2025 Wage And Hour Developments: A Year In Review

Introduction

Jackson Lewis 2025 Wage and Hour Year in Review highlights the most important developments and trends in wage and hour law during the past year. We summarize activity at both the federal and state levels. 2025 included ongoing regulatory upheaval, a sharp shift in enforcement policies at the Department of Labor (DOL), new legislation, and precedential court decisions shaping the compliance landscape for employers as we move into 2026.

Reach out to your attorney at Jackson Lewis for more information or guidance on any of the topics in this report

DOL Eases Up on Employers

Focus on Compliance Assistance

The DOL's Wage and Hour Division (WHD) has focused more efforts on compliance assistance. Policies and procedures announced by WHD include the following:

• DOL relaunched its voluntary Payroll Audit Independent Determination (PAID) program, which allows employers to resolve potential Fair Labor Standards Act (FLSA) minimum wage and overtime violations through self-audit and voluntarily reporting to WHD, without incurring liquidated damages or civil penalties and with a binding release of certain claims.
• DOL announced it will no longer seek liquidated damages when trying to settle wage violations through administrative proceedings.
• DOL resurrected its opinion letter program, offering useful guidance on how the DOL may apply the FLSA in specific factual scenarios.

For a deeper dive:

• DOL Resurrects PAID Program: Employers Can Self-Report, Resolve Violations
• Employers Won't Face Double Damages from DOL Wage and Hour Division's Administrative Proceedings
• DOL's First Batch of Trump 2.0 Opinion Letters Address Tip Pools, Emergency Pay + Joint Employment

Regulatory Rollback

The onset of the second Trump Administration prompted a regulatory reset at the DOL. Rulemaking from prior administrations was rescinded or left in limbo as the DOL pressed the pause button.

• The 2024 Minimum Salary Rule sharply increasing the salary threshold for application of the "white collar" exemptions was invalidated by a Texas federal court. The DOL appealed but asked the appeals court to stay any further action as DOL considers new rulemaking. Thus, the 2019 salary level remains in effect ($35,568 for the standard exemptions and $107,432 for the highly compensated exemption).
• The Biden Administration's 2024 Independent Contractor Rule adopted a broad multi-factor "economic realities" test, but the DOL has paused enforcement for that rule. The validity of the rule was being litigated in several courts. Those cases have been stayed as the DOL said it intends to formally rescind and replace it. The rule technically remains in effect for private litigation, but courts are unlikely to give it much weight given DOL itself is not enforcing it and has stated it will be rescinded.
• The 2021 "80/20 Rule," limiting the amount of time tipped workers can spend performing work not directly related to generating tips and continue to take a tip credit, was struck down by the U.S. Court of Appeals for the Fifth Circuit in 2024. In December 2024, the DOL formally rescinded the regulation, leaving in place only the original 1967 version. Despite this, in 2025 some district courts outside the Fifth Circuit still applied some version of the 80/20 Rule, leaving employers with uncertainty in this area. In 2025, DOL drafted a proposed rule purportedly to rescind the dual jobs regulation, but it has not yet been published.
• President Donald Trump rescinded President Joe Biden's executive order raising the minimum wage for federal contractors, reverting the rate to $13.30 per hour for most, and restoring previous exclusions for recreational businesses. The DOL will not enforce its rule implementing the executive order and may formally withdraw it, with future changes possible.
• A federal judge partly enjoined sweeping revisions to the Davis-Bacon and Related Act regulations. Much of the 2023 rule changes remain in effect as litigation is stayed, but the DOL has signaled it may propose changes, and some provisions are not enforced.
• The DOL on July 2, 2025, proposed restoring the FLSA "companionship services" overtime and minimum wage exemption for third-party agencies employing home healthcare workers, reversing the Obama-era exclusion. Enforcement of the 2013 rule has been paused, and if the new rule is adopted, it will restore overtime and minimum wage exemption eligibility for employers in the home care industry.
• The DOL withdrew a late-2024 proposed rule to phase out subminimum wages for workers with disabilities. Although the federal subminimum wage program continues, its use is declining as a growing number of states have phased it out, and bipartisan legislation is pending in Congress to eliminate the program.

