Compliance Corner [October 2025]
Here is what is new in October 2025
PWFA Still Stands in Texas, but…
Important Note about Federal Exemption for Overtime and Tips
Federal “Affordable” Health Care Act (ACA) Mandates For 2026
New Digital Security Threat: Zero-Click attacks
ACA Affordability Percentage also to Increase for 2026
Medicare Part D Notice Reminder:
DOL Resurrects PAID Program
New Restrictions on ACA Marketplace Enrollment Paused
FTC Ban on Non-Compete Agreements Dropped
Data Non-Retention Risk
How ADA restricts Medical Exams and Inquiries for Current Employees
2025 ACA Reporting: Draft Forms & C Series Instructions Now Available
PWFA Still Stands in Texas, but…
The ruling by a district judge holding that the Pregnant Workers Fairness Act (PWFA) was passed unconstitutionally (because it was part of the 2023 Consolidated Appropriations Act) was overturned by the 5th Circuit Court of Appeals on the basis of the “enrolled-bill rule” from the Supreme Court in 1892, which determined that courts have no say in how Congress passes a bill. That was one of a number of lawsuits against the EEOC’s interpretation of the PWFA. Conversely, a separate lawsuit has led to a court’s striking down an EEOC requirement for reasonable accommodation of a worker who elected to have an abortion.
Important Note about Federal Exemption for Overtime and Tips
The deduction for overtime and tips applies only to federal income taxes, NOT to state and local taxes. It is crucial that employers ensure that their payroll providers or payroll systems are updated to handle these amounts appropriately from the start – which was January 1, 2025.
NOTE: The deduction applies only to overtime mandated under the FLSA, which is over 40 hours per week. Overtime beyond that, such as over 8 hours per day (e.g., per state, local or union contract requirements) is NOT exempt from taxes. Employees do not need to itemize deductions in order to claim this relief.
Limits: Overtime or tips in excess of $12,500 (filing singly) or $25,000 (filing jointly) are not exempt from income tax.
Federal “Affordable” Health Care Act (ACA) Mandates for 2026
ACA Penalties to Increase for 2026 for Applicable Large Employers (ALEs)
With hopes that this does not generate a desire/need for actual ale, the IRS has decreed the following significant penalties to be effective 1/1/26. (An “Applicable Large Employer” is defined as an employer that averages 50 or more employees during the preceding year.)
The penalty for an ALE that does not offer coverage to at least 95% of its full-time employees, and at least one full-time employee receives a Premium Tax Credit (“PTC”) or subsidy to purchase individual coverage through an Affordable Care Act (ACA) public exchange will increase from $2900 to $3340. That penalty would apply to the total headcount of the employer, minus the first 30 employees.
The penalty for each month that the coverage provided by an ALE does NOT meet the minimum value requirements of the ACA, or does not offer coverage to a full-time employee, and that employee receives a PTC to purchase individual coverage through an exchange will increase from $4350 to $5010 for each affected employee.
Computer Vulnerability
Have you heard of “Zero-Click Attacks?” These are attacks that do not require action on the part of the recipient to activate. They are sneaky and dangerous. Initial protective steps to take are the following:
Use multi-factor authentication (MFA).
Upload and apply software updates and patches as they become available.
If available, implement advance endpoint security. This is software that can detect and prevent zero-click attacks through analysis of the computer system and any anomalous activity, and blocking any suspicious code.
For larger networks, divide them into segments so that an infection in one cannot pass on to another.
ACA Affordability Percentage also to Increase for 2026
The Affordability Percentage is the minimum amount of an employee’s salary that provides affordable, minimum value coverage to its full-time employees and minimum essential coverage to their dependents, if applicable. Failure to provide such a plan would result in a penalty to the employer. Additional, more expensive plans may also be provided, but this is the “floor.” For 2026, the maximum affordable premium is set at 9.96 percent of an employee’s household income. (That amount is up from 9.02% in 2025.)
Medicare Part D Notice Reminder:
Be prepared to provide notice to your employees that the enrollment period for Medicare Part D (Drug coverage) runs from October 15 through December 7. If your company-provided coverage is at least equivalent to the Medicare benefit, it is deemed “Creditable,” which means your employees would not have to pay a penalty if they were to enroll in a Medicare program during the plan year.
