Tax, compliance and workforce developments require changes to benefits and compensation strategies.
Key takeaways
Properly adjusting total rewards can strengthen employee retention and workforce wellbeing.
Support may be necessary to create a comprehensive total rewards and benefits package.
The total rewards landscape for middle market employers is rapidly evolving due to tax and policy shifts and rising workforce expectations, while leaders face challenges in managing compensation, benefits and compliance. Companies must consider inflation, cost containment and plan design shifts to develop enhanced, customized benefits programs that strengthen employee loyalty and create a competitive advantage.
For total rewards success, employers should focus on developing a collaborative approach that aligns human resources and payroll teams along with HR information systems (HRIS) to reshape total rewards strategies, ensuring smooth implementation and integration, and accurate reporting across the workforce.
To help companies transform total rewards planning, manage compliance with tax implications and update human capital management (HCM) systems to accommodate legislative and benefits changes, RSM US Partner Anne Bushman and Manager Amanda Roberts discussed practical guidelines and strategies to maximize employee benefits in RSM’s latest webinar, Total rewards in transition: Navigating compensation, benefits and open enrollment amidst tax and policy change.
Below, we take a look at key insights for firms and leaders to consider when developing a detailed, value-driven total rewards program—covering policies, strategic considerations and regulatory guidelines that help strengthen employee loyalty, trust and compliance.
Benefit trends
With ongoing economic uncertainty, political shifts and rapid technological change affecting middle market businesses worldwide, companies are reassessing and redefining their benefits programs. Some key trends include:
Customization, inclusivity and integration into total rewards frameworks
Employers are shifting from standardized benefits to more flexible, individualized offerings tailored to the diverse needs of employees based on age, income and family status. Financial wellness programs, retirement planning resources and educational tools are substantial benefits to enhance the wellbeing of employees. In addition, maintaining a balance is essential as too many supplemental benefits, such as critical illness, accident, legal services and identity protection can overwhelm employees and create unnecessary workload for administration.
To have a significant impact on how you administer your wellness plan, it’s important to bring the right people to the table and ensure that your system can accommodate these types of activities, especially if you’re managing everything internally.
Amanda Roberts, Manager, RSM US LLP
Artificial intelligence tools for support
According to the Society for Human Resource Management (SHRM), most employers now use AI tools to enhance their HCM systems. These tools play a critical role in automating benefits, such as by introducing chatbots for enrollment support, compliance and claims processes while providing predictive insights and personalized recommendations. These tools can streamline operations and empower employees to make informed decisions. However, the success of these AI-driven tools depends on proper setup, training and firm-wide communications. Employers must test new features internally before moving forward with overall adoption and remain mindful of data ethics and privacy.
Pay transparency
More states are mandating salary range disclosures, encouraging increased transparency and total rewards equity in compensation strategies. Employers should highlight total reward statements, such as health contributions and other benefits, even small ones, to help employees understand the full value of their compensation package.
Professional development
Investments in upskilling, leadership coaching and learning opportunities are increasingly becoming a core component of total rewards, creating new growth enablers for the workforce. In addition, integrating training platforms and learning systems into HCM systems enhances visibility and participation, enhancing employee satisfaction and connecting professional growth directly to overall organizational goals and strategic plans.
Whether employees are enrolling through your system or externally, it’s essential to ensure that eligibility is set up properly because the data is already there. When you have the hire date and termination date, you can determine how long they were employed and calculate their hours; everything you need is accessible. It’s just a matter of using that information correctly to determine eligibility.
Amanda Roberts, Manager, RSM US LLP
Employer considerations
Employers must evaluate trends to drive informed, strategic planning. Some of these key considerations include:
Inflation
According to Mercer’s 2025 National Survey of Employer-sponsored Health Plans, health care inflation remains a top concern, with projected increases of 7% to 9% for 2025, the third consecutive year of rises above 5%. This increase is primarily driven by higher pharmacy costs, chronic conditions, advanced but expensive treatments (such as cancer and weight-loss drugs), provider consolidation and increased utilization of health care services following the pandemic.
Cost containment
Employers should reevaluate their benefits strategies and seek ways to contain costs without reducing employee value. This review should include benchmarking rates and exploring new pricing models and population health programs to prevent claims, renegotiating carrier contracts, and combining coverage lines.
Plan design shifts
Companies must shift and strategize their plan design to avoid cutting benefits. This approach includes balancing cost sharing, wellness initiatives and employee education to help employees make informed choices. Flexible work arrangements, such as hybrid schedules and flexible time also remain key components of overall benefits and retention strategies. According to Paycor’s 2025 HR and Predictions Survey, flexibility is the top reason employees stay with a company.
