Perspectives

Looking Back-And Ahead

What 2025 Taught Employers About Compliance and What’s Coming in 2026

As 2025 comes to a close, employers across the country are catching their breath after one of the busiest years in recent memory for employment law changes. From federal court rulings that upended Department of Labor overtime thresholds to a surge of new state-level requirements around paid leave, AI use, and non-compete agreements, compliance has been a moving target.

At Wagner, Falconer & Judd, we’ve spent the year helping employers navigate these changes-and now it’s time to look ahead. As you prepare for 2026, here’s what stood out in 2025, what’s on the horizon, and what proactive steps HR leaders and business owners should be taking right now.

Federal Highlights: Tax Deductions, Overtime Thresholds & AI-Usage Oversight

“One Big Beautiful Bill” (OBBB)

Although still under regulatory development, the OBBB introduces important employer and payroll-related changes. For example:

• New deductions for “qualified tips” and “qualified overtime” are available for employees from 2025-2028.
• Reporting obligations: Employers must file information returns and furnish statements showing certain cash tips and total “qualified overtime” paid during the year.
• For piece-rated workers (a historically tricky classification area), if they are non-exempt under the Fair Labor Standards Act (FLSA) and work over 40 hours in a workweek, the employer must track all hours and overtime-as the tax deduction framework still applies.

Action items for employers: 

• In your payroll and HR systems, prepare to accommodate the new reporting lines (e.g, total qualified overtime, cash tips) and ensure your W-2s/1099s reflect required items.
• Educate your payroll, HR, and finance teams about the upcoming tax-form requirements and timeline.
• Audit your workforce in tipped and piece-rate classifications: Are you correctly tracking hours, tip income, overtime? Misclassification risk remains high.

Overtime Exemption Salary Thresholds

The DOL’s (and employer-compliance) focus continues to be on the salary thresholds for exempt (white-collar) employees. While earlier proposed increases were struck down, many employers are preparing as through increases are imminent. WFJ’s resources show that:

• A threshold of $844/week ($43,888 annually) for the white-collar exemptions was noted for July 1, 2025, with a further jump to $1,128/week ($58,656 annually) on January 1, 2026
• Even if federal increases are delayed or blocked, many states maintain higher salary thresholds or independent duties/threshold test.

Action items for employers:

• Conduct a full classification audit: for every exempt employee, confirm duties test + current salary meets (or would soon meet) the most employee-friendly standard (state/local vs federal).
• Develop budget scenarios: If the salary threshold rises, what’s the cost to raise salaries vs reclassify employees as non-exempt (and pay overtime)?
• Ensure payroll systems and timekeeping are configured to track hours of any re-classified employees (non-exempt) to avoid overtime mispayment.

Artificial Intelligence (AI) in HR/Recruiting

As employers increasingly deploy automated systems in recruiting, screening, evaluations and HR decision-making, regulatory scrutiny is increasing. Some states have passed laws limiting discriminatory or opaque use of AI in hiring and personnel decisions.

Action items for employers:

• Inventory your use of automated tools (screening, voice/face-analysis, algorithmic decision-making).
• Review vendor contracts and documentation for bias safeguards, auditability, and candidate-opt-out/notice rights.
• Train HR/recruiting staff on the risk of discriminatory impact via automated tools-even if the employer did not build the tool.

State-Law Explosion: 38+ States with New Requirements

More than 38 states enacted or amended employment laws in 2025, covering topics such as sick/leave laws, non-compete bans, minimum wage increases, earned wage access, background check reforms, remote worker coverage and more.

Key areas to watch:

• Paid leave/sick & safe time: States like Minnesota, Colorado, Delaware have significant new programs or expansions. (Example: Minnesota’s Paid Family & Medical Leave program starts January 1, 2026).
• Non-compete agreement restrictions: More states are narrowing enforceability of non-competes, especially for healthcare practitioners. One noted example: Colorado’s 2025 amendment eliminating damages for violation of non-competes for certain health providers.
• Remote work/ multi-state compliance: Employers with remote workers must ensure compliance with the laws of the state where the employee physically works-not just where the employer is located.
• Wage transparency and minimum wage/ thresholds: Many jurisdictions now require posting salary ranges, or higher minimum wages.
• Rest & meal break laws / ESST (Earned Sick & Safe Time): Some states such as Minnesota have updated rules for rest/meal breaks, accrual/advance of sick time, etc.

Action items for employers with multi-state operations or remote workforce:

• Map your workforce by work-location (physical state) and ensure you track which state laws apply to each remote employee (or hybrid worker).
• For each jurisdiction: update your employee handbook/ to reflect 2025 law changes (paid-leave, rest breaks, wage transparency, non-compete enforceability, background checks).
• Update workflows: onboarding, notice delivery, wage-range postings, leave-request handling, break/meal tracking
• Evaluate whether your payroll/benefits teams are prepared for states with unique employer reporting, premium contributions, or private-plan alternatives (e.g., Minnesota’s Paid Leave).

