[US] New Presidential Actions Likely Affecting Payroll

Analysis by Michael Baer

Monitoring for changed payroll requirements is a constant challenge, and this task is getting more complex in the United States as the new Trump Administration takes over and begins to change policy.  

A recent GPA-sponsored LinkedIn Live program, “Major Policy Changes Coming for U.S. Payrolls in 2025,” highlighted many of the likely actions on payroll-related labor and tax laws and regulations, employee payments, retirement plans, and other benefit programs. The program remains available to watch, but here are the highlights: 

Freeze the Pipeline of Regulatory Actions 

One of President Trump's first executive orders froze all pending regulations pending review. This also happened early in the Biden Administration. With this action many of the proposed rules, including rules close to finalizing but not yet formally published, are suspended.  

Proposed Labor Department regulations now on hold include a move to phase out the issuance of certificates that allow employers to pay some workers with disabilities less than the federal minimum wage, currently $7.25 per hour, for the work they perform.  

Several Biden Administration Wage and Hour rules were invalidated or suspended by court action last year, including the rule that added an additional layer of compliance to determining whether tipped worker time could qualify for the current $2.13 an hour subminimum wage.  

A final rule to change the salary threshold amount for determining workers that are exempt from Fair Labor Standards Act overtime pay requirements also was invalidated, and It is not likely the Trump Administration will challenge the overtime ruling handed down in November. 

Earned Wage Access Proposal Also Stalled 

One significant payroll-related proposal, now paused, is from the Consumer Financial Protection Bureau and could have affected the way earned wage access (EWA) providers in the U.S. do business.  

The proposed interpretive rule, announced in July 2024, sought to designate as loans many common programs that allow workers to access some or all of their already-earned pay before a scheduled payday. 

EWA providers have maintained that, since amounts paid out before a scheduled payday already are earned, the early payments made under these voluntary programs are not credit. The CFPB under the Biden Administration declared their intended policy was different; that such a program primarily had to follow loan-type procedures covered by the Truth in Lending Act in order to be compliant, which supporters of EWA say would make the process for employees much more cumbersome and time-consuming.  

Some EWA providers also would be hindered in their ability to provide timely and cost-effective services under this interpretation. However, this initiative will get a full review by the incoming administration and possibly could change, as guidance during the first Trump term on EWA leaned toward not classifying the arrangement as a loan. 

Guidance on Retirement Plan Changes  

Several proposed Treasury rules issued late in the Biden Administration to assist taxpayers in implementing the Secure 2.0 legislation that changed the administration of qualified retirement plans are now on hold.  

While the law and other Treasury guidance from the Internal Revenue Service regarding how employers are to include changes in their qualified plans are generally in place, IRS continues to define how automatic enrollment and newly enhanced catch-up contribution requirements are to be administered.  

The Secure 2.0 law, as it stands, is not likely to face challenges by the new administration, according to Pete Isberg, the former ADP (US) vice president for Government Relations said during the LinkedIn Live program. He noted there has been bipartisan support for the effort to adjust the tax character of retirement plan deferrals. 

The Larger Picture on U.S. Taxes 

Payroll professionals in the U.S. will be looking at how several proposals, some from the Trump campaign trail, will progress as Congress tackles the extension of the President’s first-term signature accomplishment, the Tax Cut and Jobs Act, which was enacted in 2017, but sunsets the end of 2025. 

Already being considered by Congress include moves to exclude from federal income taxes on overtime pay overall and taxes on tip income to service workers.  

The proposals currently vary widely as introduced in Congress. And implementation for payroll likely will be tricky.  

Isberg noted that Alabama currently has a law that excludes from state tax overtime pay to Alabama workers working in the state, under certain conditions. The law’s provisions are “complicated for taxpayers, tax preparers, employers, and the agencies to administer,” he said.  

As for removing the federal tax on tips, implementing a program based on type of worker or industry they work in can cause uncertainty in application. Then there is the definition of tips. Is it a gift, as one proposal would characterize the transaction? 

Such a program eliminating the federal income tax on tipped amounts would be “difficult to administer, and subject to gaming” by employers, Isberg said.  

