Compliance Round Up – IRS Guidance on Tips and Overtime, Discrimination, AI, and More

By Published On: December 1, 2025

Jenny Kiesewetter is a practicing ERISA and employee benefits attorney who partners with HR teams on a wide range of workplace compliance matters — from benefit-plan obligations to day-to-day HR policies and regulatory requirements. Her guidance helps employers spot risks early, navigate regulatory change, and make informed decisions that support both employees and the organization.

Federal News

Courts, agencies, and state lawmakers continue to release year-end changes. Wage-and-hour rules tighten, states move in different directions on AI, and HR teams must sort through necessary shifts in policies, pay practices, and compliance routines before January 1.

Effective Date: 2025 tax year 

What’s Changing: On November 21, 2025, the IRS released guidance on how employees can identify their “qualified tips” and “qualified overtime compensation” for deductions under the One Big Beautiful Bill Act. Forms W-2 won’t change for the 2025 tax year.

Employers will not be penalized this year for leaving related boxes blank. However, employees will still be relying on employer-reported data (such as Social Security tips in box 7 and overtime information) to calculate the deduction.

What This Means for HR:

  • Payroll data fields used for tips and overtime should be reviewed with tax and payroll advisors so employees receive consistent information.
  • Year-end W-2 processes should be checked to confirm they align with IRS guidance and do not trigger system errors when “no-tax” fields are left empty.
  • Employee FAQs or talking points may be prepared in partnership with tax advisors so customer-facing or HR staff are not informally “advising” on individual tax positions.

Effective Date: Ongoing

What’s Changing?

The Equal Employment Opportunity Commission (EEOC) issued updated national origin discrimination guidance, including new examples on language use, accents, remote-work decisions, and harassment related to a worker’s background.

At the same time, on November 24, 2025, the Department of Labor (DOL) and EEOC have expanded their coordinated enforcement initiative, “Project Firewall,” to focus on national origin and citizenship-related discrimination, including in industries that rely heavily on immigrant and refugee workers.

What This Means for HR:

  • Anti-harassment and EEO policies should be updated to cover national origin, language, and immigration-related examples clearly.
  • Complaint-intake steps and manager training should be updated so managers act quickly when national origin concerns come up, including situations involving third-party vendors.
  • Industries on the DOL’s and EEOC’s radar (such as logistics, hospitality, food processing, and tech) should expect more coordinated investigations and carefully document their EEO efforts.

Effective Date: In flux; 2026 planning

What’s Changing?

President Trump renewed his push on Truth Social for a single federal AI standard that would override state-by-state rules. Lawmakers are looking at whether that language can be attached to the National Defense Authorization Act or move on its own, with a spotlight on automated tools used in hiring, monitoring, and other high-stakes decisions.

Meanwhile, Virginia legislators are drafting a 2026 measure on AI in healthcare. Early proposals include disclosure requirements, safety practices, and protections against bias.

What This Means for HR:

  • Take stock of any AI tools used for hiring, promotion, performance reviews, or scheduling, and note where they’re being used across different states.
  • Review vendor contracts for audit rights, bias-testing support, and clear responsibility for compliance with emerging AI rules.
  • For multi-state employers, plan for a patchwork scenario even if a federal standard is under discussion, as some states (including Virginia) are likely to continue pursuing their own laws.

Trending State News

Effective Date:Decision issued November 18, 2025

What’s Changing?

A recent California appellate court confirmed that the state will continue to apply prevailing wage rules broadly. Attempts to sidestep those rules by splitting up tasks or reclassifying the project are likely to draw scrutiny. Judges are examining funding sources, ownership, and the type of work performed when deciding whether a project counts as public work.

What This Means for HR:

  • California construction, infrastructure, and certain facilities projects should be reviewed with counsel to confirm whether prevailing wage requirements apply.
  • Timekeeping and payroll records for covered projects should be checked for accurate classifications and fringe-benefit reporting.

Effective Date: January 1, 2026 (with subsequent scheduled increases)

What’s Changing?

New York confirmed its 2026 minimum wage rates. They aren’t uniform — NYC, Long Island, Westchester, and upstate all have different numbers. Fast-food and tipped workers have their own rates, so employers with multiple locations will need to track multiple wage levels.

What This Means for HR:

  • 2026 payroll budgets and job offers in New York should be recalculated to reflect the new minimums and tip-credit rules.
  • Pay-equity reviews should be conducted to identify internal compression and cross-border disparities (for example, between New York and neighboring states) early.

Effective Date: November 20, 2025 (with sunset date of October 31, 2029)

What’s Changing: 

Nevada lawmakers responded to a state Supreme Court ruling by passing emergency legislation adopting key elements of the federal Portal-to-Portal Act. The new law clarifies that certain preliminary and post-shift activities (such as walking time or security screening) may be excluded from compensable hours, while confirming that required donning and doffing of uniforms or PPE that cannot be worn from home must still be paid unless a collective bargaining agreement says otherwise. The statute applies to pending cases and includes a sunset date of October 31, 2029.

What This Means for HR:

  • Nevada worksite practices around security checks, COVID or health screenings, and changing into required gear should be reviewed to confirm what is paid and why.
  • Time-tracking systems and written policies should be aligned with the new law, with special attention to union versus non-union workgroups.

Effective Date:Upon enactment (2025)

What’s Changing: 

On November 25, 2025, the Pennsylvania governor signed the Creating a Respectful and Open World for Natural Hair (CROWN) Act into law. The law protects natural hair and protective hairstyles associated with race. Employers who restrict these styles risk legal trouble.

What This Means for HR:

  • Revise dress code and grooming policies to remove language that could be interpreted as banning or discouraging protected hairstyles.
  • Train managers and recruiters to avoid making appearance judgments based on hair when hiring, reviewing performance, or issuing discipline.

Around the Courts

Effective Date: Decision issued November 18, 2025

What’s Changing:

A California Court of Appeals upheld a dealership’s pay plan that paid an hourly rate — set at no less than twice the minimum wage — and added separate “flag-hour” bonuses. The court found the plan lawful because the hourly rate alone covered all hours worked, including nonproductive time and rest breaks. The bonuses sat on top of that pay and weren’t used to meet wage requirements. The court also dismissed the related Private Attorneys General Act (PAGA) claims, finding that the notice and supporting evidence were insufficient.

What This Means for HR:

  • Hybrid hourly-plus-bonus plans in California should ensure that the hourly rate alone covers all hours worked, including rest and nonproductive time, with bonuses treated as truly supplemental.
  • PAGA exposure can be reduced when recordkeeping is strong and pay plans clearly document how each component works.

Effective Date: Decision issued October 31, 2025

What’s Changing?

A recent federal court ruling raised the bar for employers in third-party harassment cases. The court looked closely at what the employer knew — or should have known — and how the company responded when the behavior came from customers, vendors, or other non-employees. The decision makes clear that employers can still be on the hook if they control the setting and don’t take reasonable steps to stop the harassment.

What This Means for HR:

  • Harassment policies should explicitly cover conduct by and against customers, contractors, and other third parties.
  • Complaint-handling procedures, including for frontline staff, should be reinforced so reports of customer or vendor misconduct are escalated and addressed promptly.

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The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

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