YEAR-END EMPLOYER UPDATE: PAY, BENEFITS, & COMPLIANCE FOR 2026
As we approach 2026, employers across West Michigan and nationwide are navigating an environment marked by stabilizing wage planning, significant benefit cost increases, important federal tax and payroll rule changes, and continued evolution in workplace models. HR Solutions Group of West Michigan is here to help your business stay ahead and thrive through every challenge—read on for what’s new, what’s next, and what you need to know.
HR TRENDS
Compensation & Wage Planning
For 2026, merit increase budgets in West Michigan are projected at 3.2–3.5%, closely aligned with both Midwest and national averages. This signals a welcome period of stabilization after several years of significant volatility.
Employers in manufacturing, government, and healthcare are generally budgeting at or below 3%, with the healthcare sector particularly constrained by ongoing reimbursement pressures.
With anticipated health insurance premium increases, many employers are considering a more conservative approach to merit budgeting. It’s recommended to prioritize critical and at-risk roles for market-based pay adjustments while using broader benchmarking data to ensure retention of top talent in these key positions.
Targeted compensation benchmarking remains essential: reviewing pay for roles that are hard to fill, highly skilled, or experiencing higher turnover risk can help allocate limited resources to areas where retention matters most, while overall merit budgets may remain at conservative levels.
Significant Group Health Premium Increases
Employers are facing group health insurance premium hikes of 15–20% for 2026—substantially higher than recent averages—with at least two years of elevated costs anticipated.
These increases reflect ongoing medical inflation, rising prescription drug costs, and adjustments in government subsidy structures.
Return-to-Office (RTO) Trends
Nearly 70% of employers are now mandating hybrid work, typically requiring three in-office days per week.
Just 7% of roles are fully remote in 2025–2026, a sharp decline from the 21% reported in 2023.
Flexible and transparent RTO policies are proving critical in building employee retention. Workers increasingly seek a blend of collaboration and autonomy.
FEDERAL & STATE REGULARTORY CHANGES
"No Tax on Overtime" Law
For 2025 earnings (impacting 2026 tax filings), the new “No Tax on Overtime” Act allows employees to deduct up to $12,500 (single) or $25,000 (joint) of overtime pay from federal income.
After the IRS provides reporting guidance, employers must update payroll systems to track and report federally mandated overtime separately on W-2 forms for the 2026 tax year. Overtime is typically base rate + overtime of 0.5 of base rate, keep in mind only the overtime portion (0.5) of the rate is tax exempt and needs to be reported in Box 14 on the W2 for 2025 wages.
Accurate overtime tracking, HR/payroll staff training, and clear employee communication about the new tax benefits are essential for compliance.
Multi-State Compliance: The New Reality
With remote and distributed teams increasingly common, multi-state employers are required to register and stay compliant for payroll, wage, leave, and health benefit rules in every state where employees work or reside.
Ensure your Employee Handbook policies and payroll systems are flexible and robust enough to support state-specific requirements, backed by up-to-date documentation and routine compliance reviews.
2026 Michigan and Federal Employment Law Updates
Michigan Minimum Wage: Rising to $13.73/hour on January 1, 2026, with tipped wage at 40% of this rate. Plans in place to increase to $15/hour in 2027.
Paid Leave and Benefit Laws: New state-mandated paid family and medical leave laws in 2025 and 2026 continue to be in effect in multiple states, impacting how payroll, benefits, and leaves are managed in coordination with FMLA.
Federal Tax Changes: The standard deduction increases to $32,200 (joint) in 2026, with enhanced business credits for dependent care and a 2.7% Social Security COLA.
Youth Employment in Michigan: Stricter work limits for 14–15-year-olds become effective March 31, 2026, with mandatory digital work permit registration by October.
EMPLOYER ACTIONS FOR 2026
Benchmark and review compensation for critical and at-risk roles, allocating adjustments where the market is most competitive.
Take a more conservative overall merit budget approach in light of rising health insurance premiums.
Prepare for at least two years of elevated health insurance costs; evaluate plan redesign or alternative funding methods.
Update payroll/HR systems for new overtime rules and “No Tax on Overtime” requirements.
Audit your return-to-office and hybrid work policies for both workforce engagement and legal compliance.
Evaluate your multi-state compliance across leave policies, wages, benefits, and paid leave.
LET'S PREPARE TOGETHER
HR Solutions Group of West Michigan stands ready to support your business on every front—from strategic compensation to innovative benefits, from compliance management to building the right workplace policies for a changing environment. If you are an existing HR Department services client, your HR Business Partner will initiate conversations on these topics during our monthly update and planning meeting. If you are not under an active contract with our team, please reach out to support@thehrsolutionsgroup.com or call 616.719.5372 for expert, customized guidance and solutions that keep your business competitive, compliant, and positioned for success into 2026 and beyond.