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Business Environment in 2025 and Regulatory Changes

Business owners spent the majority of 2025 dealing with inflation, tariffs, a labor market made flush by mass layoffs, funding accessibility, a federal government shutdown, and a single piece of legislation that had widespread tax implications. What employers seek now is additional guidance from federal agencies to help them better understand potential compliance obligations. Meanwhile, as a result of limited legislation at the federal level, state governments have stepped in, adding a layer of obligations for business owners to navigate.

Key Regulatory Changes

The biggest piece of legislation — the 2025 tax law, commonly referred to as the One, Big, Beautiful Bill Act — has far-reaching implications for businesses and individual taxpayers. In addition to changes regarding tax credits that could impact business cash flow, the two most talked about provisions actually have to do with individual tax returns: no tax on tips and no tax on overtime.

• Only the overtime premium (the half portion on the time and a half under the Fair Labor Standards Act (FLSA) qualifies for the deduction subject to income limitations.
• There are caps for the amount ($12,000 for an individual and $25,000 for joint filer) that can be claimed.
• Tips must be voluntary to qualify, so involuntary tips such as service charges for parties are not eligible for the deduction.

Employers remain responsible for withholding taxes on tips and overtime compensation, including FICA, but the biggest change is the reporting requirements. Businesses did get some relief from the IRS when it announced in November that penalties would not be assessed for reporting requirements in 2025.

Tax and Finance Considerations

A crucial change that went into effect retroactively on Jan. 1, 2025, that benefits businesses is the immediate full expensing of qualified domestic research and development. This now gives businesses the ability to take a 100% deduction in the tax year the expenses were incurred.

Another major credit, but one currently scheduled to sunset Dec. 31, 2025, is the Work Opportunity Tax Credit (WOTC). It provides a credit of $1,200 to $9,600 per employee hired from one of 10 targeted groups that have faced employment barriers.

Federal Government Shutdown

On Nov. 12, 2025, the longest shutdown in U.S. history ended after 43 days. Businesses also had to contend with funding issues due to a pause in loan accessibility from agencies such as the Small Business Administration.

What’s Ahead for Employment Law?

Businesses will have to take into account for 2026, including possible 180-degree swings in regulation requirements from the previous four years.

Nearly 20 states will have minimum wage increases going into effect in 2026, with a majority of those on Jan. 1, 2026. Paid Sick Leave Laws More than a dozen states (Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Maryland, Maine, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington, plus Washington, D.C.) have paid sick leave laws.

Paid Family and Medical Leave Laws

The following states and the District of Columbia have mandated Paid Family and Medical Leave programs: California, Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Washington.

Update (Dec. 12, 2025): The president signs an Executive Order that calls for the pre-emption of certain state laws on artificial intelligence and blocking regulation of AI’s development. See section below for more details.

To read the full article, visit https://www.paychex.com/articles/compliance/top-regulatory-issues

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