New Employment Laws and Requirements for 2026
The California Legislature and federal government passed a number of important new laws in 2025 that will affect employers, regardless of the size of their workforce. These laws relate to a range of issues that employers face on a day-to-day basis, including employee leave rights, required notices, personnel records, and pay practices. The following is a summary of some of the key state and federal laws and regulations that may impact employers’ operations and warrant a review of existing policies and procedures.
All of the new laws discussed below will become effective on January 1, 2026, unless noted otherwise.
Employee Leave Rights
Expanded Use of Paid Sick Leave (AB 406)
Effective October 1, 2025, AB 406 continues the Legislature’s ongoing efforts to expand the reasons employees may use paid sick leave. Employers must now allow employees to use available sick leave when they serve on a jury or appear in court to comply with a subpoena or other court order as a witness in a judicial proceeding.
AB 406 also expands protections and leave entitlements for employees who are victims (or whose family members are victims) of a “qualifying act of violence.” Employees were already entitled to a protected leave of absence but may now also use paid sick leave if the employee or a family member is a victim of certain serious crimes and needs to attend a judicial proceeding related to the crime, obtain or attempt to obtain relief related to the crime, or seek treatment or services related to the crime.
Paid Family Leave Benefits for Employees that Care for “Designated Persons” (SB 590)
SB 590 expands eligibility for benefits under California’s paid family leave program to employees who take a leave of absence to care for a seriously ill “designated person,” which is a person related by blood or whose association with the employee is the equivalent of a family relationship. Employees are already permitted under existing law to take sick leave and California Family Rights Act leave to care for a designated person with a serious health condition. The change will be effective on July 1, 2028.
Employer/Employee Relations
Pay Transparency Requirements (SB 642)
SB 642 is an equity-focused bill that makes several revisions to the state’s Equal Pay Act.
Cal. Labor Code § 432.3
Under existing law, employers must share the pay scale for a position with an employee or applicant upon request, and employers with 15 or more employees are required to provide pay scales in their job postings. The term “pay scale” is now defined as “a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire.” State law did not previously include any reference to a “good faith estimate” or “upon hire.” While the new law does not change employers’ disclosure obligations, employers should review their pay scale disclosure practices to ensure they comply with the amended definition.
Cal. Labor Code § 1197.5
SB 642 revises the definition of “wage rates” in California’s Equal Pay Act to include all forms of pay, such as salary, overtime pay, bonuses, stock, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and other benefits. The purpose of this change is to ensure that all forms of compensation are considered for purposes of compliance with employers’ equal pay obligations.
SB 642 also prohibits an employer from paying employees at wage rates less than the rates paid to employees of “another sex,” which was previously phrased in the statute as “the opposite sex.” It continues to prohibit an employer from paying employees at wage rates less than the rates paid to employees of another race or ethnicity.
Finally, SB 642 extends the statute of limitations for equal pay claims from two to three years.
Broadened Definition of Personnel Records (SB 513)
If an employer maintains employee education and/or training records, those records are now deemed to be a part of the employer’s “personnel records,” under SB 513. Education and training records must include the employee’s name, the name of the training provider, the core competencies addressed in the training, and the resulting certification or qualification.
Employers remain obligated to provide personnel records for inspection or copying within 30 calendar days of a written request (or up to 35 days by mutual agreement). Education and training records must now be produced in response to an employee’s request for their personnel file. Employers should therefore review their record keeping practices to identify where and how education and training records are maintained and evaluate if the form and content of employer-generated records are adequate to comply with these disclosure obligations.
“No Tax on Overtime” – The One Big Beautiful Bill Act
Beginning in 2025, employees are permitted to deduct from their taxable income any “qualified overtime compensation” (“QOC”) that exceeds their regular rate of pay under the Fair Labor Standards Act (“FLSA”). “QOC” is the portion of overtime pay required by the FLSA that is paid in excess of the employee’s regular rate of pay (e.g., if an employee is paid overtime at one and half times his or her regular rate, the “half” is the QOC). Importantly, overtime pay required under a state law or a collective bargaining agreement that exceeds overtime required under the FLSA is not QOC. For example, if a California employee is paid overtime for working in excess of 8 hours in one day but does not work more than 40 hours that week, the overtime the employee is paid under state law is not QOC because the FLSA requires overtime pay only for hours worked over 40 in a workweek. The deduction may be taken only when calculating taxable income for federal income tax purposes. In California, employees’ taxable income for state income tax purposes will continue to include QOC.
