As 2026 begins, employers are navigating a labor market characterized by slower hiring and cooling wage growth, alongside a steady drumbeat of pay transparency and wage compliance changes. Below are the most important labor market signals from the latest federal releases and the key pay-related laws that took effect on January 1, 2026.
The U.S. economy and labor market
The latest Employment Situation report (for December 2025, released January 9, 2026) points to a low-hire, low-turnover labor market. Total nonfarm payroll employment rose by 50,000 in December, and the unemployment rate changed little at 4.4% (7.5 million unemployed). Long-term unemployment remains elevated: 26% of unemployed people were jobless for 27 weeks or more.
Wage growth continues to cool relative to 2022-2023, and employers are increasingly balancing cost control with pay competitiveness. For many organizations, this is a precision-planning year: tighter hiring, more targeted retention investments, and closer scrutiny of pay ranges and internal equity.
A shift toward “peanut butter” pay increases
Peanut butter pay increases (typically small, across-the-board pay raises) may be an emerging trend in compensation strategy in 2026 as employers balance equity and cost control. According to research from Payscale’s 2026 Compensation Best Practices Report, 44% of organizations are either considering, newly implementing, or already using peanut butter increases. At the same time, 48% of organizations report plans to continue performance-based pay increases in 2026. Signaling a split approach to compensation strategy during a period of continued caution amid inflation, economic uncertainty, and burgeoning pay equity laws.
Research from Mercer corroborates these findings and suggests most organizations may opt for peanut butter increases in 2026. While peanut butter increases can help maintain baseline competitiveness and employee goodwill, they are most effective when paired with targeted, performance- or skills-based adjustments. Employers that rely too heavily on across-the-board increases risk turnover for high performers and hard-to-fill roles.
What employers should do:
• Identify where peanut butter increases are a strategic advantage in the business, and where targeted pay increases are needed.
• Lean on real-time or near real-time compensation benchmarks where possible, especially for roles with fast-moving market rates.
Pay transparency legislation
United States
Pay transparency enforcement and refinements continue to expand. As of 2026, 16 states have enacted pay transparency laws, while there is still no policy in place at the federal level.
California (SB 642) - Effective January 1, 2026: Employers should define the posted pay scale as a good-faith estimate of the salary or hourly wage range they reasonably expect to pay upon hire (not a broader internal range).
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.
Oregon (SB 908) - Effective January 1, 2026: Employers must provide employees with detailed explanations of payroll codes, itemized deductions, and pay rates at the time of hire.
Local trend: City-level pay posting ordinances are increasingly common; employers should monitor local requirements where they recruit.
Europe
EU employers should continue preparing for the EU Pay Transparency Directive implementation deadline of June 7, 2026. While Member State progress varies, the direction is clear: more candidate disclosure, more accessible pay information, and increased reporting obligations for larger employers.
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 have not finalized or enacted implementing laws.
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
Federal Core Fair Labor Standards Act (FLSA) standards remain unchanged, but many states increased minimum wages effective January 1, 2026, largely through scheduled increases and inflation indexing. These changes can cascade into pay compression, salary band adjustments, and exempt/non-exempt classification reviews.
In January 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. Overall, 30 states have enacted a higher minimum wage than the federal minimum wage. These changes reflect both scheduled annual inflation adjustments and legislated increases.
Examples of state minimum wage rates effective January 1, 2026:
• Washington State: $17.13/hour
• New York City / Long Island / Westchester: $17.00/hour (with $16.00/hour for the rest of New York State)
• Connecticut: $16.94/hour
• California: $16.90/hour
• Colorado: $15.16/hour
• Arizona: $15.15/hour
• Michigan: $13.73/hour
• Virginia: $12.77/hour
What employers should do:
• Confirm you are meeting the highest applicable state and local minimum wage where employees work (including remote employees).
• Model downstream effects: compression at the bottom of ranges, increased overtime costs, and potential re-leveling of roles.
• Ensure job level, duties, and salary thresholds align with state-specific rules to reduce misclassification risk.
Preparing for 2026
As employers plan for the year ahead, 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.
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