Compliance Round Up – DOL Wage and Hour Guidance, IRS ACA Benchmarks, Virginia and Illinois Paid Leave, and the Supreme Court Redraws Arbitration Lines (June 2026)

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Written By
Jennifer Kiesewetter
Published On: June 2, 2026

Jenny Kiesewetter is a practicing ERISA and employee benefits attorney who partners with HR teams on a wide range of workplace compliance matters — from benefit-plan obligations to day-to-day HR policies and regulatory requirements. Her guidance helps employers spot risks early, navigate regulatory change, and make informed decisions that support both employees and the organization.

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Seven developments closed out May and kicked off June with action items for HR teams. The Department of Labor issued four new Fair Labor Standards Act (FLSA) opinion letters addressing compensable time and overtime calculations. The Internal Revenue Service (IRS) finalized 2027 Affordable Care Act penalty amounts, giving employers more time to plan. Virginia enacted a paid sick leave law that will phase in over the next three years, while California directed state agencies to develop artificial intelligence (AI) workforce protection frameworks.

Illinois’ neonatal intensive care unit (NICU) leave law takes effect today. Meanwhile, a Minnesota proposal would require advance notice before AI-related workforce reductions, and the U.S. Supreme Court issued a unanimous decision limiting when employers can require last-mile delivery drivers to arbitrate disputes.

The developments span wages, benefits, leave, AI, and arbitration, with practical implications across HR and compliance functions.

Federal News

Effective Date: May 29, 2026

What’s Changing:

The DOL’s Wage and Hour Division issued four FLSA opinion letters on May 29, 2026, addressing a secondary hourly role for an otherwise exempt employee, a percentage-of-earnings bonus formula, compensable meal-break travel through controlled-access premises, and pre-shift hospital work plus clock-in rounding. The letters are official interpretations of how the FLSA applies to the specific facts presented and are intended to provide compliance assistance.

Opinion letters represent the agency’s official position and offer compliance assistance; they do not automatically provide a good-faith legal defense. These four follow six letters the Division issued in January 2026, continuing the current administration’s practice of offering formal written guidance on practical fact patterns employers face in daily operations.

What This Means for HR:

  • Review the four May 29 opinion letters for scenarios that may match your organization’s current pay practices.
  • Audit meal break policies, pre-shift requirements, and check-in practices to confirm employees receive pay for all compensable time.
  • Evaluate bonus programs and commissioned-sales arrangements to confirm overtime calculations, Section 7(i) exemption requirements, and applicable state minimum wage rules.

Effective Date: IRS Revenue Procedure 2026-22, published May 4, 2026; applicable to taxable years and plan years beginning after December 31, 2026

What’s Changing?

The IRS published the updated penalty amounts for the Affordable Care Act’s employer shared responsibility provisions in Internal Revenue Procedure 2026-22. For calendar year 2027, the “A” penalty amount increases to $3,780 per full-time employee (annualized), and the “B” penalty amount increases to $5,670 per full-time employee who receives subsidized marketplace coverage. The A penalty applies when an applicable large employer fails to offer minimum essential coverage to at least 95 percent of its full-time employees. The B penalty applies when coverage is offered but fails the affordability or minimum value thresholds.

What This Means for HR:

  • Update Affordable Care Act penalty exposure models before finalizing benefit strategy for the 2027 plan year.
  • Use the $3,780 and $5,670 penalty figures when modeling coverage-offer risk, affordability exposure, and employee contribution decisions.
  • Build these updated figures into actuarial, benefits consulting, and renewal conversations before open enrollment planning begins.

Trending State News

Effective Date: Signed May 21, 2026 (Executive Order N-6-26); no immediate private employer obligations; state agency reports due within 90 days (EDD dashboard) and 180 days (LWDA WARN Act recommendations)

What’s Changing?

On May 21, 2026, California Governor Gavin Newsom signed Executive Order N-6-26, directing state agencies to build a framework for responding to AI-driven workforce displacement before it arrives at scale. The order requires key state agencies to deliver the following actions:

  • Within 90 days (by August 19, 2026): The Labor and Workforce Development Agency (LWDA), Governor’s Office of Business and Economic Development (GO-Biz), and Department of Finance deliver an analysis of AI’s potential workforce impact
  • Within 90 days: The Employment Development Department (EDD) launches a public dashboard showing AI’s impacts on employment across sectors using unemployment insurance data
  • Within 180 days (by November 17, 2026): LWDA produces recommendations for revising California’s Worker Adjustment and Retraining Notification (WARN) Act to function as an early warning system for AI-related layoffs
  • By October 15, 2026: LWDA assesses how collective bargaining agreements address AI and whether existing workforce training programs align with growing industries

The order creates no immediate compliance obligations for private employers. It sets state agencies on a path toward potential legislation and regulation. The EO specifically directs LWDA to review safety-net policies including severance and equity compensation for displaced workers, which could foreshadow future mandatory severance requirements. The executive order followed Meta’s announcement of significant layoffs and reflects California’s approach of using government capacity to get ahead of workforce disruption rather than responding after the fact.

