7 Major HR Compliance Concerns for Small and Mid-Sized Businesses in 2025

As we move further into 2025, small and mid-sized businesses (SMBs) will face an increasingly complex landscape when it comes to HR compliance. With evolving legislation, technological changes, data security and privacy laws, and shifting societal expectations, staying on top of HR regulations is more critical than ever.

As we know, non-compliance not only poses legal risks but can damage an organization’s reputation and erode employee trust. These issues can range from matters relating to hiring employees from foreign countries, building new business opportunities, creating new products, managing clients, and keeping a close eye on quality control.

So there are chances that HR or business owners might not even know the compliance issues facing them in 2025. If you are a small or mid-sized business owner, we've highlighted and discussed 7 major compliance areas you may need to prioritize.

Major HR Compliance Concerns in 2025

1. Anti-discrimination Laws

Anti-discrimination laws in the U.S., such as Title VII of the Civil Rights Act of 1964 (Title VII), prohibit employers from taking adverse employment actions based on race, color, religion, sex, ethnicity, disability, or the age of job applicants and employees. These laws help protect employees from discrimination based on any of these reasons, providing an opportunity for everyone to gain meaningful employment based on merit. Some of these laws include:

• The Americans with Disabilities Act (ADA), prohibits discrimination against individuals with disabilities.

• The Age Discrimination in Employment Act (ADEA), protects workers aged 40 years or older from age-based discrimination, and

• The Uniformed Services Employment and Reemployment Rights Act (USERRA), prohibits discrimination based on veteran status while also providing job protection to serving military personnel under certain circumstances. The USERRA is enforced by the U.S. Department of Labor (DOL).

2. Misclassification of workers

Many small business owners do not know this; not everyone who works for you is your employee. Employee misclassification remains a persistent issue, particularly as the gig economy continues to rise. Misclassifying employees as independent contractors can result in tax liabilities, benefits violations, and a host of legal issues. Working with independent contractors changes the dynamics when it comes to paying overtime and withholding payroll taxes.

Workers’ classification also determines whether or not a worker is entitled to benefits, such as pensions. HR needs to get this right, as it can put the company at risk for fines, back wages, back taxes, and other penalties. Remember that the classification of workers depends on state and federal policies.

3. Employee Benefits and Healthcare

Healthcare and employee benefits are a critical area of focus for HR compliance, especially with the implementation of the Affordable Care Act (ACA). While the ACA’s mandates may have stabilized, there are still many compliance requirements for SMBs, particularly around employer reporting and coverage provisions.

For 2025, SMBs must stay informed about the ACA’s requirements for offering health insurance to full-time employees, especially if they have 50 or more full-time employees or face penalties. Beyond health insurance, businesses need to ensure that benefits, such as retirement plans, pension funds, such as 401(k) plans, paid leave (including the Family and Medical Leave Act), and worker’s compensation adhere to both federal and state guidelines. The complexities of managing these benefits can overwhelm smaller HR teams, so it’s important to have a reliable system in place for tracking benefits and ensuring compliance.

We have previously highlighted the most important employee benefits that employers should focus on this year and beyond. Moreover, SMBs must consider new trends in wellness and mental health benefits. With the rise of mental health awareness, businesses are increasingly expected to offer benefits that cater to employee well-being, including counseling services, paid mental health days, and stress management programs.

In addition to the above, employers need to pay attention to laws like the Employment Retirement Income Security Act (ERISA), and the Consolidated Omnibus Budget Reconciliation Act (COBRA). However, if you are too busy or do not have the internal capacity to handle this, you should consider working with a certified professional employer organization (PEO).

4. Workplace Safety Standards

Workplace safety is another significant area where compliance is essential, especially in light of the changing workplace landscape. The Occupational Safety and Health Administration (OSHA) oversees compliance with workplace safety standards, which were significantly impacted by the COVID-19 pandemic.