More impactful, possibly, for payroll is whether the Tax Cut and Jobs Act gets extended and which provisions from the existing law would remain.  

Should the law, scheduled to expire the last day of 2025, not get extended, how individual income taxes are calculated would revert back to pre-2018 methods.  

The IRS spent years folding aspects of the current law into payroll-related forms like Form W-4, Employee’s Withholding Certificate, so that federal income tax withholding performed by payroll and payroll systems on worker pay is as accurate to the law as possible. This would change if this provision is not extended. 

Other key payroll provisions of the TCTJ include adjustments to income tax rates, the tax treatment of moving expenses, business meals and entertainment, and commuting expense programs.  

And, so long as the extension of the law is being debated, it is possible there could be changes in the taxation of employer-provided health insurance, which costs the government potentially hundreds of billions of dollars a year in revenue, as the employer subsidies and costs are tax-free to employees.  [Note that U.S. individuals without access to health coverage through their employer generally do not get a similar tax benefit when purchasing a program.] 

Other Issues 

Federal inaction on certain payroll-related issues has meant that states and localities have developed their own laws and rules on payroll-related issues such as paid leave, minimum wage, and other areas that impact payroll. This has created a hodgepodge landscape for multistate employers to navigate. Federal laws along these lines could standardize and ease application for payroll operations.  

The first Trump Administration floated a paid leave proposal for new parents, which did not get passed.  

Finally, the new administration’s efforts to streamline the federal government, partly by cutting headcounts in agencies but also in cutting programs, could affect the services, guidance, and outreach payroll departments have come to rely on from agencies.  

The agenda of the Trump team in many ways is clear. However, with certain statements and actions, like the introduction of the potential “External Revenue Service,” there remains an unpredictable nature to this administration. And potentially an inconsistent approach to achieving the goals set out. 

For payroll in the U.S., as the regime changes, stability and consistency in government policy is not likely in the near term.   

The full LinkedIn Live program remains available here.  

Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications advisory service that helps payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues, book Michael as a mentor through the GPA Mentor page, or contact him directly at mike.baer@baerunlimited.com.  

Analysis by Michael Baer

Monitoring for changed payroll requirements is a constant challenge, and this task is getting more complex in the United States as the new Trump Administration takes over and begins to change policy.  

A recent GPA-sponsored LinkedIn Live program, “Major Policy Changes Coming for U.S. Payrolls in 2025,” highlighted many of the likely actions on payroll-related labor and tax laws and regulations, employee payments, retirement plans, and other benefit programs. The program remains available to watch, but here are the highlights: 

Freeze the Pipeline of Regulatory Actions 

One of President Trump's first executive orders froze all pending regulations pending review. This also happened early in the Biden Administration. With this action many of the proposed rules, including rules close to finalizing but not yet formally published, are suspended.  

Proposed Labor Department regulations now on hold include a move to phase out the issuance of certificates that allow employers to pay some workers with disabilities less than the federal minimum wage, currently $7.25 per hour, for the work they perform.  

Several Biden Administration Wage and Hour rules were invalidated or suspended by court action last year, including the rule that added an additional layer of compliance to determining whether tipped worker time could qualify for the current $2.13 an hour subminimum wage.  

A final rule to change the salary threshold amount for determining workers that are exempt from Fair Labor Standards Act overtime pay requirements also was invalidated, and It is not likely the Trump Administration will challenge the overtime ruling handed down in November. 

Earned Wage Access Proposal Also Stalled 

One significant payroll-related proposal, now paused, is from the Consumer Financial Protection Bureau and could have affected the way earned wage access (EWA) providers in the U.S. do business.  

The proposed interpretive rule, announced in July 2024, sought to designate as loans many common programs that allow workers to access some or all of their already-earned pay before a scheduled payday. 

EWA providers have maintained that, since amounts paid out before a scheduled payday already are earned, the early payments made under these voluntary programs are not credit. The CFPB under the Biden Administration declared their intended policy was different; that such a program primarily had to follow loan-type procedures covered by the Truth in Lending Act in order to be compliant, which supporters of EWA say would make the process for employees much more cumbersome and time-consuming.  

