This article was originally published in Compliance & Ethics Professional Magazine on March 27, 2025.
As businesses face evolving economic pressures, regulatory changes, and shifting political administrations, compliance professionals are pivotal in ensuring adherence to complex wage laws. The patchwork of federal and state requirements poses unique challenges, making wage compliance a top priority for employers in 2025.
This article outlines practical strategies to help compliance teams mitigate risks, foster organizational trust, and turn compliance struggles into opportunities for sustainable growth. Conflicting court rulings, different federal and state rules, the rescission of federal overtime thresholds, and the incoming change of administration further complicate these compliance efforts, making it essential for businesses to remain vigilant.
Understanding federal versus state standards: Bridging the gap
Federal regulations under the Fair Labor Standards Act (FLSA) establish minimum wage and overtime pay baseline requirements. However, states often impose stricter thresholds, and compliance professionals must ensure adherence to the most stringent applicable laws. For example, the federal minimum wage remains $7.25 per hour, but New York state has set higher thresholds based on region. On January 1, the minimum wage rose to $16.50 per hour in New York City, Long Island, and Westchester and to $15.50 per hour in the rest of the state—with planned increases in subsequent years.[1]
Similarly, while the federal minimum salary for exempt employees is $684 per week, the threshold rose to $1,237.50 per week in New York City, Long Island, and Westchester, and $1,124.20 per week for the rest of the state on January 1, with additional increases planned in subsequent years. The overtime exemption threshold is the minimum salary employees must earn—while also meeting specific job duty and responsibility criteria—to be classified as exempt from overtime pay for hours worked over 40 in a week. Notably, the federal threshold was previously set to rise at the turn of the year after increasing in 2024; however, a federal court in Texas rescinded last year’s already-implemented increase and also canceled this year’s. These differences and changing standards illustrate the complexity of compliance for businesses operating across jurisdictions.
The critical point is that compliance with the correct rules is paramount. Unfortunately, even good-faith efforts to comply with outdated or inapplicable regulations will not protect employers from liability. Regulatory agencies and plaintiff’s counsel hold organizations to the highest applicable standards, regardless of intent. There is no partial credit for partial compliance with the right rule or full compliance with the wrong standard.
Actionable tip: Maintain a dynamic compliance tracker that aligns federal, state, and local requirements, ensuring consistent adherence across jurisdictions. Retain knowledgeable and competent professionals who are familiar with your industry and region. Conduct a tech gap analysis to identify opportunities for enhanced automation and data-driven decision-making. Partner with professionals who understand your industry and state-specific nuances to effectively navigate the continuing divergence of standards and requirements.
Employee empowerment through compliance and reaching ESG goals
Wage compliance isn’t just about avoiding penalties; it’s a strategic opportunity to empower employees and enhance organizational trust. Fair treatment and transparent pay practices can significantly boost morale and retention. Businesses should take the opportunity to explain to their employees the reasons for any changes in payroll practices.
When employees see their wages align with regulatory standards and reflect equity, they feel valued and motivated. Transparent communication about wage policies helps build trust, ensuring employees understand how their compensation is determined and adjusted. For example, companies that proactively discuss compliance changes during team meetings or distribute updated compensation matrices foster a culture of openness and inclusivity.
Additionally, empowering employees through compliance can reduce the likelihood of complaints or legal challenges. When employees trust that wage policies are fair, they are less likely to escalate issues to external agencies.
Furthermore, wage compliance increasingly intersects with environmental, social, and governance (ESG) initiatives, particularly within the “social” component. Equitable pay practices and robust compliance programs not only meet legal requirements but also enhance an organization’s reputation as a socially responsible employer.
For example, companies prioritizing compliance as part of their ESG goals can highlight their commitment to fair labor practices in investor reports or recruitment materials. These efforts resonate with socially conscious stakeholders, including employees, customers, and investors.
Advanced compliance tools like artificial intelligence (AI)-driven platforms can streamline wage audits while generating ESG metrics. This dual functionality allows companies to demonstrate both compliance and alignment with broader ethical goals.
Actionable tip: Involve employees in compliance initiatives by soliciting feedback on pay equity adjustments and sharing insights into how compliance aligns with the company’s broader goals. This collaborative approach strengthens trust and loyalty. Integrate compliance metrics into ESG reporting frameworks to showcase your organization’s commitment to equity and fairness. This proactive approach can improve brand perception and attract top talent.
CORE strategies for proactive wage compliance
A successful wage compliance program demands foresight, coordination, and actionable planning. The following is the “CORE” framework for compliance professionals.
C: Conduct regular audits
Routinely review pay structures, classifications, and practices to ensure compliance with applicable laws. Identify gaps in minimum wage, overtime calculations, and exemption criteria before they become liabilities.
O: Organize cross-functional teams
Build collaborative bridges between your organization’s human resources, payroll, and legal departments. Clear communication and joint accountability foster a cohesive compliance strategy, minimizing silos that lead to oversights.
R: Refine training programs
Equip managers and payroll staff with the latest regulatory updates. Comprehensive training ensures teams are prepared to identify and address potential issues proactively.
E: Embrace technology
Leverage advanced payroll systems, compliance dashboards, and AI-driven auditing platforms to automate error detection and streamline monitoring. Technology ensures accuracy while saving valuable time and resources.
