Employment Tip Of The Month – January 2026

Q: What Proactive Steps Should Employers Take in 2026 to Strengthen Wage and Hour Law Compliance?

A: As we kick off 2026, it is anticipated that wage and hour litigation will continue to increase, particularly disputes over unpaid overtime, misclassification of employees, and recently enacted prohibitions on "stay or pay" agreements, including New York's Trapped at Work Act. Employers should review the following wage and hour compliance issues to verify that they are abiding by applicable federal, state, and local laws:

Increases to Minimum Wage and Overtime 

Under the Fair Labor Standards Act (FLSA), the federal minimum wage rate has not been raised since 2009 and remains at $7.25 per hour for nontipped employees and $2.13 per hour for tipped employees (with a maximum tip credit of $5.12). In the absence of action at the national level, a number of states and localities have increased their minimum wage rates, and many will do so in 2026.

States with an increase scheduled to take effect on January 1, 2026, include Arizona, California, Colorado, Connecticut, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, Virginia, and Washington. Other states will implement minimum wage increases throughout 2026.

Remember to check whether a higher wage rate is required at your local level and if special rules apply in your industry.

Increases to Exempt Employee Salary Thresholds

Under federal law, employees falling within the executive, administrative, and professional exemptions to the minimum wage and overtime requirements of the FLSA must be paid on a salary or (for only administrative or professional exemptions) fee basis. White-collar exemptions generally require both a salary basis and a duties test. To maintain exempt status when a state sets a higher minimum salary threshold than the FLSA ($684 per week under current federal rules), employers must pay the higher state-level minimum weekly salary.

The following states have minimum salary pay requirements for exempt employees that exceed the federal rate and will change on January 1, 2026: California, Colorado, Maine, New York, and Washington State. Employers should review the salary and duties of all exempt employees to ensure they are properly classified.

Provide Updated Notices of Pay Rate Information to Employees

Certain states, such as New York, have written requirements that employers provide employees (both exempt and non-exempt) with a written Notice of Pay Rate at the time of hire and when there is a change in their wage rate. Consult with employment counsel to determine if any of the states or localities where your company operates have such requirements. 

Update Workplace Postings 

The United States Department of Labor (USDOL) website provides information regarding required workplace posters under federal statutes and regulations enforced by the USDOL, including the FLSA. See Workplace Posters  for guidance and posters required under federal law, many of which are available in multiple languages and in electronic format. Additionally, employers should ensure they have updated, current postings in the workplace as required at their state and local levels. 

Maintain Accurate Payroll and Timekeeping Records 

Under the FLSA, employers are required to keep certain records for all non-exempt employees and to preserve payroll records, collective bargaining agreements, and sales and purchase records for a minimum of three years. USDOL guidance can be found here. The IRS requires employers to keep all employment tax records for at least four years. Records should be retained for both active and separated employees. Many states and localities have longer and more expansive recordkeeping retention requirements, so consult with experienced employment counsel to ensure compliance. Timekeeping and attendance records must also be maintained and accurate in accordance with applicable law. These employment-related records are critical in defending wage and hour litigation.

Review the Status of and Agreements with Independent Contractors Who Perform Services to Avoid Misclassification

Employers are responsible for determining whether a worker is an employee under the FLSA. Misclassification occurs when an employer treats a worker who is an employee under the FLSA as an independent contractor. Misclassifying employees as independent contractors may result in the employees not receiving the minimum wage and overtime pay to which they are entitled under the FLSA or other benefits and protections to which they are entitled under the law. See Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act for guidance at the federal level on the difference between employees and independent contractors under the FLSA. The IRS and most states provide additional guidance and criteria for distinguishing between employees and independent contractors because misclassification also has implications with respect to employment taxes, unemployment benefits, employee welfare and pension benefits, and other areas. Careful review of all independent contractor relationships and agreements by experienced employment counsel is a critical step to avoid misclassification liability.

Review and Update Job Descriptions and Job Postings and Be Aware of Applicable Pay Transparency Laws 

Several states and localities have enacted "pay transparency laws" that require employers to disclose pay information to employees and job applicants at various points in the hiring process. These laws vary in terms of what wage information employers must disclose and when it must be shared. There is currently no federal law requiring pay transparency. Still, momentum is building for these laws, which aim to level the playing field and address wage disparity based on gender, race, and other protected characteristics. Employers should ensure that job descriptions and postings accurately state the essential functions of the position, the required level of education and work experience, and that they are in compliance with applicable laws, including those requiring pay transparency.

Review Employment Agreements for "Stay or Pay" Provisions 

States across the country are tightening restrictions on "stay-or-pay" agreements that require employees to repay training costs or related expenses if they leave employment before a specified period of time. In June 2025, the New York Legislature passed the "Trapped at Work Act," which Governor Hochul signed on December 19, 2025, and which became effective immediately. The law applies to all workers, including employees and independent contractors, and classifies repayment agreements for training costs as unconscionable and unenforceable. It amends the New York Labor Law to prohibit employers from requiring that any current or prospective worker execute an "employment promissory note." The Act defines "employment promissory note" as "any instrument, agreement, or contract provision that requires a worker to pay the employer, or the employer's agent or assignee, a sum of money if the worker leaves such employment before the passage of a stated period of time." Employers in New York should review templates for employment agreements, offer letters, training agreements, and onboarding documents in conjunction with experienced employment counsel. All employers should keep an eye on the status of "stay or pay" legislation in the states where they operate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.