Moving From 2025 to 2026: What to Know

January 06, 2026
By: Paige McAllister

I think everyone can agree that 2025 was a tumultuous year. While there was not the expected legislative activity from Congress, President Trump and his administration enacted a lot of major changes that impacted employers and employees. Meanwhile, several states took advantage of their unified legislatures and/or the trends from the Trump administration to pass legislation of their own. Here are some trends we are noticing and thoughts to help you prepare for what is ahead in 2026.

Federal

President Trump, through his executive actions and the initiatives of his administration, made several major impacts on the ways companies do business, several of which created turmoil and uncertainty during the year. The effects of the much-publicized tariffs are starting to be felt, with more impacts expected in 2026 as companies and economic markets continue to adjust. Some of the areas of interest we are watching are:

Labor Force

Experts agree that the stagnant labor market (characterized by slow or no job growth, few new openings, slow wage increases and high competition for limited roles) we saw in 2025 will continue through 2026. While some larger companies announced layoffs, most employers are not firing employees, but they are not hiring new employees, either. Factors such as the low availability of open jobs and the increasing cost-of-living are causing more employees to stay with their current company.

While resignation levels are decreasing, employee dissatisfaction is increasing due to their disconnection from, dissatisfaction with or being discounted by management; a lack of transparency in how their company is or plans to adjust to ongoing challenges; a decrease in their work-life balance with the rescinding of remote work arrangements or flexible scheduling; the reality of working with underperforming coworkers being retained due to poor management or operational need; and/or the lack of career progression due to stagnation within the company’s workforce.

For 2026, we recommend that employers:

• Train their managers to better engage with and value their good employees.
• Effectively manage the performance of employees not meeting expectations.
• Review the compensation and benefits of their workforce to be competitive enough to attract and retain high performers.
• Strengthen their recruiting and hiring process to find and place better-qualified candidates more quickly.

Immigration

Some of the biggest headlines from 2025 involved the Trump administration’s crackdown on immigration (illegal and legal) by increasing the number of banned countries, expanding permissible actions law enforcement can take to detain suspected illegal immigrants (with or without a criminal charge or history), escalating forced and incentivizing voluntary deportations, and changing the visa and asylum process.

The administration also created uncertainty in the workplace by changing Temporary Protected Status (TPS), Deferred Action for Childhood Arrivals (DACA) protections and Employment Authorization Document (EAD) extensions, as well as increasing enforcement and penalties of Form I-9 audits, workplace investigations and immigration raids. Expectations are that these actions will continue in 2026, as evidenced by the recently announced end to automatic EAD extensions and the continued growth of ICE enforcement personnel.

For 2026, we recommend that employers:

• Complete a self-audit of their Form I-9s for current and recently terminated employees with guidance from a subject matter expert.
• Update their processes for completing, updating and retaining Form I-9s.
• Train any person who could serve as a company representative when completing the Form I-9 during onboarding.
• Develop a plan to respond to ICE inquiries, audits and raids.

Engage an immigration attorney now so they can immediately assist if ICE visits.

No Tax on Overtime or Tips

As part of the One Big Beautiful Bill Act (OBBBA), eligible employees who earn overtime and/or tips will be able to deduct part of that qualified income on their personal income taxes starting in 2026. There will not be any differences to paycheck deductions and certain taxes such as Social Security, Medicare (FICA), and state and/or local taxes. Since the IRS has yet to release new forms reflecting this deduction, employers will not be required to provide a breakdown of overtime and/or tip compensation on the 2025 W-2 but are encouraged to if possible. However, they will be required to provide a detailed breakdown of overtime and/or tips beginning in 2026.

For 2026, we recommend that employers:

• Review the criteria for employees and industries qualified for these exemptions to determine if action needs to be taken.
• Update their payroll systems to accurately track overtime and tips as separate categories of income.
• Work with their payroll processor to ensure all information is captured accurately and audited frequently throughout the year.
• Develop an FAQ to explain to employees the company’s role in this new deduction.
• Prohibit any employee or manager from offering tax advice to employees asking about how they file for this deduction.