The IRS has issued guidance stating that for tax year 2025, employers may but are not required to provide employees a separate accounting of QOC using box 14 of the current W-2 form or in a separate statement. However, beginning in tax year 2026, employers will be required to provide employees a separate accounting of their QOC. The IRS has issued an updated W-2 for tax year 2026, instructing employers to report QOC in box 12, using code “TT.”
Employers should evaluate their payroll practices and consult with their payroll provider (if any), to determine how to best track QOC in the upcoming year.
Regulatory/Enforcement Updates
New Requirements When Storing Employer Pay Data and Expanded Reporting Requirements (SB 464)
Existing law requires employers with 100 or more employees to report pay data to the California Civil Rights Department annually. The reporting obligation is currently limited to employees in ten defined job categories. SB 464 requires employers to store their reported pay data separately from employees’ personnel records.
In addition, effective January 1, 2027, employers will be required to provide pay data for employees in an expanded list of twenty-three job categories, including: chief executives; management occupations; business and financial operations occupations; computer and mathematical occupations; architecture and engineering occupations; building and ground cleaning and maintenance occupations; sales and related occupations; office and administrative support occupations; farming, fishing, and forestry occupations; construction and extraction occupations; installation, maintenance, and repair occupations; and transportation and material moving occupations, among others.
New Posting and Notice Requirements
The Workplace Know Your Rights Act (SB 294)
By February 1, 2026, employers must provide all current employees a stand-alone written notice of their workplace rights. The notice must summarize employee rights relating to workers’ compensation, immigration-related protections, the right to concerted activity/organizing, and an employee’s constitutional rights during law-enforcement interactions at work. The California Division of Labor Standards Enforcement (DLSE) will publish a template notice by January 1, 2026.
After February 1, 2026, employers will be required to distribute the notice at the time of hire and annually to all employees, and to employees’ authorized representatives, if any.
In addition, employees may identify an emergency contact and indicate to their employer whether they should notify that contact if the employee is arrested or detained while performing their job duties. If an employee is arrested or detained at a worksite, or an employer has actual knowledge of an arrest or detention that took place while an employee was working off-site, and the employee has opted for notification, the employer must promptly contact the employee’s emergency contact.
Employers should monitor the DLSE website (https://www.dir.ca.gov/dlse/) for the template notice and prepare a plan to provide notices to all current employees by February 1, 2026.
Updated Employer Posters and Pamphlets
In addition to the new Workplace Know Your Rights Act notice (above) there are several recent updates to mandatory employer posters and pamphlets:
- The California Department of Civil Rights issued a new “Survivors of Violence and Family Members of Victims Right to Leave and Accommodations” pamphlet in May 2025.
- Cal/OSHA’s Safety and Health Protection on the Job poster was updated in July 2025.
- The EDD’s Paid Family Leave brochure was updated in May 2025.
- The EEOC is expected to update its “Know Your Rights: Workplace Discrimination is Illegal” poster in the near future, which may be released at the start of the new year.
California Minimum Wage
Effective January 1, 2026, the state minimum wage will increase from $16.50 to $16.90 per hour. Therefore, exempt employees will need to earn a minimum annual salary of $70,304 to remain eligible as exempt.
Twenty-three city and county local minimum wages are also being increased for 2026. Employers should review any local or industry-specific minimum wages to which they are subject before the end of the year.
Finally, employers should update their Minimum Wage Posters to reflect the $16.90 state minimum wage and any applicable local requirements.
In light of these new requirements, employers should review and update their written leave policies, data collection and storage policies and practices, pay reporting and disclosure practices, and employee notices and postings to ensure they remain in compliance. Our Labor and Employment Team, and particularly the authors, are available to answer any questions or assist with implementation of the new requirements.