Common pitfalls: Learning from real-world scenarios
Scenario 1: Wage compression effects
A manufacturing company in Long Island, New York, adjusts entry-level wages for new hires to meet the new minimum wage requirement of $16.50 per hour but fails to address pay compression among existing employees. While they comply fully with the law, they overlook the practical effects of the increase in minimum wage. Supervisors earning $17 per hour feel undervalued compared to newly hired workers, leading to frustration and turnover. Within six months, several supervisors resign, leaving the company understaffed and struggling to fill leadership roles.
The company’s failure to address pay equity also triggers complaints to the New York State Department of Labor (NYSDOL), which investigates unfair wage practices. Although the company avoids fines due to technical compliance, the operational disruptions, costs of defending the audit and investigation, and increased recruitment costs have a significant financial and intangible impact. Employee dissatisfaction further harms workplace morale and productivity.
Lesson: When making any wage adjustments, businesses must consider the broader pay structure. Compliance professionals should advocate for comprehensive pay equity reviews to maintain workforce satisfaction and minimize turnover risks.
Scenario 2: Exemption misclassification
A healthcare provider misclassifies assistant managers as exempt employees, paying them $900 per week after relying on news reports about the rescission of the federal overtime threshold. However, the applicable New York state salary threshold is $1,161.65 per week.
A class-action lawsuit follows, initiated by a former assistant manager who claims unpaid overtime for hours worked beyond 40 per week. The case reveals that the assistant managers’ duties don’t fully align with the executive exemption criteria under the FLSA and are underpaid, causing these employees to fall out of the exemption and become eligible for overtime pay. The lawsuit expands to include multiple employees, resulting in millions of dollars in back pay, liquidated damages, and attorney’s fees. Additionally, the case draws media attention, harming the provider’s reputation and causing operational disruptions.
Lesson: Compliance teams should regularly review employee classifications and salary thresholds, consulting legal counsel for roles that fall into gray areas. Proper documentation and proactive adjustments can mitigate risks of costly litigation.
Scenario 3: Misaligned wage thresholds
A retail chain operating across multiple states mistakenly adheres to federal minimum wage standards while neglecting state-specific requirements. For instance, the chain’s New York locations pay employees $15 per hour—aligning with federal guidelines—while failing to meet New York’s increased minimum wage requirement for businesses operating in New York City: $16.50 per hour. An employee files a complaint, triggering an audit by NYSDOL.
The audit uncovers widespread violations, not just in minimum wage compliance but also in overtime calculations. The chain misclassifies certain roles as exempt, further compounding their legal troubles. The penalties include six-figure fines, back pay for employees, and legal fees that significantly impact the company’s financial health. The reputational damage also leads to decreased employee morale and public scrutiny.
Lesson: Compliance professionals must establish detailed wage matrices and conduct regular audits to ensure alignment with both federal and state regulations. Avoiding state-specific compliance can result in severe financial and reputational consequences.
The future of labor law compliance
Looking ahead, wage compliance will only grow more complex as states introduce unique standards and enforcement priorities—especially if the federal government relaxes its scrutiny. Anticipated trends include:
- Gig economy scrutiny: State governments are likely to intensify their focus on gig economy classifications, requiring companies to rethink independent contractor models. The misclassification of gig workers has already triggered significant litigation, and new legislation could redefine the landscape entirely.
- Pay transparency mandates: More states are adopting pay transparency laws, compelling employers to disclose salary ranges in job postings and audits. These laws not only require greater internal tracking of pay scales but also introduce reputational risks if disparities are exposed, in addition to civil fines if strict compliance is not met.
- AI in compliance: Integrating machine learning into compliance tools will enable real-time monitoring of wage practices, reducing errors and improving efficiency. However, overreliance on automation could introduce risks—particularly if tools fail to account for nuanced legal requirements or human factors.
The stakes for compliance professionals will continue to rise. Navigating this evolving landscape requires vigilance, adaptability, and a commitment to proactive strategies. Organizations must strike a balance between automation and human oversight to stay ahead of regulatory changes.
Actionable tip: Establish a forward-looking compliance task force to anticipate and address emerging trends, ensuring your organization remains agile and prepared. This team should focus on monitoring legislation, testing new technologies, and aligning compliance goals with broader organizational objectives.
Conclusion
Wage compliance in 2025 is a high-stakes endeavor, and ongoing regulatory shifts and increased scrutiny make it even more challenging. Compliance professionals face a dual burden: not only ensuring adherence to the highest applicable standards but also preparing for the substantial costs of defending their compliance if audited or sued. Even when businesses are technically correct, the cost of proving compliance often exceeds the amount of money being disputed.
Looking ahead, potential changes in federal standards, increased state enforcement, and growing worker advocacy suggest heightened complexity for compliance. The only way to survive—or even win—an audit, lawsuit, or investigation is to be 100% correct. Since perfection is rare, organizations must prioritize proactive strategies and continuous improvement to reduce vulnerabilities.
By investing in CORE strategies, leveraging technology, and fostering cross-departmental collaboration, compliance professionals can position their organizations to survive and thrive in this complex landscape. Avoiding costly missteps by “doing it right the first time” is not just sound advice; it’s the cornerstone of long-term success.
Takeaways
- Stay informed about updates in wage laws at the federal, state, and local levels.
- Periodically review payroll practices and employee classifications to identify gaps.
- Ensure human resources, payroll, and legal teams work together seamlessly on compliance initiatives.
- Consider the impact of wage adjustments on overall pay structures to maintain morale and equity.
- Invest in technology that automates monitoring and reporting for greater efficiency.
1 New York State, “Minimum Wage Rate Schedule,” accessed February 12, 2025, https://www.ny.gov/new-york-states-minimum-wage/new-york-states-minimum-wage.