More to come? The DOL published a proposed rule on July 2, 2025, to remove FLSA subregulatory interpretive guidance or statements of policy from the Code of Federal Regulations and transfer them to the agency's Field Operations Handbook. The most significant provisions slated for removal are:

• Part 776, the WHD's statement of policy on general coverage under the FLSA and coverage of the construction industry in particular;
• Part 779, an interpretive bulletin addressing application of the FLSA to retail and service establishments (including the 7(i) exemption for certain commissioned employees);
• Part 782, which discusses the overtime exemption for employees covered by the Motor Carrier Act; and
• Part 789, addressing the "hot goods" provision for child labor enforcement and a consumer's ability to rely on written assurances of compliance from a producer of goods in defense of alleged violations.

This proposed action does not immediately result in substantive changes to the agency guidance. It does suggest, however, that the DOL soon may revise these long-standing provisions.

For a deeper dive:

• DOL Regulatory Roundup: What Employers Need to Know
• DOL Proposes to Decodify 450+ FLSA Interpretive Guidance: What Does It Mean for Employers?

As the federal government eases its regulatory grip, employers must continue to comply with more stringent or otherwise different standards that apply under state and local wage and hour laws.

Watch for:

• A proposed minimum salary rule, with a more modest increase to the salary floor for executive, administrative, and professional (EAP) exemptions.
• An independent contractor proposed rule that may resemble the 2021 rule published during the first Trump Administration.
• A proposed joint employer rule to narrow the scope of "joint employment," replacing a 2020 rule rescinded by the Biden DOL.
• A proposed rule rescinding or revising the remaining dual jobs regulation for tipped employees.

Tax Cuts on Tips, Overtime

The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, ushered in sweeping federal tax cuts. Included among these provisions were employee-friendly tax deductions on tips and overtime earnings for tax years 2025 through 2028.

Overtime. The OBBBA created a limited deduction for overtime pay premiums earned for hours worked beyond 40 hours in a workweek. Premium pay is the amount paid in excess of an employee's regular rate of pay. For example, if an employee's regular rate is $15 per hour, the employee's overtime rate (time and one-half) is $22.50 per hour. Only the $7.50 overtime premium for that hour may be deducted. The annual deduction is capped at $12,500 (or $25,000, in the case of a married employee filing a joint return).

Only overtime pay required by the FLSA is eligible for the deduction, however. "Daily overtime" premiums required by state law, or premium pay pursuant to a collective bargaining agreement, for example, are not deductible (except to the extent any such amounts would also have been payable under the FLSA).

Tips. The OBBBA also creates a separate deduction for tipped workers, allowing them to deduct up to $25,000 of qualified tips earned. To be a "qualified" tip, the tip must be paid voluntarily by the customer or client, not subject to negotiation. Therefore, earnings from mandatory service charges assessed automatically to customers are not deductible. Tips received under tip-sharing arrangements count as qualified tips.

The deduction is available only for qualified tips earned by workers in an occupation which "customarily and regularly received tips on or before December 31, 2024." Typically, this refers to occupations in the hospitality industry (such as restaurants and hotels), but there are other businesses where tips are common (such as barber shops and hair salons). The IRS issued a proposed regulation identifying covered occupations that may be relied upon until a final regulation has been issued.

Employer impact. Beginning with the 2026 tax year, the IRS will begin enforcing the requirement that employers report qualified tips and qualified overtime on Form W-2 (the IRS provided penalty relief for 2025). This means additional reporting obligations and adjustments to payroll systems. For example, employers will need to distinguish FLSA overtime premium from other overtime earnings, which are not eligible for the tax deduction. The legislation also presents opportunities to reclassify overtime-exempt employees so they can benefit from the temporary partial tax relief. But there are potential drawbacks to such changes that require careful consideration.

For the hospitality industry, in particular, the tax deduction on tips may deflate a recent trend at the state and local levels to eliminate use of the tip credit employers may take against minimum wage requirements. Also, the tax deduction may push these states and localities to reconsider recently enacted laws eliminating the tip credit. (Already, Washington, D.C. paused the next phase of the city's gradual rollback of the tip credit.)

Further, the tip deduction could slow a growing trend in restaurants to replace traditional tipping with a service charge model. Here, too, the deduction on qualified cash tips may present other challenges for employers, particularly with respect to tip pool compliance.

Will the states follow suit? Bills to exempt overtime earnings or tipped income from state income taxes were introduced in more than 20 state legislatures in 2025. Several states that conform automatically to federal tax law have embraced the OBBBA's temporary partial deductions on tips and overtime earnings, while other states have instead opted to decouple from the OBBBA's overtime or tip deductions, requiring taxpayers to add back any federal tip or overtime deductions to their state taxes.

