Compliance Round Up – Payroll Reporting Relief, Pay Equity Boundaries, and Enforcement Signals Employers Can’t Ignore (February 2026)

Headshot of Jennifer Kieswetter
Written By
Jennifer Kiesewetter

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.

—

February brought a mix of developments for employers. Federal agencies eased tip and overtime reporting requirements, released workforce demographic data, and clarified contractor wage rules. States continued refining pay equity laws, hiring restrictions, and workplace access requirements. The changes affect payroll operations, compensation structures, hiring practices, and compliance planning for 2026.

Federal News

Effective Date: Relief granted on November 5, 2025; applies to 2025 reporting

What’s Changing:

On November 5, 2025, the U.S. Department of the Treasury and the Internal Revenue Service issued Notice 2025-62 granting penalty relief for tax year 2025 under the One, Big, Beautiful Bill’s new reporting rules for cash tips and qualified overtime compensation. Treasury and IRS cited late guidance, lack of updated Forms W-2 and 1099, and system limitations as the basis for treating 2025 as a transition year. The relief applies only to penalties and does not change the underlying reporting requirements. Full enforcement is expected to begin with 2026 filings.

What This Means for HR:

  • Penalty relief is limited to 2025 reporting and does not excuse future noncompliance.
  • Payroll, tip reporting, and timekeeping systems should be reviewed now for 2026 accuracy.
  • Employers should retain documentation showing good-faith compliance efforts during the transition.

Effective Date: February 9, 2026 guidance

What’s Changing?

On February 9, 2026, the Department of Labor published guidance stating that the federal contractor minimum wage under Executive Order 13658 generally applies only to contracts awarded between January 1, 2015, and January 29, 2022, and not renewed or extended on or after January 30, 2022.

This position narrows the scope of contracts subject to the federal contractor minimum wage and directly affects how employers determine which workers must be paid the higher rate. The guidance challenges assumptions of blanket coverage and requires a contract-specific analysis. Employers that misapply the rule risk either underpaying covered workers or overpaying where the requirement no longer applies.

What This Means for HR:

  • Federal contractor minimum wage obligations must be evaluated contract by contract, not assumed across all agreements.
  • Incorrect assumptions about coverage can result in wage liability or procurement compliance issues.
  • HR should coordinate closely with legal and procurement to confirm contract status, renewal dates, and applicable wage rules.

Effective Date: January 29, 2026 award announcement

What’s Changing?

The Department of Justice issued a $1 million award to an antitrust whistleblower, highlighting the expanding use of financial incentives to drive enforcement. The award underscores DOJ’s focus on internal reporting failures and retaliation. Employment practices often surface during antitrust investigations. Employers should expect continued emphasis on whistleblower protections.

What This Means for HR:

  • Internal reporting channels must be credible and accessible.
  • Retaliation risks remain significant.
  • Compliance culture directly affects enforcement exposure.

Trending State News

Effective Date: Proposal stage (2026 discussions)

What’s Changing: 

California policymakers continue to evaluate a potential mileage-based tax system aimed at replacing or supplementing fuel taxes. While still under discussion, the proposal would affect employers with mobile workforces, vehicle reimbursement programs, and fleet operations. At the center of these considerations is California Labor Code Section 2802, which requires employers to indemnify employees for all necessary expenditures incurred in direct consequence of performing their job duties, including business-related vehicle use.The proposal reflects California’s continued experimentation in employment-adjacent tax policy.

What This Means for HR:

  • Employers should monitor developments even before adoption.
  • Mileage reimbursement and fleet policies may require future changes.
  • Budgeting assumptions could be affected if the proposal advances.

Effective Date: January 1, 2026

What’s Changing: 

Colorado implemented updates to its wage and hour rules that further separate state requirements from federal standards. The changes affect exemption criteria, overtime calculations, and enforcement mechanisms. Colorado regulators continue to favor employee-friendly interpretations and aggressive enforcement. Employers operating in Colorado must account for state-specific definitions rather than relying on federal classifications. These updates increase compliance complexity for multi-state employers.

