Your 2026 HR Planning Guide Is Here: Laws, Pay, and Benefits to Watch

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.

New Evaluation Criteria for Independent Contractor Status

By: Amber Thompson, HR Advisor

Effective March 11, 2024, all organizations must comply with the newly enacted Department of Labor (DOL) rules regarding the proper classification of independent contractors.  The new rule will now require all employers to evaluate six factors when classifying workers as an independent contractor, making the burden of classifying a worker as an independent contractor much more difficult to meet.   

The six factors that must be considered in the new test include the following:  

1. Opportunity for profit or loss depending on managerial skill. 

2. Investments by workers and the potential employer. 

3. The degree of permanence of the work relationship. 

4. The nature and degree of control. 

5. The extent to which the work performed is an integral part of the potential employer’s business. 

6. Skill and initiative 

If a worker does not meet all six factors of the test and is misclassified as an independent contractor, the consequences for misclassification could be severe.  Employers who misclassify workers will be potentially liable for unpaid overtime going back up to three years, double damages, and attorneys’ fees and costs incurred.  In light of the new rule, employers who use independent contractors should review their classifications as soon as possible to ensure such workers are properly classified under the DOL’s new rule to prevent financial penalties and loss.  

The team at HR Solutions Group appreciates how the post-pandemic work environment has allowed organizations to ‘think outside the box’ when it comes to employment strategies. However, now more than ever, it is important that organizations get it right when it comes to properly classifying workers. Our team is well versed in the new rule and the strategy of working through each of the six factors to ensure proper worker classification.  We are available to support your organization as you evaluate existing independent contractors’ employment status, as well as help you navigate the consideration of future worker employment relationships. 

Multistate Employer Considerations

By: Sara Vereeke, HR Consultant at HR Solutions Group

Multistate employers face additional complexities and challenges for compliance, competitive practices, and building a cohesive employment experience. We have worked with a variety of multistate employers to help them create a plan to address these items. One particular client is a great example of the support HR Solutions Group can provide. This client was a small remote-first organization with less than 30 employees. Although the organization was small, they had employees in nine different states.

HR Solutions Group supported the organization with:

Multistate Employee Handbook: Developed one employee handbook that complied with state labor laws and has built-in flexibility for changes in state locations.

• Compensation Guidelines: Created a compensation philosophy that acknowledges the organization’s approach to geographic compensation variability as well as career growth paths in a smaller organization.

• Benefits Plan Design: Advised on plan design and considerations to ensure national coverage and competitiveness in the marketplace.

• Virtual Engagement: Created opportunities to promote engagement with remote staff.

• HR Software / Workflows: Implemented web based HRIS software to ensure that all recordkeeping was paperless and managers had access to important employment records. Designed workflows that informed key partners (CPA firm, benefit administrators, HR support) and ensured that timely data was received in a seamless, efficient way. Ensured compliant new hire paperwork was issued and completed based on each employee’s state of residence.

• Payroll System / Process: Created a payroll process and engaged a system that can handle the state tax processing and reporting requirements. Also created a process to request new state Tax IDs and implemented them in the payroll system.

• Workers’ Compensation: Ensured that each state was listed on their General Liability / Workers’ Compensation policy.

If you are leading a multistate organization or considering adding remote employees in other states and municipalities and would like help navigating these challenges, we are here to help. Feel free to reach out to us at hrsupport@thehrsolutionsgroup.com or via phone 616.719.5372.

Michigan Employers: Court Decision on Earned Sick Time Act and Minimum Wage Changes

Many Michigan employers have been anxiously awaiting a court decision on Paid Sick Time and Minimum Wage Changes scheduled to be effective in February. Today the Appeals Court published a decision that reversed a lower court decision that would have resulted in significant changes to Paid Time off and Minimum Wages for Michigan employees.

This decision means that the existing Paid Medical Leave Act (PMLA) will continue to be in place for Michigan employers with over 50 employees and the Earned Sick Time Act (ESTA) will not be implemented.

In addition, Minimum wage in Michigan will remain at $10.10 instead of increasing to $13.00.

The case is likely to be appealed to the Michigan Supreme Court, so we may revisit these topics again, but for now existing laws are staying in place. If you would like to read more about this decision, here’s a great article published on MSN: Michigan minimum wage increase, paid sick leave wiped out after appeals panel ruling (msn.com)

As always, if you have any questions about this or other HR matters, please reach out to your HR Solutions Group contact or our office at 616-719-5372.

What’s Changed in Michigan for Employer COVID-19 Compliance Requirements?

Many of you are wondering what’s different now. Well, a few things have remained the same while some have gone away. Here’s a great summary from Miller Johnson, our Labor Law Attorneys that we recommend you review. 
https://millerjohnson.com/publication/new-miosha-rules-whats-in-whats-out-whats-next/
 
If you would like to discuss any of the recent changes or requirements, or would like our assistance regarding any of the items below, please contact us at hrsupport@thehrsolutionsgroup.com or 616.719.5372 to schedule a meeting. 

• COVID-19 Emergency Response and Preparedness Plan Updates

• Approach to Remote Work Going Forward

• Requesting Vaccination Records

• Transition Plans to In-Person Work

• Employee Communication Strategy on Company Policy Changes

Don’t Throw Away Those Masks… Even If You’re Fully Vaccinated

On May 15th, the State of Michigan lifted the requirement to wear masks for individuals that are fully vaccinated - sort of. Employers are still subject to follow the same guidelines as before - masks are required for common areas, meetings, shared spaces, and when you cannot maintain six feet of separation. Yes, this requirement applies to all - even the fully vaccinated.   

More details at Coronavirus - May 15, 2021 Gatherings and Face Mask Order (michigan.gov). 

Returning Employees To The Workplace And Unemployment Changes

Returning Employees to the Workplace & Unemployment Changes

Michigan reached the 55% vaccination threshold on May 10th. On May 24, we anticipate allowing a return to in-person work across all sectors.

Returning to the workplace brings philosophical, policy, and emotional considerations that employers should take into consideration. Consider writing a Return to the Workplace Plan

to share your organization's approach and resources available to employees.

Here's the Table of Contents for the Return to the Workplace resource we have developed:

• Company Approach to In Person, Remote, & Hybrid Work

• Timeline for Change

• How We are Adapting

• Office Hours

• Mask Etiquette

• Daily Health Screening

• Managing Stress in a Pandemic

• Resources for Employees

To learn more about the ‘MI Vacc to Normal Plan’ and Vaccine Rollout, visit www.michigan.gov/covidvaccine to view the COVID-19 Vaccine Dashboard.

Unemployment Changes in Michigan

• Michigan unemployment no longer covers missed time related to COVID quarantine, isolation, illness etc. as it had under the temporary orders. The federal Pandemic Unemployment Assistance (PUA) program may still be available for the $300. This impacts the strategy of offering unemployment instead of Emergency Paid Sick Leave (EPSL) or Emergency Family Medical Leave (EFML).

• The Workshare program rules have gone back to the traditional requirements such as 15-45% instead of 10-60% of their schedule.

• Unemployment costs are now being charged back to the employer instead of the “no charge account."

See link for details for the quick summary.  Employment Updates: MIOSHA and Unemployment Benefits Matters - FSBR (fsbrlaw.com)