For a deeper dive:

• OBBBA's Tips + Overtime Tax Break: Reclassification Considerations, Reporting Requirements, Industry Impact + More

Watch for:

• Increased employee interest in being classified as non-exempt to benefit from the tax relief.
• Continuing legislative activity at the state level adopting similar tax relief on overtime and tipped earnings.

Supreme Court Clarifies Employer's Burden

In its lone 2024-25 opinion interpreting the FLSA, the U.S. Supreme Court clarified the evidentiary burden on employers when asserting a statutory exemption as a defense to an overtime claim. EMD Sales, Inc. v. Carrera, 145 S. Ct. 34, 2025 U.S. LEXIS 364 (Jan. 15, 2025).

In a unanimous decision, the justices held that employers are not required to meet a heightened, "clear and convincing" standard of proof to establish that an FLSA exemption applies. Rather, the lesser "preponderance of the evidence" default burden applies. The decision reversed an outlier decision from the Fourth Circuit Court of Appeals, easing the burden of proof for employers in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.

Although this case involved application of the FLSA's outside sales exemption, the reasoning applies to all statutory exemptions. The bottom line: Employers do not face a greater burden when justifying the basis for identifying certain employees as FLSA-exempt, welcomed news for employers.

For a deeper dive: 

• U.S. Supreme Court Makes Clear There Is No Heightened Standard for Employers to Establish an FLSA Exemption Applies

Next up: The Supreme Court this term will consider whether the Federal Arbitration Act's (FAA) transportation worker exemption, which excludes from the FAA's coverage "transportation workers" who are "engaged in foreign or interstate commerce," applies to "last mile" drivers. These drivers deliver locally goods that have traveled in interstate commerce, but the drivers do not themselves transport the goods across borders or interact with vehicles that do cross state borders.

If the transportation worker exemption applies, then the drivers' arbitration agreements are not enforceable under the FAA. An employer seeking to enforce their agreements must rely on state law, which often is less favorable to arbitration. The underlying case is a collective action alleging the drivers were misclassified as independent contractors under the FLSA.

Arbitration agreements have been used by employers as a means of resolving employment disputes efficiently, controlling the costs and excess liability of wage and hour class and collective actions. Chipping away at the enforceability of arbitration agreements by expanding the FAA exemption threatens to undermine this critical line of defense.

The justices granted the petition for certiorari in the case, Flowers Foods v. Brock, No. 24-935, on Oct. 20, 2025. Oral argument has not been scheduled.

Trending: Portal-to-Portal Act

Disputes over the compensability of time spent in pre- and post-shift activities are a perennial source of wage and hour litigation. Federal claims brought under the FLSA are governed by the Portal-to-Portal Act (PPA), which amended the FLSA to make time spent traveling to and from principal work activities noncompensable. The PPA makes other preliminary or postliminary activities noncompensable unless those activities are "integral and indispensable" to the employee's primary duties. Determining whether preand post-work activities are "integral and indispensable," however, can sometimes be a challenge.

Two federal appeals courts issued precedential decisions addressing these issues in 2025.

• The Third Circuit Court of Appeals ruled that home health aides employed by a home healthcare agency must be paid for the time they spent traveling between clients' homes during their workday. The appeals court concluded that this time was integral and indispensable to the employees' principal activity of providing in-home healthcare services. The employer argued that the employees' duties did not require traveling between clients — the employees had simply chosen to take on more than one client in a given workday. The appeals court concluded, however, that the employer permitted employees to schedule more than one client in a day; therefore, their workday necessitated this travel time. Consequently, the travel time was compensable. The Supreme Court has denied the employer's petition seeking review of the decision. Sec'y United States DOL v. Nursing Home Care Mgmt., 2025 U.S. App. LEXIS 2219 (Jan. 31, 2025).
• In contrast, the Eleventh Circuit held that a temporary labor agency was not required to pay workers for the time they spent traveling to jobsites from the labor hall, where they were required to go to pick up work assignments, or the time spent at the hall waiting for that transit. The appeals court concluded that the time spent waiting for the optional employer-provided transit and traveling to the jobsite were not integral and indispensable to the workers' principal duties because the workers were free to go directly to the jobsite using their own transportation. The fact that the workers were required to report to the labor hall was not enough to make this time compensable under the PPA. The agency also did not have to compensate workers for the time they spent picking up and returning employer-provided tools to the labor hall. Here, too, collecting and returning tools were not an indispensable part of their duties, because some jobs did not require the use of tools, some jobsites supplied the needed tools, and the employees had the option to bring their own tools. Villarino v. Pacesetter Pers. Serv., Inc., 2025 U.S. App. LEXIS 31927 (Dec. 5, 2025).

