LOOKING AHEAD TO 2025
PEO ADVOCACY AND PROTECTION
2024 IN REVIEW
Independent Contractor Standard Shifted Again When the Department of Labor finalized a rule last January to make it much harder for businesses to use 1099 labor and more likely that workers will be considered W-2 employees, it had an especially significant impact on the PEO community. If you haven’t adjusted to match the new standard, make sure to read our four suggestions – which include suggestions about making sure your clients have workers’ comp coverage for contractors and updating your service agreements. Controversial Joint Employment Rule Struck Down A Texas federal court judge struck down the Labor Board’s controversial joint employer rule right before it was set to take effect in March, and the agency abandoned the rule in July. This year was a good time to review your service contracts, paying careful attention for language that reserves the right of control (either directly or indirectly) over co-employed workers regarding the terms and conditions of employment – particularly language that may be required under certain state laws. State-Level Patchwork Got Even More Complex The patchwork of legal compliance measures springing up around the country continued to get more complex in 2024 – and PEOs were caught in the middle. Data security, workplace privacy, pay transparency, paid leave, wage and hour, and minimum wage are just a few of the areas where employment laws varied even more from state to state – and in some cases by county or city. PEOs had no luck with any sort of uniform set of standards that could apply on a nationwide basis, especially as Congressional gridlock ground D.C. to a halt for the past year. PAGA Reform Meant Relief for PEOs in California Anyone doing business in California is no doubt familiar with the Private Attorneys General Act – or PAGA, the scariest four-letter word in the state for employers. What you might not know is that a July overhaul provided much-needed relief to PEOs and their customers. Specifically, employers that take “reasonable steps” to comply with California law before a PAGA claim is filed can earn up to an 85% discount in penalties. This helps both PEOs who have employees in California and PEO customers with worksite employees in the state. We gave you three steps to help you enjoy that relief here.
Expect a Business-Friendly Atmosphere in D.C. – But Some Changes May Come Too Fast for PEOs Despite the fact that the Secretary of Labor nominee supported union-friendly legislation while in Congress, we still expect the incoming administration to create an environment friendly to businesses – including PEOs – starting early in 2025. For example, we expect the DOL to loosen independent contractor restrictions and push for a new joint employment rule that will reflect the evolving nature of flexible work arrangements. But these kinds of changes may come too quickly for some PEOs. It takes time and effort to adapt the complex systems that support PEO customers, and even a good change can be problematic if it comes without adequate preparation time. M&A Activity in PEO Sector Will Be Hot and Heavy Rising compliance burdens and the increasing complexity of state regulations will drive further consolidation in the PEO market. Larger players with robust compliance infrastructures will acquire smaller PEOs. Also, expect more strategic partnerships with technology firms to develop scalable solutions for workplace compliance challenges. Workplace AI Will Face Increasing Regulation The use of AI in hiring, performance management, and payroll systems will draw increasing regulatory scrutiny in 2025. PEOs should guide their clients on how best to integrate AI systems while ensuring compliance with new state laws aimed at preventing bias and discrimination. Work with them to develop policies addressing AI governance, including transparency, accountability, and audits. Tighter Immigration Policy Will Lead to PEO Challenges The anticipated changes in immigration policies under the new administration will put greater pressure on employers to comply with workplace immigration laws. PEOs may need to assist clients with ensuring proper I-9 documentation, preparing for ICE audits, managing visa-related employment, and deciding on E-Verify usage. Expect a rise in demand for PEO services that address workforce planning in light of potential raids or policy changes affecting undocumented workers.
Join Us at PeopleLaw2025! Early-bird pricing for the nation’s premier conference for PEO, staffing, gig, and others in the alternative work arrangement field expires this December 31. Make sure you secure your spot today and join us this March 3-6 at the Terranea Resort in Rancho Palos Verdes, CA.
Sheldon J. Blumling
John Polson
Irvine Partner and Co-Chair, PEO Advocacy and Protection sblumling@fisherphillips.com
Irvine/Los Angeles Chairman and Managing Partner Co-Chair, PEO Advocacy and Protection jpolson@fisherphillips.com
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