Topic: LEGAL & LEGISLATIVE

PEOs need to stay on top of these decisions, as they impact guidance that they provide to their clients.

One provision that might be of benefit to PEOs as a potential service to offer their clients is the newly created savings accounts provided in the OBBB.

While the bill simplifies taxes in some areas, it also introduces new compliance requirements tied to workforce investments and tax credit eligibility.

In our tracking of regulatory changes affecting our clients across multiple jurisdictions, we’ve documented an average of at least 50 significant compliance updates annually — changes that can overwhelm even the most diligent business owners. One of the major selling points of a PEO for overworked administrators, in addition to payroll processing or benefits administration — is having experts who can help decipher the constant flow of regulatory changes and protect their business. As leaders in this space, we develop systematic approaches to turn regulatory complexity into competitive advantage.

As we move through 2025, regulations from the SECURE 2.0 Act taking effect provide the perfect case study to demonstrate effective compliance management in action. Below is an outline of how our PEO transforms complex regulatory requirements into streamlined client solutions through a practical framework which apply to any regulatory update.

UNDERSTANDING SECURE ACT 2.0: ENCOURAGING EMPLOYEES TO BUILD THEIR FINANCIAL FUTURES

One of the law’s main purposes is to increase employee participation in employer-sponsored retirement plans. For brevity, let’s examine one critical component: the mandatory auto-enrollment requirement for new plans. This provision requires any retirement plan created after December 29, 2022, to automatically enroll new employees at a contribution rate between 3% and 10%, effective January 1, 2025.

That single requirement generates numerous implementation questions. For PEOs supporting clients with standalone 401(k) plans, 403(b) plans, or clients participating in our MEP, this requirement creates both obligations and opportunities. Here’s how we’ve put our regulatory management plan into action.

STEP 1: ESTABLISHING MULTI-CHANNEL INFORMATION NETWORKS

When SECURE Act 2.0 passed in 2022, our leadership took note, but like most regulations, we recognized the timeline between ratification and implementation would be long. The auto enrollment rule’s proposed guidance wasn’t published by the IRS until January 14, 2025 — after the effective date — with the comment period ending March 17, 2025.

Rather than waiting for final guidance or relying on a single information source, we activated our multi-channel approach to gather information:

• Direct monitoring of IRS news releases and regulatory updates
• Active participation in law firm webinars and specialized newsletters
• Engagement with NAPEO regulatory updates
• Weekly consultations with our retirement partners
• Early testing of software platform updates and participation in implementation webinars

Leadership Insight: Each vendor is working in parallel on regulatory changes to update and produce their own solutions for businesses independent of the PEO. By working together with them, you can leverage those partnerships during their process to get customized materials created and assist in beta testing software, which creates stronger relationships with your vendors and better processes for your clients.

This diversified approach ensures we identify subtle interpretations and implementation challenges months before they impact our clients.

STEP 2: BREAKING DOWN DEPARTMENTAL SILOS

Auto-enrollment impacts multiple departments across our organization. Rather than allowing this knowledge to remain siloed, we established biweekly leadership meetings where our leaders share updates with representatives from:

• Implementation Team (for setting up new clients)
• HR Business Partners (who field client questions)
• Payroll Department (for coordination with onboarding)
• HRIS Team (for platform configuration)
• Business Development (for prospect client conversations)

Each department representative determines what information impacts their operations and distributes it to team members accordingly. For example, our business development team now confidently explains to prospects how rolling their existing 401K plan into our MEP won’t trigger the auto-enrollment requirement because it isn’t considered a new plan — a key selling point for our 401K solution that addresses a common concern.

STEP 3: CRAFTING STRATEGIC CLIENT COMMUNICATIONS

With our internal knowledge base established, we developed a tiered communication approach that delivers the right information to the right clients at the right time.

Tier 1: General Awareness (all clients): Brief overview of Secure Act 2.0 changes for 2025, clear guidance on determining if compliance is required, timeline of implementation with key decision points, and introduction to our retirement plan partners.

Tier 2: Preparation Guidelines (clients subject to requirements): Detailed implementation steps with timeline indicators, employee notification templates and communication strategies, and training materials for client administrators.

Tier 3: Implementation Support (clients actively adding the requirement): Direct communication with our TPA, FuturePlan, to verify eligibility and plan language, verification process for plan document changes and approval, step-by-step setup of auto enrollment in PrismHR and Vestwell, weekly quality checks with Vestwell to verify enrollment functionality, payroll system validation to ensure accurate implementation, and direct access to assistance for employees requesting to opt out.

