I spent the better part of December reviewing my clients' payroll systems, and one pattern kept emerging: employers who didn't adjust for 2026 compliance changes were staring down significant liability exposure. The patchwork of state-level compensation laws has never been more complex—or more consequential.
If you're an HR director, CFO, or business owner trying to navigate this year's changes, you're not alone. More than 50 new workplace laws kicked in on January 1, 2026, and several more are phased throughout the year. This guide breaks down everything you need to know—without the legal jargon that makes most compliance documents unreadable.
The Minimum Wage Landscape Has Shifted Dramatically
Twenty states sat at the federal floor of $7.25 per hour for years. That number hasn't moved since 2009. But in 2026, we crossed a significant threshold: more American workers now live in states guaranteeing $15 or higher than in states using the federal minimum.
Nineteen states raised their minimum wage on January 1, 2026. Six of them—Arizona, Colorado, Hawaii, Maine, Missouri, and Nebraska—hit or exceeded $15 per hour for the first time. Hawaii workers saw the largest single jump: a $2 increase from $14 to $16 per hour.
State-by-State Minimum Wage Reference
Here's what you're working with in 2026 (rates effective January 1 unless noted):
$17+ tier: Washington leads at $17.13. New York City, Long Island, and Westchester County hit $17.00. New Jersey's long-term care workers see $18.92.
$16-16.99 tier: California at $16.90, Connecticut at $16.94, Hawaii at $16.00.
$15-15.99 tier: Arizona ($15.15), Colorado ($15.16), Maine ($15.10), Missouri ($15.00), Nebraska ($15.00), New Jersey ($15.92 general, $15.23 for small employers).
Mid-year changes to track: Alaska moves from $13 to $14 on July 1. Florida reaches $15 on September 30. Oregon adjusts based on CPI data on July 1.
What This Means for Your Payroll
The ripple effects extend beyond your lowest-paid workers. Higher minimum wages trigger salary compression—when the gap between entry-level and experienced workers shrinks uncomfortably. You may need to adjust pay bands across multiple levels to maintain internal equity.
In states like California, Colorado, Maine, New York, and Washington, the minimum wage directly affects exempt salary thresholds. When the wage floor rises, so does the minimum you must pay to classify someone as exempt from overtime.
Overtime Exemption Thresholds: The Federal-State Divide
Federal law sets the exempt salary threshold at $684 per week ($35,568 annually). That number hasn't changed since the Biden administration's proposed increase was blocked by a federal judge in November 2024. The Department of Labor has signaled it may revisit the rule through regulatory processes, but for now, the 2019 threshold stands.
However, six states now exceed the federal threshold—and that's where multistate employers face real complexity.
2026 State Exemption Thresholds
Washington: $1,541.70 per week ($80,168 annually). This is the highest in the nation, calculated at 2.25 times the state minimum wage.
California: $1,352 per week ($70,304 annually). The threshold is pegged at twice the state minimum hourly wage for a 40-hour week. Computer software employees face a separate hourly minimum of $58.85.
New York: $1,275 per week in NYC, Long Island, Nassau, Suffolk, and Westchester counties. The remainder of the state follows federal thresholds for now, but watch for changes.
Colorado: $1,111.23 per week. The state's computer exemption requires additional duties beyond federal standards.
Maine: Ties to 3,000 times the state minimum wage, which creates an automatic escalator as the minimum rises.
Alaska: The threshold increases on July 1, 2026, when the new minimum wage takes effect. Exempt employees must earn at least twice the minimum wage for a 40-hour week under state law.
The Practical Compliance Question
If you have employees in multiple states, the safest approach is often paying to the highest applicable threshold. A marketing manager working remotely from Washington needs to meet Washington's $80,168 annual threshold to be classified as exempt—regardless of where your company is headquartered.
Misclassification remains one of the most common (and expensive) payroll errors. An employee who should be non-exempt but isn't properly tracked and compensated for overtime can file a wage claim covering years of unpaid time-and-a-half.
Paid Family and Medical Leave Expands Significantly
Three states launched new PFML programs in 2026, bringing the total to 13 states plus D.C. with active or soon-active programs. This is no longer a coastal phenomenon—it's becoming a national standard.
Minnesota Paid Leave (Active January 1, 2026)
The program covers virtually all Minnesota employers with at least one employee. Eligible workers receive up to 12 weeks of medical leave for their own serious health condition, plus up to 12 weeks of family leave—with a combined cap of 20 weeks per benefit year.
Funding: 1.13% of wages up to the Social Security cap ($184,500 in 2026). Employers with 50+ employees pay 28.57% of the premium; employees cover the remaining 71.43%.
New meal and rest break rules: Separately, Minnesota now requires a 30-minute unpaid meal break and a 15-minute paid rest break for employees working six or more consecutive hours. Failure to provide these breaks triggers penalty pay at the regular rate plus liquidated damages.
Delaware Paid Leave (Benefits Begin January 1, 2026)
Employers with 10-24 employees must provide parental leave only. Those with 25+ employees must offer the full program: up to 12 weeks for parental leave or 6 weeks for medical/caregiving leave per year.
Key restriction: Employers cannot require workers to exhaust their accrued PTO before accessing state benefits. However, employees can voluntarily use PTO to "top off" their wage replacement.
Funding: 0.8% combined payroll contribution, which started collecting in January 2025.
Maine PFML (Benefits Begin May 1, 2026)
The program applies to all private employers regardless of size, though employers with fewer than 15 employees are exempt from the employer contribution portion.
Eligibility threshold: Employees must have earned at least six times the state average weekly wage in the base period. Job protection requires 120 consecutive days of employment prior to leave.
Funding: 1% of wages, split between employer and employee.