What This Means for HR:

  • Uniform wage and hour policies may not work in Colorado.
  • Job classifications should be reviewed against updated state standards.
  • Training for managers and payroll teams may be necessary.

Effective Date: January, 2025, the Session of 2026 (followed by continued litigation into 2026)

What’s Changing: 

Kansas enacted legislation restricting access to bathrooms, locker rooms, and other multi-occupancy private spaces in government-owned or -leased buildings based on biological sex at birth. The law applies to public-sector employers and private employers operating in government facilities and includes civil and criminal penalties, along with a private right of action for alleged privacy violations.

Kansas joins several other states advancing similar restrictions, increasing the risk of conflicting state and federal obligations. Litigation challenging these laws, and related federal policies, is ongoing and continuing into 2026.

What This Means for HR:

  • Workplace policies may need adjustment based on worksite location.
  • Federal nondiscrimination obligations remain in effect.
  • Training and employee communications should be handled carefully.

Effective Date: November 20, 2025 decision

What’s Changing?

A New Jersey state court clarified limits on claims under the New Jersey Equal Pay Act by addressing how broadly employees may be compared across job categories. The decision provides guidance on appropriate comparator groups and rejects overly expansive comparisons untethered to job function.

While the statute remains broad, the ruling gives employers clearer boundaries when evaluating pay equity risk. Internal pay analyses should reflect this narrower framework.

What This Means for HR:

  • Pay equity reviews should use defensible comparator groupings.
  • Job architecture and compensation decisions should be documented.
  • Legal review may be advisable before restructuring pay practices.

Around the Courts

Effective Date: January 28, 2026 decision

What’s Changing:

The Third Circuit court ruled that, under the state’s Criminal History Record Information Act, self-disclosed criminal convictions remain protected under state hiring laws. The decision reinforces limits on how employers may use voluntary disclosure information during the hiring process. Employers may not treat self-disclosure as a workaround to background check restrictions. The ruling increases risk where hiring workflows are not carefully structured.

What This Means for HR:

  • Hiring processes should be reviewed for compliance with state law.
  • Voluntary disclosures should not automatically trigger adverse action.
  • Background check and interview practices may need refinement.

Effective Date: February 6, 2026 ruling

What’s Changing:

The Fourth Circuit allowed recent diversity, equity, and inclusion–related executive orders to proceed, rejecting preliminary legal challenges seeking to block implementation. The court declined to halt enforcement while litigation continues. The ruling does not resolve the merits but permits agencies to move forward. Employers subject to federal requirements must continue compliance efforts.

What This Means for HR:

  • DEI-related obligations remain enforceable.
  • Policy decisions may carry regulatory implications.
  • Employers should not assume litigation pauses compliance.

Effective Date: July 30, 2025 decision; disclosures expected as early as February 9, 2026

What’s Changing:

In Center for Investigative Reporting v. U.S. Department of Labor, the Ninth Circuit held that federal contractors’ EEO-1 reports are not exempt from disclosure under FOIA Exemption 4. The court rejected DOL’s argument that aggregated workforce demographic data qualifies as confidential commercial information, concluding that the reports do not reveal pricing, profits, or services. As a result, DOL must release previously withheld EEO-1 Type 2 reports.

DOL did not issue new guidance on EEO-1 reporting or confidentiality but has proceeded with court-directed disclosures. On February 5, 2026, the parties jointly asked the Northern District of California to lift the temporary stay, with disclosure expected to begin as early as February 9, 2026. Contractors that previously objected should anticipate near-term public release of their data.

What This Means for HR:

  • EEO-1 data submitted by federal contractors may soon be publicly available.
  • DOL’s 2026 actions address disclosure timing, not new reporting requirements.
  • HR and legal teams should be prepared for external review of workforce demographics.

—

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.