What This Means for HR:

  • Monitor the 180-day WARN Act review for potential California notice requirements tied to AI-driven workforce reductions.
  • Flag any proposed rule changes for legal review as the Labor and Workforce Development Agency releases recommendations.
  • Document how AI tools influence workforce decisions, especially when they affect restructuring, reductions, or role eliminations.

Effective Date: June 1, 2026

What’s Changing?

Effective June 1, 2026, the Illinois Family Neonatal Intensive Care Leave Act requires employers with 16 or more employees to provide unpaid, job-protected leave to employees whose newborns are admitted to a neonatal intensive care unit. Employers with 16 to 50 employees must provide up to 10 days; employers with 51 or more employees must provide up to 20 days. Leave may be taken continuously or in increments as small as two hours. The leave is unpaid, but employees may elect to use accrued paid leave (such as vacation or PTO); employers may not require employees to use paid leave. Employers must continue group health coverage on the same terms as if the employee were actively working and restore the employee to their same position or a substantially equivalent position with equivalent pay, benefits, and other employment terms when the leave ends. Violations carry civil penalties of up to $5,000 per infraction. The law runs in addition to FMLA, with FMLA leave exhausted first where applicable.

What This Means for HR:

  • Confirm that leave administration, HRIS coding, and manager training reflect the new Illinois NICU leave entitlement.
  • Add a dedicated leave code to track NICU leave separately from FMLA and other leave categories.
  • Update leave policy matrices and verify that any third-party leave administrator has added the Illinois law.

Effective Date: Signed May 20, 2026 (Senate Bill 199 / House Bill 5); July 1, 2027 for employers with 50+ employees; July 1, 2028 for 25–49 employees; January 1, 2029 for all employers

What’s Changing: 

On May 20, 2026, Virginia Governor Abigail Spanberger signed Senate Bill 199 and House Bill 5, enacting the state’s first universal mandatory paid sick leave law. Under the new law, employees accrue one hour of paid sick leave for every 30 hours worked, up to 40 hours per year. Accrued leave carries over year to year, subject to the 40-hour cap. The law covers both full-time and part-time employees, and employers may not require workers to find a replacement as a condition of using leave.

Implementation rolls out in three phases based on employer size:

  • Employers with 50 or more employees must comply beginning July 1, 2027.
  • Employers with 25 to 49 employees must comply beginning July 1, 2028.
  • Employers with at least one employee must comply beginning January 1, 2029.

Virginia joins a growing group of states — including California, Colorado, Connecticut, Massachusetts, New York, and Oregon — with universal paid sick leave requirements, making it the first state in the South to enact one.

What This Means for HR:

  • Audit existing sick leave policies against Virginia’s new requirements, including accrual, carryover, and eligibility rules.
  • Review HRIS accrual tracking capabilities and confirm that Virginia employees are flagged in leave management systems.
  • Build the compliance timeline into 2027 benefits, HR operations, and multi-location employer planning.

Around the Courts

Effective Date:  May 28, 2026 (Flowers Foods, Inc. v. Brock, U.S. Supreme Court, No. 24-935)

What’s Changing:

On May 28, 2026, the Supreme Court issued a unanimous 9-0 decision in Flowers Foods, Inc. v. Brock, authored by Justice Neil Gorsuch, holding that a worker who transports goods on the intrastate leg of an interstate journey qualifies for the Section 1 transportation worker exemption to the Federal Arbitration Act, even if they never personally cross state lines.

Angelo Brock, a franchisee-driver who picks up Flowers Foods baked goods from a Colorado warehouse and delivers them to Denver-area stores, qualified because the goods themselves originated out of state, and he was part of a continuous interstate journey. The Court rejected Flowers’ argument for a rule requiring workers to personally cross state lines or handle vehicles that do.

The decision resolves a longstanding circuit split and expands the FAA transportation-worker exemption to last-mile drivers in regional distribution networks, franchised delivery models, and gig-platform delivery services that move goods that originated out of state. Employers operating regional distribution networks, franchised delivery models, or gig-platform delivery services face the most direct exposure.

What This Means for HR:

  • Audit arbitration agreements for last-mile delivery workers, warehouse-to-store drivers, franchise distributors, and other workers who move goods that originated out of state.
  • Review whether the Federal Arbitration Act exemption may apply and whether state law provides a back-up enforcement path.
  • Update choice-of-law provisions and contract structures before issuing new arbitration agreements.

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