HR leaders face a potential tectonic shift in AI regulations. A provision in the federal budget bill could freeze all state AI regulations for ten years. What does that mean for HR professionals? For the C-suite?
Ultimately, whether the bill passes in its current form, without the AI provision, or never advances past the Senate, one thing is clear: AI will present significant regulatory hurdles to HR at some point in the not-so-distant future, and the time to prepare is now.
Overview of the AI Provision
What the Bill Proposes
The “One Big Beautiful Bill Act” contains a surprise AI provision that would fundamentally change the compliance landscape. If passed, this provision would create a 10-year moratorium on state and local AI regulations.
This freeze would apply to all artificial intelligence models, systems, and automated decision-making processes. The bill’s language is so broad, its definition of “automated decision systems” could easily include many HR technologies you might not consider “AI”—such as rule-based applicant tracking systems, automated scheduling software, or even basic screening tools that filter resumes by keywords.
The bill would block both existing laws and future regulations, the only exception being state laws that “facilitate the development or adoption” of AI. But there’s a catch, of course: this exception is vaguely defined.
As a result, states may try to pass “pro-innovation” laws that still impact your compliance obligations. If this occurs, HR teams should watch for creative state attempts to regulate AI under the guise of promoting innovation.
Current State of AI Regulation for HR
A Patchwork of State Laws (Pre-Bill)
Today’s AI compliance landscape is a complex puzzle of rules and regulations, both enacted and proposed. States like California and Illinois have already passed laws targeting AI in hiring and workforce management. Elsewhere, several other states are creating different requirements, giving migraines to multistate employers.
Current state laws often require:
- Notifying candidates when AI screens their applications
- Providing opt-out options for automated decisions
- Offering appeals processes for AI-driven outcomes
- Conducting regular audits for bias
- Maintaining detailed records
- Facing penalties for non-compliance
For HR teams operating across state lines, tracking these varying requirements has become a full-time job. For that reason, we strongly recommend downloading our free AI Compliance Guide—a centralized resource for HR to identify existing AI compliance regulations in the states where they operate, as well as those on the regulatory horizon.
Download our free AI compliance guide for HR
New AI regulations are impacting HR, especially in recruiting practices. Get the cheatsheet for which AI laws apply in each state.
Federal vs. State Oversight
The critical point in all of this: no comprehensive federal AI regulation exists today. And crucially, this bill doesn’t create new federal standards, either. It simply blocks state action without replacing it with federal oversight.
This creates a true regulatory vacuum. No state rules. No federal framework. No safety net.
Without state laws or federal guidelines, HR departments would operate in uncharted territory. You’d have freedom to innovate, but also full responsibility for the consequences.
Roadblocks for the AI Provision
Granted, this entire discussion could be moot given the bill’s uncertain future. After passing the House, it now confronts significant procedural hurdles in the Senate. The provision could be stripped out under the Byrd Rule, which limits what Congress can include in budget bills. At this point, strong opposition comes from several stakeholders across the political spectrum.
Even if this specific provision fails, however, the push for AI regulation isn’t going away. Whether through federal action, state laws, or industry pressure, AI governance will shape HR’s future in some way. Smart HR leaders are already preparing for this inevitability, regardless of the bill’s fate.
Potential Implications for HR Professionals
Compliance Simplification and New Uncertainties
At first glance, the moratorium might seem like a gift to HR teams. No more tracking dozens of different state laws. No more updating policies every time a new state passes AI legislation.
But this simplification comes with a cost. Existing protections against AI discrimination would disappear. Transparency requirements would vanish. Without clear guidelines or enforcement mechanisms, HR teams would need to navigate ethical and legal gray areas entirely on their own.
Remember, the absence of regulation doesn’t mean the absence of risk. It simply means HR bears more responsibility for getting AI right. In other words, your decisions today could face scrutiny under future regulations that don’t yet exist.
Areas of HR Most Impacted
Hiring and Recruitment would see immediate changes. State laws requiring bias audits and candidate notifications would no longer apply. AI-powered resume screening, chatbot interviews, and predictive hiring tools could operate without oversight.
Workforce Management faces similar shifts. Rules about using AI for scheduling, performance reviews, or termination decisions would pause. Even simple automated systems—like software that flags attendance issues—would lose their regulatory framework.
Handbooks and Policies would need updates. HR teams must revise compliance materials to reflect the new reality while maintaining ethical standards. Thankfully, this is an area where Mosey is an especially useful partner, automating the handbook update process to take a massive weight off of HR’s shoulders.
Internal Policy and Ethical Considerations
Without external mandates, HR’s role in maintaining fairness, transparency, and employee trust becomes absolutely critical. You become the primary—perhaps only—guardian of ethical AI use in your organization.