Case Study: One of our new clients, running two schools in the middle of 2024, required a plan update to meet the auto enrollment requirement. They continue to be impressed with our knowledge and expertise while assisting them through a tricky mid-year move of their payroll and retirement plan.They have also praised our foresight as our partner worked with them on their new plan document which included the auto-enrollment for 2025, therefore, eliminating the need for an amendment and providing ample time for employee communications. The system change was completed flawlessly resulting in an informed and happy client.

Each communication tier provides precisely the right amount of information without overwhelming clients. We’ve been particularly careful to exclude our clients with fewer than 10 employees from unnecessary communications, as they’re exempt from these requirements.

STEP 4: BUILDING A DYNAMIC KNOWLEDGE REPOSITORY

We recognize that auto enrollment information will be needed repeatedly as the system evolves and as new clients onboard. We’ve created a dedicated section in our knowledge base with:

• Recorded training webinars for internal staff
• Client-facing FAQs and educational materials
• Step-by-step implementation guides
• Technical documentation for platform integration
• Legal updates and interpretations from counsel
• Case studies of complex situations and solutions

This repository allows our Implementation team to educate new clients consistently, our marketing team to highlight our expertise in content creation, and our service team to quickly access information when client circumstances change, such as when a client adds their 11th employee.

STEP 5: CLEARLY DEFINING SERVICE BOUNDARIES

Perhaps most importantly, we’ve clearly defined what aspects of compliance we handle as the PEO and what remains the client’s responsibility. We don’t typically provide extensive assistance with plans outside our MEP beyond taking deductions, but we do send out general educational materials to those clients. Our standard client service agreement defines our HR support to include guidance and counseling on regulations, not legal advice.

This clarity prevents our well-meaning specialists from inadvertently taking on client risks while still providing excellent service. It also creates transparent expectations that build trust with clients.

RESULTS: TRANSFORMING COMPLEXITY INTO COMPETITIVE ADVANTAGE

By following these best practices, we’ve transformed what could have been a confusing regulatory change into a smooth transition for both our organization and our clients. The results speak for themselves as we have increased our MEP portfolio in the last two years by 21% and 26% respectively, tying our clients tighter into our model. Our business development team now actively uses our retirement plan expertise as a selling point with prospects concerned about maintaining compliance.

LOOKING FORWARD: APPLYING THIS FRAMEWORK TO OTHER 2025 CHANGES

The framework we’ve established for auto enrollment demonstrates our template for addressing other significant 2025 compliance developments, including new state paid family medical leave programs, expanded pay transparency requirements, and evolving minimum wage and overtime regulations.

By applying these same five steps consistently, we’ve positioned our PEO as a true compliance partner for our clients rather than just a service provider, creating a meaningful competitive advantage in the marketplace.

Albert Einstein once said “Strive not to be a success, but rather to be of value.” I believe that we can be successful by providing value to our clients. As the regulatory environment grows increasingly complex, PEOs that excel in compliance management will be those that create order from chaos, transforming what could be administrative burdens into strategic advantages. The most successful PEOs won’t just help clients avoid problems — they’ll use regulatory expertise to help clients thrive in complexity. I’m committed to ensuring our organization leads this evolution, setting new standards for what clients should expect from their PEO partnership.

Even though reconciliation is a partisan political exercise, NAPEO continues to take a bipartisan approach to federal advocacy.

To fulfill his 2024 campaign promises, President Donald Trump has issued a series of executive orders (EOs) on immigration during his initial weeks in office. Much of their focus has been on border security, removal of undocumented aliens, and birthright citizenship, but these directives could have a significant impact on U.S. employers and their operations.

Although the Trump administration is trying to implement the EOs’ policy changes, delays and challenges have already begun, leaving full implementation uncertain.

This article provides an overview of the major immigration-related EOs issued thus far, as well as the current challenges they face, and insights on the impact PEOs and their clients might expect as a result of the EOs.

BANNING OF BIRTHRIGHT CITIZENSHIP

In what may be the most controversial of his immigration-related actions, President Trump issued Executive Order 14160, “Protecting the Meaning and Value of American Citizenship.” The administration asserts that children born in the United States on or after Feb. 19, 2025, will not have a claim to birthright citizenship if the mother is in the country without authorization or on a nonimmigrant visa and the father is not a U.S. citizen or green card holder.

