2026 Employment Law Update
Jan 28, 2026
As 2026 kicks off, employment law is moving faster than ever. Learn more about 2026 Employment Law Updates and get Real HR Questions answered by an employment law attorney.
Staying compliant in today’s workplace isn’t easy and employment law continues to evolve at a rapid pace.
In this Virtual HR Hot Seat Q&A, we tackle the legal and HR topics employers are asking about right now. Join John Gilbert, Shareholder at Sandberg Phoenix, and Summer Vanderbilt, HR Expert at HireLevel, as they break down what’s changed, what’s coming, and what employers should be doing now as we head into 2026.
Topics that HR leaders, payroll teams, and executives need to know:
✅ Employment law changes you need to know
✅ Overtime and wage & hour updates
✅ DEI considerations in today’s workplace
✅ Tax and payroll-related compliance updates
✅ Non-compete and restrictive covenant changes
Overtime Calculations: Bonuses Are Back in the Spotlight
One of the most significant updates impacting employers involves how bonuses affect overtime calculations under the Fair Labor Standards Act (FLSA).
What changed?
On January 5, the U.S. Department of Labor’s Wage and Hour Division released new opinion letters clarifying how bonuses must be treated when calculating an employee’s regular rate of pay for overtime purposes.
Key takeaway for employers:
If a bonus is non-discretionary, it must be included in the regular rate of pay when calculating overtime. This includes bonuses that: are tied to performance, are promised or expected, and are outlined in a collective bargaining agreement.
Even if an agreement states a bonus should not count toward overtime, the Department of Labor has indicated that such language may not be enforceable.
Why this matters
Failure to properly calculate overtime can expose employers to:
✅ Up to 2 years of back pay (3 years if the violation is deemed willful)
✅ Costly class and collective action lawsuits
With the definition of “discretionary” bonuses narrowing, employers should review bonus programs carefully and err on the side of compliance.
Payroll & Tax Updates: What the “One Big Beautiful Bill” Means for Employees
Several tax-related changes stemming from the One Big Beautiful Bill are already impacting tax year 2025 filings. While many of these provisions primarily affect employees, employers still play a role in accurate recordkeeping and communication.
No Tax on Tips
Eligible employees can deduct: up to $25,000 (single filers) and up to $50,000 (joint filers)
This above-the-line deduction applies to tipped income, subject to income limits.
No Tax on Overtime (Limited)
Employees may deduct overtime earnings up to $12,500 (single filers) or $25,000 (joint filers)
If an employee earns less than the cap, only the actual overtime earned may be deducted.
Social Security Deduction for Older Workers
Employees 65 and older may deduct $6,000 (single filers) or $12,000 (joint filers)
What employers should do
While these are individual tax deductions, employers should ensure:
✅ Overtime, regular wages, and tipped income are clearly tracked
✅ Payroll records are accurate and detailed
✅ Employees are educated so confusion doesn’t arise during tax season
DEI Programs: What’s Allowed in Today’s Regulatory Climate
Despite heightened scrutiny, DEI initiatives are not prohibited but they must be carefully structured.
Current federal position on DEI:
DEI programs may continue as long as they do not result in preferential treatment based on race or other protected characteristics.
Best practices employers are using for DEI Programs:
✅ Expanding recruitment pipelines
✅Emphasizing inclusive hiring processes
✅Focusing on retention, training, and advancement
✅ Avoiding quotas or race-based preferences
At this time, enforcement activity has been limited, particularly outside of higher education. Still, employers should regularly review DEI strategies with legal counsel.
Non-Compete Agreements: Back to a State-by-State Patchwork
With the FTC dropping its appeal related to the federal non-compete ban, enforcement has reverted to state law standards.
What employers need to know
✅ Non-competes are now governed by 50 different state approaches
✅ Some states ban them entirely
✅ Others, including Illinois, place strict limits on enforceability
Illinois highlights on Non-Compete Agreements
✅ Non-competes generally prohibited for employees earning under $75,000
✅ Courts disfavor restrictive covenants
✅ Separate consideration is often required
Alternatives to consider
Non-solicitation agreements, confidentiality agreements, trade secret protections, and carefully drafted liquidated damages clauses (where permitted by state law)
The bottom line: non-competes should be used sparingly and only when clearly justified.
Illinois-Specific Employment Law Updates Employers Can’t Ignore
Severance Agreements & the Workplace Transparency Act
Effective January 1, amendments to the Illinois Workplace Transparency Act significantly restrict what employers can include in severance and employment agreements.
Employers may no longer:
✅ Limit an employee’s ability to report legal violations
✅ Restrict participation in collective or concerted activity
✅ Shorten statutes of limitation
✅ Apply non-Illinois law or require out-of-state venues for Illinois claims
Confidentiality provisions are still allowed but only if: negotiated in good faith and supported by separate consideration beyond severance pay. This is especially impactful for national employers with Illinois-based employees.
Neonatal Intensive Care Leave Act (Effective June 1)
Illinois employers with more than 15 employees must provide unpaid leave when an employee’s child is admitted to a NICU.
Leave requirements:
✅ 16–50 employees: up to 10 days unpaid leave
✅ 51+ employees: up to 20 days unpaid leave
Key details:
✅ Leave is in addition to FMLA
✅ Employees do not need to be FMLA-eligible
✅ PTO cannot be required
✅ Benefits must continue
✅ Job restoration protections apply
Nursing Mothers in the Workplace Act Updates
This law applies to all Illinois employers, regardless of size.
Employers must provide: reasonable break time, a private, functional space (not a bathroom), and relief from all job duties during breaks
Recent amendments clarify documentation, accommodation expectations, and how undue hardship claims should be handled.
Final Thoughts for Employers
The message from this HR Hot Seat session is clear: many of the rules impacting employers have already changed and several apply retroactively. From overtime calculations and ADA accommodations to Illinois leave laws, AI usage, and restrictive covenants, waiting to act only increases legal and financial exposure.
Smart employers aren’t waiting for an audit, charge, or lawsuit to force action. They’re taking time now to review policies, pay practices, agreements, and processes. If you have more questions specifically for Employment Law Attorney, John Gilbert, feel free to contact him here.
How HireLevel Can Help
At HireLevel, we partner with employers every day to translate complex employment law changes into practical, compliant, and people-first solutions. Whether you’re navigating multi-state compliance, have staffing/direct hire needs, tightening up payroll practices, or reassessing HR policies for 2026, our team is here to help you move forward with confidence. Contact us today for all your HR needs.
We’re offering exclusive HR resources, including:
2026 HR Compliance Calendar: Download Here