This shift demands stronger internal review processes and voluntary transparency measures. Consider adopting industry best practices from organizations like SHRM or following guidelines from major HR tech vendors who continue operating globally.
Building trust with employees becomes even more critical. Without legal requirements backing your policies, companies must prove their AI systems are fair through consistent actions and clear communication.
Likewise, data privacy concerns wouldn’t disappear along with the frozen state mandates. Employees still expect—and deserve—protection of their personal information. Like it or not, public opinion and employee expectations often move faster than regulation.
Download the state-by-state HR guide
Streamline your hiring process with a list of employment requirements in every state and eliminate the guesswork.
Risks and Challenges for HR
Legal and Reputational Risks
Operating without clear standards increases several risks. Companies using AI poorly could still face discrimination lawsuits under existing federal employment laws, even without specific AI regulations.
Future liability is another massive consideration as well. If federal standards eventually emerge—and odds are they will at some point—companies with poor AI practices could face retroactive consequences. As a result, today’s shortcuts might become tomorrow’s class-action lawsuits.
To reiterate: the absence of AI-specific laws doesn’t mean immunity from consequences. Traditional employment laws still apply, and creative attorneys will find ways to challenge unfair AI practices.
Preparing for Future Regulatory Shifts
This moratorium is explicitly temporary. After ten years, states could introduce even stronger AI regulations. Companies that abandon good practices during the freeze might struggle to adapt when oversight returns with a vengeance.
Consider the international context, too. While the U.S. pauses state regulation, the EU and other regions continue advancing AI governance. Global companies can’t ignore international standards, and these don’t just influence eventual U.S. regulations but also immediately impact U.S. companies operating overseas.
Therefore, HR teams must remain agile. That begins with meticulously documenting current practices and building flexible systems that can adapt to future requirements. Think of this period as borrowed time to get your house in order, not a permanent vacation from compliance.
Action Steps for HR Leaders
Audit and Document Current AI Use
But documentation isn’t where HR’s preparation begins and ends, obviously. In terms of ongoing best practices, create and maintain a comprehensive inventory, listing every AI and automated tool in your HR tech stack—including those borderline systems you might not consider “true AI.” Also, document how each system makes decisions. Note which processes affect hiring, performance, scheduling, and payroll.
Map out the decision trees for automated systems. Which rules do they follow? What data do they use? Who can override their decisions? Even without legal requirements, it’s always wise to maintain documentation as if auditors might review it tomorrow.
Update Policies and Employee Communications
As we said before, you’ll want to revise your employee handbook to reflect the regulatory shift. This doesn’t mean abandoning all AI guidelines, though. Instead, frame them as company values and competitive advantages rather than mere legal requirements.
As you go, be sure to communicate changes transparently. Explain how your organization will maintain fair AI practices even without state oversight. Address the elephant in the room: “Yes, the law might not require this anymore, but here’s why we’re doing it anyway.”
This transparency builds trust and reduces anxiety about AI decisions. Employees talk—make sure they’re saying good things about your AI practices.
Maintain Voluntary Ethical Standards
Regarding ethical standards, be sure you continue conducting bias audits regularly. Keep transparency high and protect employee data zealously. These practices go far beyond mere ethics—they’re smart business that protects against future risks.
As is always the case, additional industry best practices will eventually emerge, even without regulation. In this scenario, major HR technology vendors and professional organizations will likely be developing standards. Thus, you’ll need to stay connected to these networks and adopt emerging guidelines.
Even if the AI provision dies on the vine, you should consider getting ahead of the regulatory curve by obtaining AI ethics certifications or following international standards like ISO guidelines. This way, whether you’re still facing state compliance laws or a regulatory vacuum, you’ll be prepared.
Stay Compliant with Mosey
This bill represents two sides of the same stressful coin for HR. If it passes in its current form, the result is a Wild West environment for AI regulations, leaving HR on their own to navigate the compliance badlands. Alternatively, if it fails, a litany of state regulations awaits organizations, significantly impacting operations from HR to Finance and everywhere in between.
Our advice is to download our AI Compliance Guide and start preparing now, shoring up your AI-related processes, tools, and governance to ensure your ship is in tip-top shape. This way, no matter which path things take, you’re prepared. And this, of course, is where Mosey shines so bright for HR professionals. By automating essential but time-consuming areas like payroll compliance, secretary of state requirements, handbook updates and more, we give HR what they need most—time to think, prepare, and take action.
Sound like something you’re interested in? Then request a free Mosey demo today and start preparing for the great regulatory unknown heading your way. You’ll be glad you did.