Some EWA providers also would be hindered in their ability to provide timely and cost-effective services under this interpretation. However, this initiative will get a full review by the incoming administration and possibly could change, as guidance during the first Trump term on EWA leaned toward not classifying the arrangement as a loan. 

Guidance on Retirement Plan Changes  

Several proposed Treasury rules issued late in the Biden Administration to assist taxpayers in implementing the Secure 2.0 legislation that changed the administration of qualified retirement plans are now on hold.  

While the law and other Treasury guidance from the Internal Revenue Service regarding how employers are to include changes in their qualified plans are generally in place, IRS continues to define how automatic enrollment and newly enhanced catch-up contribution requirements are to be administered.  

The Secure 2.0 law, as it stands, is not likely to face challenges by the new administration, according to Pete Isberg, the former ADP (US) vice president for Government Relations said during the LinkedIn Live program. He noted there has been bipartisan support for the effort to adjust the tax character of retirement plan deferrals. 

The Larger Picture on U.S. Taxes 

Payroll professionals in the U.S. will be looking at how several proposals, some from the Trump campaign trail, will progress as Congress tackles the extension of the President’s first-term signature accomplishment, the Tax Cut and Jobs Act, which was enacted in 2017, but sunsets the end of 2025. 

Already being considered by Congress include moves to exclude from federal income taxes on overtime pay overall and taxes on tip income to service workers.  

The proposals currently vary widely as introduced in Congress. And implementation for payroll likely will be tricky.  

Isberg noted that Alabama currently has a law that excludes from state tax overtime pay to Alabama workers working in the state, under certain conditions. The law’s provisions are “complicated for taxpayers, tax preparers, employers, and the agencies to administer,” he said.  

As for removing the federal tax on tips, implementing a program based on type of worker or industry they work in can cause uncertainty in application. Then there is the definition of tips. Is it a gift, as one proposal would characterize the transaction? 

Such a program eliminating the federal income tax on tipped amounts would be “difficult to administer, and subject to gaming” by employers, Isberg said.  

More impactful, possibly, for payroll is whether the Tax Cut and Jobs Act gets extended and which provisions from the existing law would remain.  

Should the law, scheduled to expire the last day of 2025, not get extended, how individual income taxes are calculated would revert back to pre-2018 methods.  

The IRS spent years folding aspects of the current law into payroll-related forms like Form W-4, Employee’s Withholding Certificate, so that federal income tax withholding performed by payroll and payroll systems on worker pay is as accurate to the law as possible. This would change if this provision is not extended. 

Other key payroll provisions of the TCTJ include adjustments to income tax rates, the tax treatment of moving expenses, business meals and entertainment, and commuting expense programs.  

And, so long as the extension of the law is being debated, it is possible there could be changes in the taxation of employer-provided health insurance, which costs the government potentially hundreds of billions of dollars a year in revenue, as the employer subsidies and costs are tax-free to employees.  [Note that U.S. individuals without access to health coverage through their employer generally do not get a similar tax benefit when purchasing a program.] 

Other Issues 

Federal inaction on certain payroll-related issues has meant that states and localities have developed their own laws and rules on payroll-related issues such as paid leave, minimum wage, and other areas that impact payroll. This has created a hodgepodge landscape for multistate employers to navigate. Federal laws along these lines could standardize and ease application for payroll operations.  

The first Trump Administration floated a paid leave proposal for new parents, which did not get passed.  

Finally, the new administration’s efforts to streamline the federal government, partly by cutting headcounts in agencies but also in cutting programs, could affect the services, guidance, and outreach payroll departments have come to rely on from agencies.  

The agenda of the Trump team in many ways is clear. However, with certain statements and actions, like the introduction of the potential “External Revenue Service,” there remains an unpredictable nature to this administration. And potentially an inconsistent approach to achieving the goals set out. 

For payroll in the U.S., as the regime changes, stability and consistency in government policy is not likely in the near term.   

The full LinkedIn Live program remains available here.  

Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications advisory service that helps payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues, book Michael as a mentor through the GPA Mentor page, or contact him directly at mike.baer@baerunlimited.com.