If 2025 proved anything, it’s that compliance has become one of HR’s most complex challenges. From viral workplace moments to sweeping changes under a new administration, HR professionals spent the year navigating an increasingly messy regulatory landscape, as HR Executive recently recapped here.
Now, as organizational leaders sink their teeth into 2026, compliance experts warn that the complexity is only accelerating. A new analysis from HCM provider Paychex identifies several regulatory shifts that will require HR’s immediate attention, from tax law changes with reporting requirements to evolving state mandates on AI, paid leave and retirement.
“What employers seek now is additional guidance from federal agencies to help them better understand potential compliance obligations,” Paychex compliance analysts write in their 2026 regulatory forecast.
Here’s what HR leaders need on their radar, according to Paychex:
Tax law creates new reporting headaches
The 2025 tax law, known as the One Big, Beautiful Bill Act, introduces provisions that could create administrative complexity for HR teams. During the 2025 through 2028 tax years, workers can deduct qualified tips and overtime compensation on their personal returns, but employers remain responsible for withholding taxes and face new reporting requirements.
The tip deduction applies only to voluntary gratuities in occupations listed in the Treasury Tipped Occupation Code, which includes around 70 eligible roles. The deduction caps at $25,000 annually for all filers, and married individuals must file jointly to claim it.
The overtime deduction is more restrictive: Only the premium portion of time-and-a-half qualifies, and only when required under the Fair Labor Standards Act. State-specific overtime requirements that exceed federal standards don’t count. Individual filers can claim up to $12,000, while joint filers can claim up to $25,000.
The IRS has provided temporary relief, announcing in November that penalties won’t be assessed for 2025 reporting requirements. However, Paychex advisors say that employers should prepare for W-2 changes in 2026.
State mandates on paid leave continue to expand
More than a dozen states now have paid sick leave laws, with several making modifications effective with the start of the new year. California is expanding coverage to include victims of serious crimes, while Connecticut is lowering its employer threshold from 25 to 11 employees and Oregon is adding blood donation as a qualifying reason.
Regarding paid family and medical leave, Delaware, Maine and Minnesota will launch programs in 2026, with registration and contribution requirements for covered businesses. Employees in those states can start collecting benefits in 2026, adding to the 13 states with fully active programs.
Employers operating in multiple states face the added complexity of administering different accrual rules, notice requirements and recordkeeping standards, according to Paychex.
Read more: Employee leave across borders is a compliance minefield
Retirement mandates spread
Thirteen states now have fully active mandated workplace retirement programs, including Minnesota’s soft launch on Jan. 1, 2026. New York’s first registration deadline is set for March 18 and Rhode Island’s deadline occurred on Dec. 12, 2025. Paychex advisors say employers in affected states must either register for the state-facilitated plan or implement a private plan that satisfies the mandate.
Looking ahead to 2027, the SECURE Act 2.0 will transform the Saver’s Credit into a Saver’s Match, replacing a tax credit with direct federal matching contributions up to $1,000 deposited into retirement accounts. Employers sponsoring 401(k) plans who want to accept these contributions will need to amend their plans and coordinate with recordkeepers.
AI regulation takes shape
On Dec. 11, President Trump signed an executive order requiring the Department of Justice to create infrastructure allowing the federal government to preempt state AI laws. The DOJ can use its judgment on state law constitutionality, pursue litigation and cut specific funding for laws deemed too restrictive.
This comes as states continue leading on AI regulation, particularly around deepfakes, disclosure requirements and child safety. At least 22 states have pending AI legislation. “This executive order might impact many of the AI laws that states put in place to provide protections for their citizens,” write Paychex advisors.
A major upcoming change is California’s new automated decision-making technology rules under the Consumer Privacy Act, effective Jan. 1, 2026, with phased compliance. Covered employers using automated tools for significant employment decisions without meaningful human involvement must complete risk assessments, provide advance notice and often allow workers to opt out, according to Paychex.
Minimum wage increases hit 20 states
Nearly 20 states will implement minimum wage increases in 2026, with the majority taking effect Jan. 1. Several major metropolitan areas in California, New York and other states will also see hourly wage increases.
These changes will impact payroll processing, budgeting and potentially hiring and growth plans, requiring HR to update systems and communicate changes to affected employees, according to Paychex.
Read more: The future of compensation is flexible, fair and fast
Federal shutdown risks loom again
Although the government shutdown ended on Nov. 12, 2025, Congress faces a new funding deadline on Jan. 30, 2026, when current appropriations are set to expire. Experts suggest this raises the risk of another partial shutdown.
One sticking point is the enhanced Affordable Care Act premium tax credits. Changes to these subsidies could indirectly affect Applicable Large Employers’ exposure under the Employer Shared Responsibility provisions if more or fewer workers qualify for marketplace subsidies.
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