This article is based on insights from our recent webinar featuring employment attorney Tim Kenneally from Foley and Foley, along with Keystone Partners experts Mark Saddic and Mary Halpin. Watch the full webinar recording here to hear their complete discussion on navigating H.R.1 compliance and talent management strategies.
Key Takeaway: Major legislative changes are creating immediate compliance challenges for HR leaders. With key provisions of H.R.1 taking effect for the 2025-2028 tax years, organizations must quickly implement new tracking systems, update withholding procedures, and address industry-specific impacts on their workforce.
Understanding the H.R.1 Tax Law Implementation
The H.R.1 law represents a massive change moment for organizations as we approach year-end. With only weeks remaining before critical deadlines, HR compliance strategies 2025 must focus on immediate action.
The Urgency Is Real: During the webinar, poll results revealed a concerning reality – many HR leaders indicated they either haven’t completed their compliance preparations or don’t know where to start. This should be a wake-up call for organizations still in the planning phase.
Employment attorney Tim Kenneally from Foley and Foley expressed concern about the lack of urgency he’s seeing: “Surprisingly, we haven’t gotten as many questions on this topic as I had expected that we would get. I’m concerned that perhaps people aren’t aware of the immediate compliance obligations that they face.”
The time for waiting is over. Organizations must act now.
Employment attorney Tim Kenneally from Foley and Foley outlined the most impactful parts of the bill from a legal compliance standpoint:
- Tax credit for qualifying paid family medical leave payments beginning December 31st of this year
- Tax credit for premium pay of overtime
- Tax deduction for qualifying tips
- Increase of the IRS enforcement budget to $30 billion, which will impact I-9 compliance
- Dependent care flexible spending account contribution limit increase to $7,500
The Paid Family Leave Tax Credit: What HR Leaders Need to Know
The permanent credit for employer-provided paid family leave emerged as the top concern among HR professionals attending the webinar. This paid family leave tax credit represents both a compliance obligation and a strategic opportunity for organizations.
However, the law includes unique complexities. According to Kenneally, “If you live in a state where they have paid family medical leave and you get paid family medical leave benefits through the state, that doesn’t count towards this credit. You only get what’s above and beyond the state benefit.”
Employment Law Compliance Deadline: Critical Year-End Actions
Organizations face significant employment law compliance deadlines with provisions taking effect December 31st. The urgency cannot be overstated. After accounting for holiday schedules, HR teams have approximately five weeks to implement necessary changes.
Top Three Immediate Priorities:
1. Understand W-2 Implications
Kenneally emphasized that organizations will need to issue W-2s early in 2026, making it critical to understand the overtime, tips, and paid family medical leave aspects of the law immediately. “If you issue an erroneous W-2, there are significant penalties that the IRS will issue and can be as much as $2 million at times if you get hit with enough and you have enough employees and you make enough mistakes,” he warned.
2. Contact Your Payroll Provider
Mary Halpin, Senior Career Management Consultant at Keystone Partners and former Chief Human Resources Officer, advised: “The first thing I would do after I finish this call is call my payroll provider. Whomever you use to process and make sure, because typically they probably produce your W2 for you. I wouldn’t wait to find out. I would be proactive about finding out.”
3. Convene Your Leadership Team
Cross-functional coordination is essential. Organizations need to assemble teams including HR, legal, IT security, accounting, and payroll to address the systemic nature of these workforce management legislative changes.
Workforce Management Legislative Changes: Navigating Complexity
The H.R.1 law contains several unique provisions that complicate implementation:
Tips Deduction Nuances: Not all tips qualify for deduction. As Kenneally explained, “If you have a large group at a restaurant and the restaurant charges a gratuity for that large group, that gratuity does not count as a tip under this law.”
Retroactive Application: While the law passed over the summer, it is retroactive back to the beginning of the year for many provisions, adding complexity to compliance efforts.
State vs. Federal Variations: The law is federal, but states do not have to follow it. Organizations must navigate different treatments for employees state by state.
Turning Compliance Into Strategic Advantage: The Talent Management Imperative
Mark Saddic, Senior Partner at Keystone Partners, encouraged organizations to view these HR compliance strategies 2025 as an opportunity rather than just a burden. “If we flip the coin a little bit and look at it more from an opportunity standpoint, then you’re going to be able to build trust, reinforce culture, and demonstrate how your leadership teams are responding to the change.”
This is a moment for HR to show up as strategic partners. Saddic emphasized: “One of the things that I hear from our HR partners all the time is their desire to show up as strategic partners in the organization. And so this is a way for them to do that while keeping people at the center of the conversation.”
The workforce management legislative changes offer several strategic advantages for talent management:
- Strengthen Retention: Enhanced benefits like paid leave and dependent care support can be powerful retention tools in a competitive labor market
- Build Your Brand: Proactive implementation demonstrates organizational values and employee commitment
- Create Competitive Differentiators: In a tight talent market where finding the right talent remains the biggest challenge, these benefits can attract quality candidates
- Turn Compliance Into Strategy: Transform this compliance initiative into a strategic advantage by looking at paid leave, dependent care, and loan repayment as tools to strengthen your employer brand
Don’t Wait on Budget: The Cost of Delay
Organizations that delay implementation face significant risks, not just compliance penalties, but missed opportunities to leverage remaining budget dollars strategically. With year-end approaching, now is the time to allocate resources toward these initiatives rather than waiting until 2026 when budgets reset and opportunities are lost.
Mary Halpin emphasized the talent management angle: “Some enhancements, some tax incentives, increasing some of the dependent care and family paid – a lot of real big benefits that can be strategic differentiators for you all in the hiring market. This is a great way to create that strategic differentiator to be able to integrate some of these points into your recruiting strategies and get out in front of it.”