Zeroing in on 2026: What HR Leaders Should Be Doing Now

To get ahead of the curve, here’s a checklist of priority items for employers to tackle now so you’re ready for 2026 and beyond:

Classification & salary-threshold audit

• Identify all exempt employees: job descriptions, salary levels, duties.
• Model cost scenarios: raise salary vs convert to non-exempt and pay overtime.
• Plan for system changes (timekeeping, payroll) for any re-classified employees.

Payroll/Benefits systems readiness

• Ensure your payroll system can capture/report: qualified tips, qualified overtime, new required fields on W-2s/1099s (if applicable under the OBBB).
• Prepare for leave-premium contributions or private-plan alternatives in states such as Minnesota.
• Check state-by-state premium caps and employer contribution limits.

Policy & handbook updates

• Update handbooks to reflect: new paid leave eligibility/rights, rest/meal break changes, wage-range postings, AI usage disclosures, non-compete/internship or child labor changes.
• Run internal communication campaigns to ensure employees and managers understand updated leave rights, classification status, meal/rest break rights, etc.

Remote workforce compliance mapping

• For each remote/hybrid worker, document the state of work and apply that state’s laws (not just employer’s home state).
• Revise onboarding policies to include state-specific disclosures, wage posting notices, leave program notifications, background check and “ban the box” rules, if applicable.

Automated systems & vendor review

• Review all HR/recruiting tech (AI, algorithmic decision-making, screening tools) for bias and regulatory risk.
• Ensure vendor contracts include audit rights, bias-mitigation documentation, candidate opt-out/notification procedures.

Training & Communication

• Provides supervisor/manager training on the new laws (meal/rest breaks, remote worker classification, leave rights, wage transparency).
• Communicate changes to employees (e.g., salary threshold changes, classification changes, new leave eligibility) to reduce confusion and potential litigation risk.
• Launch a “compliance awareness” campaign in your organization so HR/legal is seen as proactive instead of reactive.

Risk Assessment & Litigation Exposure Check-Up

• Ask: What are your biggest exposure areas? (Misclassification, remote-worker state law misapplication, non-compete enforcement risk, pay transparency violations, meal/rest break compliance, background-check issues.)
• Engage your employment counsel to perform a “compliance health check” now (rather than reacting after a claim.)

Insight from the Labor & Employment Environment

Beyond the laws themselves, it’s helpful to consider the broader context in which these changes are happening:

• Tight labor market & talent competition: With low unemployment and increasing demand for remote/hybrid flexibility, employers must balance compliance burdens with the need to attract and retain talent. Providing robust benefits (paid leave, flexibility) may help.
• Remote/work from anywhere workforce expansion: Many employers now have employees physically located in multiple states, each with their own employment-law landscape. This makes centralized “one-size-fits-all” policies difficult-customization is increasingly the norm.
• Greater scrutiny of classification and pay practices: Wage-hour claims, misclassification and meal/rest break litigation remain high-risk. Employers that proactively audit and adjust classifications are in a better position.
• Focus on workplace fairness, equity and technology: With expanded protections (pregnancy, caregiver status, AI bias) and increased litigation activity around discriminatory use of technology, employer practices around data, monitoring, screening and decision-making tools are under more scrutiny.
• Cost pressures and inflation: As wage demands rise (minimum-wage increases, living wage efforts) and benefits costs escalate, employers are under pressure to manage budgets-without compromising compliance. Proper modeling and budgeting for 2026 is critical.

Final Takeaways for 2025/2026

• Don’t wait for a claim to drive change. Proactive review and adjustment of classification, remote-worker state law mapping, leave/benefits program readiness, and payroll system configuration are essential.
• Focus on where your employees are physically working (not just where your HQ is) when determining applicable state laws.
• Update your HR policies, handbooks, training and communication now to reflect 2025 changes and calendar into 2026 the next wave of law changes (especially salary-threshold and leave premium updates.)
• Partner with employment law counsel-especially if you operate in multiple states, have remote employees, utilize AI/automated tools in HR, or rely on non-compete agreements.
• Recognize that the compliance burden is rising-but so is the opportunity: Employers who master compliance and craft fair, flexible, transparent workplace practices will be better positioned for talent retention and reduced litigation risk.

Need help? Our employment and labor team at WFJ is here to help take proactive steps to manage your company’s compliance strategy. Reaching out before you need help can lower litigation risk and save you money in the long run.