The year 2025 has ended and employers are navigating a labor market defined by caution, moderation, and increasing regulatory complexity. While conditions remain stable overall, slower hiring, cooling wage growth, and expanding pay compliance requirements are shaping how organizations are planning for 2026.
Here’s what HR leaders and compensation professionals should know from news in December, and what to prepare for as the compensation calendar kicks off in a new year.
The U.S. economy and labor market
In December of 2025, the U.S. labor market continued to show signs of moderation rather than overheating. Weekly jobless claims remained relatively low, falling to 199,000 for the week ending December 27, 2025, one of the lowest readings all year, although this period is traditionally volatile due to holiday effects.
Despite this drop, broader employment measures point to continued softening of the labor market. Estimates from the Chicago Federal Reserve suggested the U.S. unemployment rate was around 4.6% in December 2025, near a multi-year high and unchanged from November.
Although layoffs remain historically low, the pace of hiring has slowed significantly, and delayed government data showed an already shaky job market weakening further in October and November.
Wage growth in 2025 has stayed above pre-pandemic norms but continues to cool compared with the robust increases seen in 2022 and 2023. As a result, while workers can still expect average pay increases to outpace inflation, the pace of wage growth has tempered alongside slowing hiring.
Economic policy also played a role in shaping talent strategy. With inflation moderating but not dropping to target levels and unemployment increasing, the Federal Reserve elected to trim interest rates. Employers continue to face an environment where cost control and pay competitiveness must be balanced carefully.
- What employers should do:
Mixed signals in the labor market reinforce the limitations of delayed data. Real-time workforce and salary data are becoming increasingly important for making hiring and compensation decisions.
Employers interested in modern compensation data that come straight from employee salaries should check out data products from Payscale.
Pay transparency legislation
United States
Pay transparency continued to expand throughout 2025 in the United States. While no new legislation was introduced or passed in the month of December, several jurisdictions are preparing to enforce or expand pay legislation beginning in 2026.
- California: Effective January 1, 2026, SB 642 narrows the definition of a "pay scale" to the range an employer reasonably expects to pay a new hire, not just the potential range for the role.
- Delaware: New legislation introduced in 2025 and taking effect in 2027 mandates retaining salary records for a minimum of three years, which will require compliance in 2026.
- Massachusetts: An expanded pay transparency law requiring disclosure of pay ranges in job postings and to applicants/employees for employers with over 25 employees went into effect October 29, 2025, influencing compliance in 2026.
- Ohio: The Columbus, Ohio City Council introduced and passed pay transparency legislation on November 4, 2025, which took effect December 3, 2025. This amends city code (Ordinance 2898-2025) to require employers with 15 or more employees to include a reasonable salary range or pay scale in job postings. However, enforcement of the pay posting requirement is delayed until January 1, 2027 to give employers time to adjust.
Europe
Under the EU Pay Transparency Directive, EU Member States must implement legislation by June 7, 2026; however, progress has been uneven, with some countries lagging and others advancing in draft legislation.
Countries furthest along include Belgium, Malta, Poland, and the Czech Republic, which have enacted partial legislation covering elements such as pay disclosure to job candidates, bans on pay secrecy, and expanded employee rights to pay information.
A second group—Sweden, Ireland, the Netherlands, Finland, Lithuania, and Slovakia—has published advanced draft legislation or detailed proposals and is widely viewed as on track for compliance ahead of the June 2026 deadline.
In contrast, several countries are lagging, with little or no formal legislative activity reported to date, including Austria, Bulgaria, Croatia, Denmark, Greece, Hungary, Italy, Latvia, Luxembourg, Portugal, and Slovenia.
Major economies such as Germany, France, Spain, and Romania fall in the middle: they have acknowledged the EU Pay Transparency Directive and begun preparatory or consultative work but had not finalized or enacted implementing laws by the end of 2025.
- What employers should do:
Review job posting practices, internal pay communications, and compensation documentation to ensure compliance and foster trust with candidates and employees.
Employers operating internationally should track both EU-wide requirements and national legislation to prepare for compliance deadlines from mid-2026 onward.
FLSA and minimum wage legislation
Core Fair Labor Standards Act (FLSA) standards remain unchanged at the federal level, but many states are imposing higher wage floors and stricter overtime exemption thresholds, which took effect January 1, 2026.
At least 19 states raised their minimum wages, affecting more than 8 million workers and pushing wage floors well above the federal minimum of $7.25/hour (which remains unchanged), with many exceeding $15/hour. These changes reflect both scheduled annual inflation adjustments and legislated increases.
Examples include:
- Washington State: $17.13/hour
- New York City/Long Island/Westchester: $17.00/hour
- California: $16.90/hour
- Michigan: $13.73/hour
- Virginia: $12.77/hour
- What employers should do:
Confirm that salaries, job levels, and duties meet the highest applicable state requirements to reduce misclassification risk.
Preparing for 2026
As employers plan for 2026, a moderating labor market, rising minimum wages, and expanded transparency requirements underscore the need for compensation strategy, real-time salary data, and compensation planning and compliance. Overall, compensation management in 2026 is defined by strategic transformation: organizations are investing carefully, leveraging technology and data to do more with less, and positioning compensation not as a cost center, but as a disciplined, business-critical tool for performance, equity, and engagement.
Those that explore modern compensation solutions will be best positioned to succeed in the year ahead.
How Payscale can help
Payscale provides compensation data and software that enables:
- Optimized budgets – Making the most of every compensation dollar.
- Confident pay decisions – Using trusted data to guide fair, effective pay strategies.
- Risk mitigation – Reducing legal and reputational exposure from pay inequities.