In 2025, companies must adhere to new guidelines addressing safety not just in physical offices but in remote and hybrid work environments. SMBs must ensure they have proper policies for managing workplace safety across these diverse settings, including maintaining ergonomic workspaces, fire safety procedures, and, when applicable, COVID-19 protocols. While the pandemic may have passed, many businesses are still adapting their operations to hybrid or fully remote models, which will require new policies and training programs to address unique safety concerns.

5. Asking for Salary History

Asking job applicants for their salary history or using information about their salary history to set pay can land you in hot water. Since 2016 state and local governments have increasingly adopted laws and regulations that prohibit employers from requesting salary history information from job candidates. More than 20 states, cities, and local jurisdictions in the U.S. now have legislations prohibiting employers from obtaining information about potential employees' past pays. The rules also do not allow past employers to give out information about a past employee's paycheck to a third party.

Depending on which state the employer operates in, the law may also protect the job candidates against adverse actions from the prospective employer based on this. Employers can be sued for looking into the salary histories of potential hires. However, if the candidate willingly gives out the info, then that's okay.

Employers in this sort of situation may ask candidates about their salary expectations as a way of gauging what their pay was in their previous jobs. If you wish to learn about the salary history of a candidate you're interviewing, you need to make sure that salary history inquiry is not banned in the state where you're hiring.

6. Wage and Hour Laws

One of the most pressing compliance issues for SMBs is ensuring that employee compensation practices align with federal and state wage laws. This includes adherence to minimum wage regulations, proper classification of exempt and non-exempt employees, and compliance with overtime rules.

In 2025, changes to the Fair Labor Standards Act (FLSA) are expected to introduce more stringent requirements around overtime exemptions and salary thresholds for exempt employees. It's also essential for SMBs to pay attention to state-level wage laws, which can often be more restrictive than federal rules. For example, states like California and New York have their own wage and hour requirements, which may include higher minimum wages or different overtime classifications. To prevent costly fines, businesses should ensure proper timekeeping, payroll management, and employee classifications.

Failure to comply with these regulations can lead to significant penalties and lawsuits. The U.S. Department of Labor enforces these laws, and SMBs need to maintain up-to-date records to ensure full compliance.

7. Data Privacy and Cybersecurity

With an increasing amount of sensitive employee data stored online, SMBs face growing pressure to adhere to data privacy and cybersecurity regulations. Laws like the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) are setting the stage for tighter scrutiny on how businesses handle personal information.

In 2025, SMBs will need to maintain comprehensive data protection practices to avoid breaches and fines. This includes ensuring compliance with the laws that regulate the collection, storage, and sharing of employee data. SMBs must also remain vigilant about protecting against cyber threats, as the increase in remote work opens new doors for cyberattacks. Having a solid data protection policy, encrypting sensitive data, and offering regular cybersecurity training to employees are all essential for mitigating risks.

Overcoming HR Compliance Issues for SMBs

For SMBs to mitigate the risks associated with these compliance concerns, several strategies can be employed:

• Regular Audits: Conduct regular internal audits of HR practices to identify gaps in compliance.

• Technology Integration: Implement HR software that streamlines compliance tracking, including employee classifications, benefits, and payroll.

• Employee Training: Offer compliance training to HR staff and management to stay ahead of regulatory changes.

• Outsourcing: Consider outsourcing compliance management to HR experts or third-party vendors to ensure adherence to complex regulations.

Partnering with a PEO

Partnering with a PEO allows small and medium-sized businesses to overcome compliance issues with ease. There are many reasons to consider partnering with a professional employer organization today, and the Mission is here to walk you through every step. LReach out to us today if you have more questions surrounding HR compliance issues in your business.

The Mission is a leading partner in the PEO, HR, payroll, and benefits outsourcing marketplace. In addition to that, we are leading growth strategists, sales, and digital marketing experts. We take through every step to creating smart digital marketing goals and achieving them.

We provide result-oriented services for small and medium-sized organizations and government contractors, serving as a trusted partner in integrated human resource compliance, risk management, employee benefits, employment practices liability insurance (EPLI), and payroll processing. If in doubt or still unsure of what next steps to take, contact us today at The Mission HR to schedule a consultation.