DOL Resurrects PAID Program
The Payroll Audit Independent Determination (PAID) program enables DOL to supervise employers’ self-audits and settlements of potential FLSA and FMLA violations. The existence of this supervision enables employers to require that employees waive their rights to sue for lost wages, ensures the employees’ rights and potentially saves the employers from legal fees, etc. DOL has also set up several or expanded other self-audit programs, including those covering ERISA, USERRA, OSHA, the Labor-Management Reporting & Disclosure Act, and the Mine Safety and Health Act. The PAID programs is supervised by the Wage and Hour Division (WHD) of DOL.
A number of requirements exist for employers to participate in the PAID program; those are available on the DOL website at https://www.dol.gov/agencies/whd/paid?lang=fa. The program had been discontinued by the Biden administration but has now been resurrected.
New Restrictions on ACA Marketplace Enrollment Paused
On August 25, a Federal District Court in Maryland placed a hold on new regulations that HHS had intended to strengthen the Act. However, a coalition of plaintiffs from different states brought suit, claiming a violation of the Administrative Procedures Act. The changes that have been paused include the following:
Requiring enrollees in fully subsidized Exchange coverage who fail to timely submit an application for an updated eligibility determination to pay a $5 per month premium until they confirm their eligibility information;
Allowing health insurance insurers to require payment of past-due premiums before effectuating new coverage, to the extent permitted by state law;
Determining an individual ineligible for the advance premium tax credit (APTC) if they failed to file their federal income tax return and reconcile the APTC for a certain period;
Conducting pre-enrollment eligibility verifications for special enrollment periods;
Verifying household income inconsistencies when a taxpayer’s attested projected annual household income differs from trusted data sources; and
Verifying a consumer’s annual household income when tax return data is unavailable.
It is not known when this will be resolved.
FTC Ban on Non-Compete Agreements Dropped
More accurately, the FTC has decided to drop its appeal of a ruling against a nationwide ban on non-compete agreements. Cases brought against specific non-competes under prior rules and enforcement under those rules will continue, but the stifling nationwide ban sought by the Biden Administration will not take effect.
Data Non-Retention Risk
Some employers forget that HR records can be critical in a legal process; and as a result, many older records are either not retained or are retained in a format or location that is not readily accessible. This is not just an administrative gap; it can pose a considerable compliance risk. Per online source, “California law, for example, gives employees the right to inspect or obtain copies of their personnel records upon request. If your HR team can’t produce key performance-related documents because they lived in a deleted email account or were wiped along with a departing employee’s laptop, your organization could face serious legal consequences.” Most states are not quite as employer-unfriendly as CA, but some come pretty close; and the risks are there, regardless. Assuming that records are available without periodically verifying same can be risky. This encompasses digital records, which include performance appraisals, disciplinary records, etc. Those are the kinds that can come into play in a legal setting and are therefore very important for the employer to be able to produce.
How ADA restricts Medical Exams and Inquiries for Current Employees
Permissible inquiries are separate for three different stages of the employment process as follows:
Pre offer – no disability-related inquiries are permitted – even if they are job-related.
After conditional offer - an employer may make disability-related inquiries and conduct medical examinations, regardless of whether they are related to the job, as long as it does so for all entering employees in the same job category.
After employment begins - an employer may make disability-related inquiries and require medical examinations only if they are job-related and consistent with business necessity.
2025 ACA Reporting: Draft Forms & C Series Instructions Now Available
The IRS has released draft 2025 forms for Affordable Care Act (ACA) reporting under Internal Revenue Code Sections 6055 and 6056. Draft instructions for the C series forms have also been released, but the IRS has not yet released draft instructions for the B series forms. The forms are available at links on the IRS website at https://www.ifebp.org/resources---news/news-and-regulatory-updates/regulatory-updates/2025/09/19/irs-issues-draft-aca-2025-forms.
California AI Regulations
October 1, 2025 is the effective date for the new regulations in California that prohibit the use of any AI in employment decisions that results in discrimination against a candidate/employee based upon any protected characteristic.