As expected, litigation ensued, including three federal lawsuits brought by 22 state attorneys general. Judges in these cases have issued nationwide injunctions against Trump’s order. The U.S. Court of Appeals for the First, Fourth, and Ninth Circuits rejected the Trump Administration’s request for an emergency order to lift the nationwide injunctions. Most recently, the Trump Administration requested the U.S. Supreme Court to curb the power of federal judges to issue nationwide injunctions. This appeal aims to limit the scope of injunctions to specific geographic districts or individuals involved in the lawsuits. The Trump Administration hopes to reinforce the executive branch’s ability to implement its policies without being hindered by nationwide judicial orders. The administration’s applications make it more likely the U.S. Supreme Court will provide some guidance on this issue. However, it remains uncertain whether the Court will ultimately address the full legality of the EO.

If upheld, this EO could have a lasting impact on employers as it could lead to:

• Higher visa sponsorship costs
• Potential travel delays for employees on visas traveling with family
• Long-term retention challenges for employees whose children lose lawful immigration status at age 21, especially those from countries with significant green card backlogs like India and China

ENHANCED VISA VETTING AND SCREENING

In Executive Order 14161, “Protecting the United States From Foreign Terrorists and Other National Security and Public Safety Threats,” President Trump ordered the Department of Homeland Security (DHS) and Department of State (DOS) to implement “enhanced vetting” for visa applicants and those already in the country. While not mentioned, this EO may also serve as the basis for a new travel ban.

The EO directs the secretary of state, the attorney general, the secretary of homeland security, and the director of national intelligence to jointly submit a report “identifying countries throughout the world for which vetting and screening information is so deficient as to warrant a partial or full suspension on the admission of nationals from those countries.”

During his first term, President Trump banned travel from many countries (including Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen) for 90 days, with certain exceptions. The bans were challenged in court, but they were ultimately upheld by the U.S. Supreme Court.

For PEOs and their clients, this EO could result in lengthy visa-processing delays related to background checks for traveling work visa employees, as they undergo administrative processing without any timeline for visa issuance. Additionally, there could be a disruption to business travel for citizens of banned countries already in the United States, as they could be prevented from leaving for fear of becoming stranded outside the country. Finally, this EO would make it difficult for citizens of the countries identified to file extension of status and change of status petitions.

PROTECTING AGAINST INVASION

EO 14159, “Protecting the American People from Invasion,” provides directives across a wide range of immigration programs, while revoking former President Joe Biden’s immigration enforcement priorities. DHS must set new enforcement policies to address illegal entry, unlawful presence, and removal of individuals unlawfully present in the United States. The EO also requires DHS to expand the use of expedited removal, and to limit humanitarian parole, designations of Temporary Protected Status (TPS), and employment authorization. The EO invokes a registration requirement for undocumented aliens, with possible civil and criminal penalties.

In line with this EO, DHS Secretary Kristi Noem announced she is vacating the previous administration’s redesignation of TPS for Venezuela. She later announced the decision not to extend the 2023 Venezuela TPS designation, which is set to expire April 7, 2025. This decision has already been challenged in two lawsuits filed by advocacy groups and Venezuelan immigrants living in the United States. Additionally, attorneys general from 18 states, including California, Massachusetts, and New York, filed an amicus brief in support of the plaintiffs, arguing that Secretary Noem’s decision was “baseless and arbitrary” and Venezuelan TPS holders are a benefit to the states, not a burden.

Secretary Noem also announced her decision to partially vacate a July 1, 2024, decision by former DHS Secretary Alejandro Mayorkas to extend TPS designation for Haiti. She has limited the extension to 12 months, expiring on Aug. 3, 2025. If no decision is made to extend Haitian TPS beyond Aug. 3, 2025, the expiration will become final. Two lawsuits challenging Secretary Noem’s decision argue the reduction in TPS extension is arbitrary and lacks sufficient justification.

The potential impact to PEOs and their clients is significant. Employees authorized to work under humanitarian parole may be unable to renew their parole and related work authorization. Without legal challenges, or work authorization through alternative avenues such as a pending asylum application, these workers may be terminated due to lack of work authorization. Workers from countries facing TPS termination need to monitor pending litigation, including when and how to renew TPS. PEOs and their clients need to monitor employment authorization expiration dates, including automatic extensions, for TPS holders who may be impacted by litigation and conduct I-9 reverifications accordingly.