The risk of inaction is twofold: Organizations face both compliance penalties and the competitive disadvantage of not leveraging these benefits in their talent strategies while competitors move forward.
Managing Change and Communication
The panel emphasized that overcommunication is essential during this transition. Organizations should create clear communication plans that identify stakeholders, determine what they need to know, when they need to know it, and how information will be delivered.
Halpin noted the emotional dimension of these changes: “Understanding that the broad changes that are happening as a result of this law – Medicare, Medicaid – you may say, well, that doesn’t affect me, but it may change how people are getting health coverage in your population.”
She also highlighted the challenge of managing emotions of employees who may not qualify for certain benefits, noting the risk that “they’re going to feel like you as the HR person are leaving them out.”
Critical Considerations: Cybersecurity and Risk Management
The panel addressed emerging concerns around cybersecurity in the context of H.R.1 tax law implementation. Kenneally noted that “the very nature of this situation that involves so much uncertainty is a breeding ground for nefarious activities.”
Organizations should:
- Review and potentially update written information security programs
- Educate staff on phishing emails related to the new law
- Ensure data privacy protections for health and immigration-related information
- Coordinate with IT security teams on policy changes
Assessment and Risk Prioritization
Saddic emphasized the importance of assessing the risk of noncompliance: “There are some inherent penalties that can be seen for noncompliance. Some may say, ‘We’re going to put this off because we don’t have the time or the resources to focus on that.’ But organizations need to prioritize given the critical importance certain provisions carry.”
The Path Forward: Systematic Approach to Implementation
Successfully navigating these employment law compliance deadlines requires a systematic approach:
Build Cross-Functional Teams: Include HR, talent management, legal, IT security, and accounting in the process.
Engage Employees in Change Management: Get firsthand feedback and input from employees on what they need to know.
Review and Update Policies: The law will require changes to paid family medical leave policies, overtime policies, and tip policies.
Plan for Training: Staff will need training on new systems and policies either at the beginning of the year or after implementation.
Coordinate with Service Providers: Work closely with payroll providers, accountants, and legal counsel to ensure smooth transitions.
Looking Ahead: Critical Talent Management and Labor Market Implications
The H.R.1 provisions fundamentally change the talent management landscape. Organizations that understand this will gain competitive advantage; those that don’t will fall behind.
Halpin, drawing on her experience as both an HR leader and career transition consultant, noted the central challenge: “Getting the right talent matched up with the right roles is the biggest challenge both my clients who are looking for roles have, as well as what I’m hearing from the companies we work with finding those people.”
These provisions are talent management tools, not just compliance obligations. Organizations should be asking: How can we integrate paid family leave, dependent care enhancements, and other benefits into our recruiting strategies? How do we communicate these differentiators to candidates and current employees?
Halpin emphasized: “This is a great way to create that strategic differentiator to be able to integrate some of these points into your recruiting strategies and get out in front of it, which also means talking to your current employees.”
However, she cautioned: “With additional benefit comes additional scrutiny and additional administrative aspects of it.” The organizations that succeed will be those that view the administrative burden as an investment in talent strategy rather than simply a cost center.
Talent Management in an Era of Change and Burnout
The webinar touched on a critical reality: HR teams are dealing with massive change during a time of economic instability and workforce burnout. Halpin reflected on her experience: “It’s hard on your teams, right? They’re trying to deal with their own issues, their own emotions. It’s a hard time economically in this country right now. People are dealing with a lot. And now we’re putting this kind of pressure on them to try to figure out what all this means and then to pass it along in a positive way to their employees.”
This makes the strategic approach even more critical. Organizations that position these changes as investments in their people, rather than administrative burdens, will maintain morale and leverage the talent management benefits while those focused solely on compliance will miss the opportunity.
Conclusion: The Time to Act Is Now. Not Later
The webinar poll results painted a sobering picture: many HR leaders haven’t completed their compliance preparations or don’t know where to start. This cannot continue.
Kenneally expressed his concern directly: “We haven’t gotten as many questions on this topic as I had expected. I’m concerned that perhaps people aren’t aware of the immediate compliance obligations that they face, or they’re waiting to see, or they’re looking for other people to take the lead on it.”
Waiting is no longer an option. With provisions taking effect December 31st and W-2s due early in 2026, organizations that haven’t begun implementation are already behind.
The panel’s message was clear across all three dimensions:
- Legal Compliance: Significant IRS penalties await organizations that issue erroneous W-2s or fail to properly track qualifying benefits
- Talent Management: Organizations that move quickly can leverage these provisions as strategic differentiators in recruiting and retention
- Budget Reality: Year-end budget dollars should be deployed now to support implementation, training, and system updates – not left on the table
With year-end approaching rapidly, HR leaders must move quickly to implement HR compliance strategies 2025, leverage the paid family leave tax credit opportunities, meet employment law compliance deadlines, and navigate workforce management legislative changes effectively.
The question isn’t whether to act – it’s whether your organization will be among those that turn this compliance challenge into a strategic advantage, or among those scrambling at year-end facing penalties and missed opportunities.
If you’re one of the many HR leaders who indicated you haven’t started or don’t know where to begin: the time to reach out for help is today, not tomorrow.
About Keystone Partners: For 40 years, Keystone Partners has been a career management and leadership development firm specializing in executive coaching, team development, and career transition/outplacement services. Our expertise helps organizations navigate complex workforce challenges while protecting their talent investment and organizational performance and leading through constant change. Contact us today to learn how we can support your organization’s future goals.
Expert Contributors:
- Tim Kenneally, Employment attorney and Partner, Foley and Foley
- Mark Saddic, Senior Partner, Leadership Development, Keystone Partners
- Mary Halpin, Senior Career Management Consultant, Keystone Partners (Former Chief Human Resources Officer)