In the states: Does the Portal-to-Portal Act apply?

Many states have expressly incorporated the PPA or have enacted similar provisions so the federal PPA would also apply under state law. But in several states, courts have held state wage and hour laws do not incorporate the federal PPA.

A Pennsylvania federal court held that warehouse workers at a retail distribution center were entitled to compensation for pre- and post-shift walking time between the facility entrance and their home department. The district court cited Pennsylvania Supreme Court precedent addressing the identical issue, which provides a broad interpretation of "hours worked" under the Pennsylvania Minimum Wage Act (PMWA), as well as long-standing PMWA regulations, and rejected the employer's contention that the regulatory definition was unconstitutionally vague. The court also concluded that Pennsylvania law does not follow the federal PPA and that the PMWA, passed 21 years after the PPA, contains no exclusion for "walking time." Davis v. Target Corp., 2025 U.S. Dist. LEXIS 28957 (E.D. Pa. Feb. 19, 2025).

More recently, the Nevada Supreme Court held that the Nevada Wage and Hour Statute (NRS) did not incorporate the federal PPA exclusions. Thus, numerous pre- and post-shift activities would be considered compensable under Nevada law, even if these activities would be noncompensable under federal law. 2025 Nev. LEXIS 56 (Oct. 30, 2025). However, new legislation then reversed the decision. S.B. 8 was passed during a special session of the state legislature. It amended the NRS to incorporate the federal PPA's limitations on compensable time and adopted additional limitations on compensable time that are in the FLSA.

Similar cases are pending in other states:

• The Second Circuit certified to the Connecticut Supreme Court the question whether under Connecticut law, employees must be compensated for the time spent going through mandatory post-shift security screenings. In the decision below, the federal district court concluded that Connecticut had implicitly adopted the federal PPA framework. The plaintiffs argued that Connecticut never adopted the PPA, however, and that the district court erred by effectively importing it. The Second Circuit observed that the definition of "hours worked" in the Connecticut statute does not clearly incorporate federal law, and that there is no authoritative Connecticut court decision adopting the PPA. The appeals court reasoned that Connecticut's wage statutes may define "hours worked" more broadly than the PPA, so state law may require compensation for screening time even if federal law does not. Although the plaintiffs asked the appeals court to certify the question whether Connecticut law incorporates the FLSA and its PPA amendment, the appeals court certified the more direct question of whether the security screening is compensable. 2025 U.S. App. LEXIS 6166 (Mar. 17, 2025).
• The Seventh Circuit asked the Illinois Supreme Court to resolve directly whether the Illinois Minimum Wage Law (IMWL) incorporates the PPA. The appeals court observed that the IMWL's overtime provisions parallels the FLSA, that the Illinois regulations instruct the state DOL to look to federal standards for guidance, and that several Illinois courts have applied federal standards to IMWL claims. On the other hand, the appeals court noted, the IMWL does not explicitly incorporate the PPA and its exclusion from compensable time, and the Illinois regulations defining "hours worked" align with the definition reflected in prePPA U.S. Supreme Court decisions. Concluding there were compelling arguments on each side, the appeals court asked the state's high court to resolve the unsettled question of state law. 2025 U.S. App. LEXIS 16689 (July 8, 2025).

What it means

In states that have not adopted the PPA, pre- or post-shift work long considered noncompensable under federal law may be deemed compensable under state law. In these jurisdictions, if the state high courts hold the federal PPA does not apply, there is a significant risk of litigation by employees claiming they are entitled to pay for pre- and post-shift activities such as walking to timeclocks or workstations, traveling to offsite jobs, waiting to clear a security screening and undergoing such screenings, and booting up work computers. 

Employers should regularly review the pre- and post-shift tasks that employees undertake each workday and how much time they must spend on the premises before they reach their worksite. What portions, if any, of this time must be paid? Employers should consider working with counsel who can conduct a detailed analysis in order to identify and mitigate potential risks. This could be especially helpful to employers with operations in non-PPA states or states where it is unclear whether the PPA is incorporated.

To view the full article, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.