States

As in recent years, states took the lead on key policy initiatives in 2025 due to prolonged federal inaction. This is expected to continue in 2026. While there were no employment-related laws passed through ballot propositions in 2025, we expect some important initiatives to make it to the ballots in November 2026. In the meantime, some areas we are keeping an eye on are:

Artificial Intelligence (AI)

AI is everywhere these days, whether we want it to be or not. In the workplace, AI is used for content creation, marketing, recruiting, training, productivity, data management and more. While AI can be beneficial, it can also create exposure for confidentiality, trademark violations and discrimination. Several Trump-supported bills have been introduced as amendments to other laws in Congress, trying to restrict states’ rights in passing laws to govern AI, but have so far been unsuccessful. Instead, state legislatures continue to pass laws which restrict or protect people (employees, applicants, customers, etc.) from certain usage of AI. Currently California, Colorado, Illinois, Maryland, New York, Texas and Virginia all have laws governing the use of AI. Along with some of these laws being expanded in 2026, several other states are expected to continue exploring laws to protect their residents from the impacts of AI.

For 2026, we recommend that employers:

• Develop and issue a policy outlining expectations and restrictions for the use of AI in the workplace.
• Engage experts to work with management to decide how AI will be used and the best tools to accomplish those goals.
• Prioritize compliance and confidentiality when implementing any AI.

Minimum Wage Increases

As determined through past legislation, the minimum wage will increase in 19 states and 49 cities and counties as of Jan. 1, 2026. Additionally, five states will increase the minimum salary threshold for exempt employees. Later in 2026, four other states and 22 other cities will increase their minimum wage.

For 2026, we recommend that employers:

• Review their payroll rosters to ensure all employees are making at least minimum wage, increasing where needed.
• Consider impacts of resulting wage compression and adjust others’ wages if needed.
• Review the exempt and nonexempt classification for all employees, ensuring that exempt employees meet the applicable salary test, minimum salary threshold (federal or state) and job duties test.

Paid and Unpaid Leave and Time Off

While no new time off or leave laws were passed in 2025, several new laws or amendments of current laws will be implemented in 2026, including:

California: Paid sick leave can be used if the employee or a family member needs to attend judicial proceedings as the victim of a crime.

Colorado: Neonatal leave provides eligible employees up to 12 weeks of additional leave for an employee whose newborn child is in the neonatal intensive care unit (NICU).

Connecticut: Paid sick leave expanded to employers with 11 or more employees.

Delaware: Paid Family and Medical Leave provides eligible employees with up to 12 weeks of paid prenatal leave, six weeks of paid family caregiver leave or six weeks of paid medical leave.

Illinois: Blood and Organ Donation Leave expanded to part-time employees; Lactation breaks must now be paid.

Minnesota: Paid Family and Medical Leave provides eligible employees with up to 12 weeks for their own serious health care condition and/or up to 12 weeks for bonding time, to care for a family member, safety needs or another qualifying reason up to a total of 20 weeks total in a year; rest breaks (paid) of 15 minutes for every four hours worked; meal breaks (paid) of 30 minutes for every shift of six hours or more for all employees.

New Hampshire: Unpaid Family and Medical Leave provides eligible employees who work with employers of 25 or more employees with up to 25 hours of unpaid time off per year for appointments for childbirth, postpartum and infant care.

Oregon: Paid sick time usage expanded to donate blood.

Rhode Island: Paid Family and Medical Leave expanded to cover bone marrow or organ donation (and applies retroactively to Jan. 1, 2025).

Washington: Paid Family and Medical Leave was expanded to include job- and benefit-protections for employees in companies with 25 or more employees (will expand to smaller companies on a staggered schedule through 2028); paid sick leave expanded to offer time off to victims of domestic and sexual violence to seek care and safety measures.

For 2026, we recommend that employers:

• Update their policies and handbooks to include updated protections and distribute them to all employees.
• Revise their procedures to include new reasons and protections and train HR and managers to know when these need to be offered to employees.
• Remind all management and employees that adverse employment action or retaliation for taking this protected time off is prohibited.

Through the HR Support Plan, The Workplace Advisors can help you stay up to date on the regulations, strategize how to manage the changes and keep your handbook current. HR Support Plan members receive policy assistance on all matters mentioned above, and we’d love the opportunity to support your team.