance Audit: Assess your PEO’s readiness for each of these seven compliance areas.
• Prioritize Technology Integration: Implement systems that can adapt to rapid regulatory changes across multiple jurisdictions.
• Engage with NAPEO: Support industry advocacy efforts to clarify PEO-specific regulatory interpretations.
• Communicate Your Value: Develop client-facing materials that highlight your PEO’s compliance expertise as a competitive differentiator.
• Invest in Ongoing Education: Ensure your team stays current through regular training on evolving compliance requirements.