Washington PFML Amendments
Washington's existing program received significant amendments effective January 1, 2026. Employers with 25+ employees must now provide job restoration for workers returning from PFML or unpaid FMLA leave—regardless of whether the employee applied for state benefits. This threshold drops to 15 employees in 2027 and 8 employees in 2028.
AI in Employment Decisions: New Compliance Territory
If your company uses automated tools for hiring, promotion decisions, or performance evaluation, 2026 marks a turning point. Several states have enacted laws specifically targeting AI discrimination—and the requirements go beyond simply avoiding intentional bias.
Illinois Human Rights Act Amendments (Effective January 1, 2026)
The law makes it unlawful to use AI in ways that result in discrimination—even if the discrimination is unintentional. This applies to recruitment, hiring, promotion, training selection, discipline, discharge, and setting terms of employment.
Specific prohibitions: Using ZIP codes as a proxy for protected classes (a practice that can correlate with race or national origin). Using AI systems that produce discriminatory outcomes, regardless of intent.
Notice requirements: Employers must notify employees and applicants when AI is used for covered employment decisions. The Illinois Department of Human Rights has drafted rules requiring annual notices to current employees and notices in job postings for applicants.
What qualifies as "AI" under the law: Any machine-based system that generates outputs like predictions, recommendations, or decisions based on input data. This includes generative AI tools, resume screening software, video interview analysis platforms, and skills assessment algorithms.
Colorado Artificial Intelligence Act (Effective February 1, 2026)
Colorado's law is more comprehensive, covering "high-risk" AI systems that make or substantially factor into consequential decisions—including employment decisions.
Requirements include: Annual impact assessments, documentation of foreseeable uses and risks, transparency when individuals interact with AI systems, and a documented appeal process when AI contributes to adverse decisions.
Violations constitute unfair trade practices under Colorado's Consumer Protection Act, which means enforcement teeth.
Texas Responsible AI Governance Act (Effective January 1, 2026)
Texas takes a broader approach, mandating oversight on AI use for behavioral manipulation, discrimination, and infringement of constitutional rights. While not exclusively focused on employment, the law applies to AI-driven hiring and workforce decisions.
Practical Steps for AI Compliance
Audit your tools: Identify every AI system touching employment decisions. This includes third-party vendor platforms—you're responsible for their outputs.
Document everything: Maintain records of how AI systems work, what data they use, and what decisions they influence.
Prepare notices: Draft compliant disclosure language for job postings and employee communications before you need them.
Test for bias: Even though Illinois doesn't require formal bias audits (unlike New York City's law), proactive testing can reveal discriminatory patterns before they become complaints.
Pay Transparency Requirements Continue Expanding
The movement toward salary disclosure has accelerated. Several states now require employers to include compensation information in job postings—and California tightened its requirements effective January 1, 2026.
California's Updated Requirements
Job listings must now include a "good faith estimate" of total compensation, encompassing bonuses, stock options, and benefits. Employers must also retain job titles and wage histories for three years.
States Requiring Salary Ranges in Job Postings
California, Colorado, Connecticut (25+ employees), Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, Vermont, and Washington (15+ employees) all have some form of pay transparency requirement. The specifics vary—some require disclosure upon request, others in all job advertisements.
Oregon's New Pay Stub Requirements (Effective January 1, 2026)
Employers must provide detailed written explanations of all potential earnings and deductions at hire. This information must remain accessible and updated throughout employment.
Additional 2026 Changes Worth Tracking
California Mini-WARN Act
New layoff notice requirements expand protections beyond the federal WARN Act threshold. Employers must disclose coordination plans with local workforce development boards and provide specific contact information for available services.
California Workplace Know Your Rights Act (Effective February 1, 2026)
Employers must provide annual written notices to employees covering workers' compensation rights, immigration status protections, and organizing rights. New hires receive the notice upon hire.
Training Repayment Agreement Bans
California banned contract clauses requiring workers to repay training costs after employment ends. If you've used Training Repayment Agreement Provisions (TRAPs) in employment contracts, those clauses are now void in California.
Illinois Lactation Breaks
Effective January 1, 2026, lactation breaks must be paid at the employee's regular rate. Employers cannot require use of paid leave for this time.
Washington Unemployment for Striking Workers
Workers affected by labor disputes can now qualify for unemployment compensation benefits—a significant shift that may affect how you approach labor negotiations.
Building Your 2026 Compliance Framework
The sheer volume of changes can feel overwhelming, but the approach is methodical. Start with where your employees actually work—not just where your headquarters sits. Remote work has made this calculation more complex, but it's non-negotiable.
Map your exposure: List every state where you have employees, including remote workers. Each state's laws apply based on where work is performed.
Prioritize by risk: Minimum wage and overtime violations carry liquidated damages (often double the unpaid amount). PFML notice failures can trigger penalties. AI discrimination claims are emerging as a significant litigation area.
Update your systems: Payroll software should reflect 2026 rates and thresholds. Time-tracking systems need to capture the data you'll need for compliance audits. HR policies should address new notice requirements.
Train your managers: The managers approving overtime, making hiring decisions with AI tools, and fielding leave requests need to understand their compliance obligations. A well-intentioned manager who doesn't know the rules can create substantial liability.
Document your process: When regulators or plaintiffs' attorneys come asking, your ability to demonstrate good-faith compliance efforts matters. Keep records of your policy updates, training sessions, and compliance audits.
The regulatory landscape will continue evolving—Maryland's FAMLI program launches July 1, 2026, Colorado's AI Act follows in February, and more states are considering similar legislation. Building adaptable systems now will make future changes less disruptive.
Stay current, adjust proactively, and when the requirements get complex, don't hesitate to bring in employment counsel who knows your specific state exposures. The cost of expert advice is almost always less than the cost of getting it wrong.