INSIGHT

Payroll compliance updates for 2025: What you need to know 

Jill Pappenheimer, Stacy Litteral • January 30, 2025

Services: HR Consulting, Payroll Services, Human Resources

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As we move into 2025, staying current with payroll compliance remains extremely important for businesses of all sizes and in all industries.  

“It’s crucial for businesses to stay informed about new and changing regulations and consult with payroll specialists to ensure compliance. This year we’ve seen changes to minimum wage as well as additional new protections for specific industries, contractors and updated leave laws that employers must be aware of and take action on.  We recommend clients lean into the technology available to automate as much as possible and seek professional guidance when unsure how to interpret any specific regulation.”  – Stacy Litteral, Partner, Advisory – HR Consulting 

These updates affect how you manage your payroll function, including employee compensation, tax withholdings and benefit contributions. Let’s dive into the key changes that will impact your payroll operations this year. 

Key payroll compliance changes for 2025 

Social Security wage base 

The Social Security wage base has increased to $176,100, requiring adjustments to your payroll calculations. This change affects both employer and employee contributions, making it essential to update your payroll systems accordingly. 

“A raised wage base means that higher-income employees will pay more in Social Security taxes. Currently, workers contribute 6.2% of their wages, and employers match that amount. Employers also bear the burden of higher payroll taxes on their high-earning employees. This additional labor cost can impact salary negotiations, bonus structures, or hiring decisions, particularly for positions with salaries exceeding the wage base limit.” – Stacy Litteral

FSA contribution limits 

Health benefits have also seen notable changes. The Health Flexible Spending Arrangement (FSA) contribution limit now stands at $3,300, giving employees more opportunity to set aside pre-tax dollars for medical expenses.  

401(k) contribution levels 

For retirement planning, the pre-tax contribution level for 401(k) plans has increased to $23,500, allowing workers to save more for their future. 

FICA threshold for household employers 

Household employers should note that the FICA threshold has risen to $2,800, affecting how they manage domestic worker payroll. 

Payroll compliance requirements across jurisdictions 

Federal requirements 

The Fair Labor Standards Act (FLSA) continues to govern minimum wage and overtime requirements. While the federal minimum wage remains at $7.25 per hour, many states have implemented higher rates. You must pay whichever rate is higher in your location. 

FICA taxes maintain their 15.3 percent total rate, split equally between employers and employees. This includes 6.2 percent for Social Security and 1.45 percent for Medicare from each party. Remember that while Social Security has a wage base limit, Medicare taxes apply to all earnings. 

State-level changes 

State regulations often exceed federal requirements, creating a complex compliance landscape. Many states have enacted their own minimum wage increases, paid leave requirements, and unemployment insurance rates for 2025. You’ll need to stay informed about specific changes in every state where you operate. 

Some states have also implemented new pay transparency laws, requiring employers to include salary ranges in job postings and provide pay scale information to current employees. These changes affect how you manage compensation, communications and documentation. 

Remote work considerations 

The continued prevalence of remote work adds another layer to payroll compliance.  You must properly manage tax withholding for employees working across different jurisdictions. This includes understanding state tax reciprocity agreements.  Staying on top of these regulations takes patience and diligence.   

“Employees are moving from state to state, making managing state specific requirements extremely challenging.  Many of our clients aren’t aware of the risks/penalties of not staying abreast of state specific payroll and HR regulations and mandates.   The icing on the cake, is changes are constant.  What you thought was required last year may be different this year.”   – Jill Pappenheimer, Partner, HR Consulting   

Global compliance challenges 

For businesses with international operations, compliance becomes even more complex. Each country has unique payroll regulations, tax requirements and reporting standards. Working with knowledgeable professionals who understand these variations is crucial for maintaining global compliance. 

Leveraging technology for payroll compliance

Modern payroll compliance demands robust technological solutions. Manual processing increases your risk of errors and compliance violations.  

As technology continues to evolve, it promises to further enhance the accuracy, efficiency, and compliance of payroll processes, benefiting organizations and employees alike. However, it’s critical for businesses to stay informed about technological advancements and continuously update their systems and processes to fully appreciate all of the amazing benefits. Here are several key ways organizations can harness technology to strengthen their payroll compliance: 

• Utilize payroll automation: Payroll software is increasingly automating many aspects of payroll processing, including calculations for taxes, deductions and benefits. This reduces the likelihood of human error and ensures compliance with various regulations. Technology enables electronic filing of payroll taxes and reports, streamlining the process and reducing the paperwork burden. This enhances compliance by ensuring timely submissions and reducing the risk of missed deadlines. 
• Access real-time payroll updates: Cloud-based payroll systems provide real-time updates to ensure compliance with changing tax laws and labor regulations. This is particularly beneficial for organizations operating in multiple jurisdictions where laws can differ significantly. 
• Mitigate compliance risk: Advanced data analytics tools allow businesses to analyze payroll data for compliance-related trends and issues. This helps HR departments proactively identify potential compliance risks and address them before they become problems. 
• Integrate seamlessly: Our favorite payroll solutions often integrate seamlessly with other software such as ERPs and financial systems. This reduces the risk of discrepancies and ensures that all departments are aligned in their compliance efforts. 
• Enhance mobile capabilities: With mobile applications, employees can access their payroll information anytime, anywhere. This transparency fosters trust and helps organizations ensure that employees understand and comply with payroll policies. 
• Increase employee engagement: Technology doesn’t just benefit employers, but it has become a significant engagement tool as well.  Self-service portals empower employees to manage their own information, such as tax withholding and direct deposit details. This reduces administrative burden while enhancing compliance by allowing employees to keep their data up to date. Technology also facilitates better communication and collaboration between teams ensuring that all stakeholders are on the same page regarding compliance requirements. 
• Leverage AI technology: AI can assist in monitoring compliance by analyzing large datasets for discrepancies or compliance failures. It can also provide predictive insights to help businesses understand potential compliance challenges in advance. 
• Navigate global compliance: For companies operating internationally, technology provides global payroll solutions that help organizations navigate complex local laws and ensure compliance across different regions. 

Working with BPM for Payroll Services  

As compliance requirements become increasingly complex, partnering with BPM can provide the guidance and support your business needs. Our team stays current with changing regulations across all jurisdictions, helping you navigate complex compliance requirements while minimizing risk. 

We understand that each business faces unique payroll challenges. BPM offers customized solutions that adapt to your specific needs, whether you’re managing payroll for a small local team or coordinating international operations. Our professionals work closely with you to implement efficient processes that ensure compliance while streamlining your payroll operations. 

Don’t let payroll compliance challenges distract you from growing your business. To discover how we can help you maintain accurate, compliant payroll processes throughout 2025 and beyond, contact us.