In addition, cross-functional collaboration is critical. Therefore, HR and payroll teams should work collectively and utilize HRIS systems to ensure new programs are cost-effective and easy to implement.
Wellness plans
Many employers consider wellness plans to be an added advantage as they are voluntary and contribute to additional offerings on top of existing medical plans, such as Flexible Spending Account (FSA) or Health Savings Account (HSA) benefits.
These plans are typically beneficial for both employees and employers.
However, the IRS has repeatedly ruled that many wellness plan reimbursements do not qualify as tax-free.
Employers must fully understand these tax policies and guidelines, including administrative requirements, before opting for these wellness plans. In addition, companies should ensure accurate setup, proper data exchange with vendors and team collaboration to avoid compliance issues, unexpected costs and penalties.
Legal and regulatory changes
A significant federal tax reform package was passed in July 2025 and several provisions within this One Big Beautiful Bill Act (OBBBA) affect compensation and benefits. While the legislation includes a wide range of tax measures and guidelines, the most relevant topics for employers include the following:
Tip and overtime reporting
Effective date: Retroactively from the beginning of 2025 through the end of 2028.
Who this affects: Employers who pay overtime compensation or whose employees earn tips.
Why this matters: OBBBA tax reform allows employees who earn tips or overtime pay to claim a personal tax deduction for this income, potentially lowering their overall tax bill.
The IRS will require employers to clearly inform employees regarding the new provisions and whether they qualify for the deduction. Full reporting changes are expected in 2026, with transition relief for 2025.
For more information, read RSM’s recent articles on IRS relief for 2025 new tip and overtime tax rules and How the OBBBA addresses tips, overtime, employer meals, deductions, credits and more.
Employer student loan payment exclusion
Effective date: The Tax Cuts and Jobs Act (TCJA) temporary provision is now permanent.
Who this affects: Employers that pay employee educational expenses, including student loan debt, as well as employers looking for additional tax-efficient employee benefits.
Why this matters: Employers can continue to use section 127 education assistance plans to make tax-free student loan payments for employees. The annual tax-free limit of $5,250 will begin adjusting for inflation starting in 2027.
Employers must review their education assistance plans to ensure dollar limits and eligibility are seamlessly aligned with updated provisions. While this benefit is not typically part of open enrollment, HR leaders should ensure that HCM systems are configured correctly to accommodate the extended and inflation-adjusted limits.
In addition, employers should work toward employee retention by providing tax-efficient employee benefit offerings.
Whether the benefit is taxable or not shouldn’t necessarily drive your business decision to offer it. However, you should be aware of the proper tax treatment to avoid unintended consequences, surprises or additional costs from potential penalties and interest on employer taxes.
Anne Bushman, Partner, RSM US LLP
Paid family and medical leave credit
Effective date: Tax years beginning after Dec. 31, 2025.
Who this affects: Employers with a written policy for paid family and medical leave.
Why this matters: The paid family and medical leave credit, previously set to expire, has been made permanent under the OBBBA, subject to future legislative changes. Even the credit’s eligibility criteria have expanded, allowing more employers to qualify.
A key update now allows employers to include a portion of insurance premiums used to fund paid family and medical leave when calculating the credit, even if no leave was taken. With paid leave becoming more common, employers can now qualify for credits which they previously didn’t claim.
While this credit doesn’t affect open enrollment, employers should ensure that paid leave data and insurance premium information are properly tracked within their payroll systems to simplify credit claims. In addition, employers must also discuss reporting with labor attorneys and tax providers to avoid compliance risks.
The takeaway
With ongoing economic uncertainty and significant tax policy changes, middle market businesses must remain vigilant about emerging trends and regulatory updates in order to be compliance-ready and mitigate risks. In addition, employers are realizing the importance of collaborating across teams, such as payroll, benefits and HR, to ensure seamless implementation of these processes, plan designs and systems for the entire workforce.
With the recent tax and policy updates, you should reassess your current compensation and benefits strategy to strengthen retention and workforce wellbeing. While you may know how to navigate the tax policy updates and regulatory changes, including OBBBA and SECURE 2.0, additional support may be necessary to create a comprehensive and competitive total rewards and benefits package.
Ready to get started? RSM’s experienced payroll and benefits advisors understand the HCM domain and how to navigate regulatory, benefits and compensation processes to generate increased value and reduce risk. Contact our team to learn more about how RSM can transform your HR processes and operations.
RSM contributors
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Amanda RobertsManager
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