This EO also directs establishment of “Homeland Security Task Forces” nationwide to remove gang members, criminals, and undocumented individuals. This will likely lead to increased U.S. Immigration and Customs Enforcement (ICE) enforcement actions, including I-9 audits and investigations, employer site visits, and raids at workplaces or within immigrant communities. PEOs and their clients should make sure to have an action plan in place in the event of an ICE enforcement action. This is particularly important for employers in industries that employ large numbers of workers who may be undocumented or who have temporary work authorization. Any action plan should include at the least the following:

• Regularly conducting essential internal audits to review I-9 forms for compliance.
• Training management and staff on proper procedures during ICE actions to ensure lawful interactions with ICE agents.
• Developing a clear communication strategy to address employee concerns and maintain morale.
• Reviewing hiring practices to ensure compliance with federal laws and preparing for potential operational disruptions by having contingency plans in place.

The full impact of the recently issued EOs remains uncertain, but their potential consequences for U.S. PEOs and their clients are significant. It is imperative for businesses to stay informed, proactive, and prepared to navigate the challenges posed by these new immigration policies. By doing so, they can mitigate risks and ensure compliance in an evolving regulatory landscape.

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs.

It’s been a tumultuous start of the second Trump administration when it comes to immigration, and things won’t be slowing down anytime soon.

QUICK OVERVIEW

We expect an increase in I-9 audits, worksite raids, and broader scrutiny of hiring practices, including the United States Department of Justice (USDOJ) and the EEOC prioritizing national origin and citizenship status discrimination claims by U.S. persons. Additionally, there is speculation that legislation could make E-Verify participation compulsory for more employers. Meanwhile, PEOs must ensure their client support mechanisms are consistent with current law and anticipate customer questions and needs.

I-9 COMPLIANCE IS MORE CRUCIAL THAN EVER

PEOs take various approaches to I-9 compliance, from completely allocating compliance to the customer, to facilitating it with compliance support. Regardless of your approach, understanding the underlying issues is important.

I-9 errors can result in significant penalties, particularly under the current administration’s enforcement priorities. Civil penalties for substantive I-9 violations have increased, and fines now range from hundreds to thousands of dollars per violation. Criminal liability is also an issue because knowingly employing unauthorized workers may lead to federal prosecution. Information a PEO receives indicating a worker may not be authorized to work in the U.S. may require follow-up. This includes information PEOs receive from third parties, such as 401k providers, medical insurance providers, electronic ACA reporting and the Social Security Administration.

The USCIS I-9 Handbook for Employers previously indicated that PEO liability for I-9 violations was based on the amount of responsibility PEOs assumed in their contracts with customers. But the government revised the handbook several years ago and removed this entire section. Although inquiries were made to USCIS, we are still without explanation for why this section was removed and what the current standard is. USDOJ attorneys also have not provided clear guidance.

Presumably, a similar approach to what was outlined in the handbook will apply in most settings. Liability for PEOs will likely depend on the extent to which the PEO was involved in preparing, collecting and/or reviewing I-9’s.

RAIDS AND ENFORCEMENT ACTIONS

Due to updated enforcement priorities, it is possible some of your customers will experience raids. Customers need to know the difference between audits (usually initiated through a Notice of Inspection [NOI] and require employers to produce I-9 forms and additional records within three business days) and raids (unannounced law enforcement activities initiated through judicial warrants, often involving immediate inspections and potential detentions).

Audits: Many PEOs use software platforms which customers use to collect I-9’s. Ask your software providers and legal counsel for guidance on how customers should respond when ICE asks for access to electronic I-9 data on the PEO’s software platform. If your software platform meets DHS requirements, that guidance could include instructions on how to give ICE direct access with login credentials giving ICE access to I-9 data limited to the customer being audited.  ICE has accepted electronic I-9 data in spreadsheet format from software providers.

Cooperation with ICE is one way to limit the risk of ICE expanding the scope of its audit beyond just one PEO customer.  Clear contractual language that delineates I-9 responsibilities between PEOs and clients may also become very important in an audit if ICE begins to consider the PEO’s potential liability. ICE may ask to see the contract language.

Raids: Generally, PEOs should not advise customers on the topic of raids to avoid an allegation of interference with the process. However, the PEO may provide customers with third-party resources that provide guidance either in advance of a raid or at the time of a raid.

DOES E-VERIFY HELP?

Participation in E-Verify is voluntary for most employers, though some may be required to use it depending on federal, state, or local laws. To minimize exposure, many PEOs chose not to get involved with E-Verify on behalf of their customers. If you choose to act as an “Employer Agent” for your customers, make sure your staff is properly trained on how to manage the process. All PEOs should consider how they will respond if large numbers of customers become subject to a mandatory E-Verify rule.

FINAL THOUGHTS

The immigration compliance landscape in 2025 presents both challenges and opportunities for PEOs. As they have many times in the history of the industry, PEOs have the opportunity to assist customers with complex compliance challenges. But at the same time, PEOs must be cognizant of their own risk when it comes to immigration.

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs.

As a result of the COVID-19 pandemic, Congress enacted the Employee Retention Credit (ERC), to help taxpayer businesses weather the storm. But despite the genuine benefit that ERC provides to qualifying businesses, the IRS has been faced with many fraudulent and questionable claims.

As a result, the Service has initiated aggressive enforcement actions centered on this credit.

The wave of IRS audits, inquiries and assessments has spurred concern for taxpayers across the country and has even resulted in firms selling ERC insurance. Importantly, several Professional Employer Organizations (PEOs) have found themselves in a precarious situation (beyond ERC processing times) as IRS audits have started to hit their clients.

PEOs file ERC on behalf of their clients. Typically, these PEOs file Form 941s in aggregate under its own Employee Identification Number (EIN). These filings should include a Schedule R that describes aggregated wages and credits claimed for each of the PEOs clients.

As PEOs claimed ERC on behalf of their pool of clients, several issues of liability began to come into question. For example, the IRS stated in 2023 that it has the authority to satisfy a PEO’s tax liability with amounts of the PEO clients’ ERC claims.

Now, another concern has come into play. This issue rears its head when the IRS audits a PEO’s client (or client base) and finds ineligible ERCs. In this case, the IRS has made its stance clear: the PEO is jointly on the hook with its clients’ for ERC liabilities.

Although there is disagreement in terms of whether or not PEOs are liable for their clients’ claims, and the issue likely will continue to play out before the agency and in the courts, the IRS made its position clear in Chief Counsel Memorandum 2024-001.

According to the Service, when “improperly claimed credits are claimed by a PEO for its client, and the credit claim is based on the wages paid by the PEO to the client’s employees and reported on the PEO’s employment tax return, both the PEO and its client are liable for any underpayment of tax resulting from the improperly claimed credits.”

This burden has put certain PEOs, who simply cannot afford the liability for their client base in total, in a quandary.

The truth is that, for PEOs who already find themselves on the hook for an ERC liability, options might be limited. The IRS opened a supplemental claim process, offering a way for PEOs to exclude improper client claims or correct miscalculated claims, and the deadline for filing this supplemental closed on December 31, 2024.

PEOs who find themselves faced with an ERC audit should immediately seek out tax counsel to help navigate their path forward.

The reality now is that the IRS has begun to roll out ERC audits in full force as the agency has issued several rounds of tax credit denials while identifying more and more areas of high risk.

However, for those PEOs who have submitted ERC claims on behalf of their clients and are not in the midst of an IRS audit, the path forward should be tread lightly.

First, if a PEO has not yet submitted what would at this point be an amended ERC claim, it is imperative that the firm have their CPA, or a reputable firm specializing in the credit, review the underlying ERC claims for accuracy. There is still a short but open window to file a supplemental claim and correct the ERC errors.

This review should verify that the ERC claims have each been calculated correctly and that they can be substantiated should the IRS initiate an audit. Doing this sort of analysis will inevitably minimize the time and expense of dealing with a potential IRS audit down the line.

However, if a PEO firm has already claimed the ERC on behalf of its clients, it should without a doubt still conduct an extensive review of the claims before paying out credit monies received to its clients.

The statute of limitations for the final eligibility quarters for ERC, Q3 and Q4 of 2021, isn’t until April 15, 2027. The tax credit is incredibly valuable and PEOs shouldn’t shy away from claiming it. But they must do so with a critical eye and evaluate positions taken

The IRS has made clear that the number of its ERC audits will continue to grow. And again, PEO firms could very well be liable should these audits impact their clients. PEOs should take this notion to heart and conduct a thorough risk assessment to ensure they are compliant with ERC requirements.

Organizations such as NAPEO continue to work diligently on behalf of the industry when it comes to challenges surrounding ERC, and while these issues continue to play out PEOs should proactively assess their tax situation. If imposed, the ERC liability at issue will not go away. And failing to address the situation head on could be costly.

This article is designed to give general and timely information about the subjects covered. It is not intended as legal advice or assistance with individual problems. Readers should consult competent counsel of their own choosing about how the matters relate to their own affairs. Want to learn more about the ERTC and view NAPEO resources on the issue? Visit this page.