818.501.4343December 17, 2025
In 2026, U.S. salary increases are projected to fall around 3.5%, which is consistent with the median for 2025. As the year comes to a close, HR leaders are already evaluating new year raises for employees.
Recently, compensation trends have shifted quickly in response to inflation and regulatory changes. Talent expectations are also shaping the compensation landscape. Employers who take a proactive, compliance-forward approach to new year raises for employees can avoid costly disputes and promote retention.
Below is what HR departments need to know as they prepare for 2026 compensation cycles, including how to deal with regulatory pressure and pay-equity expectations.
Why You Need a New Approach to 2026 Compensation Planning
The compensation environment has become more complex than ever. Employers are facing:
- Record-high cost-of-living
- Aggressive pay transparency laws
- Expanding wage-and-hour litigation
- Increased employee expectations related to performance, flexibility, and rewards
In the new year, your HR team cannot follow old models. Instead, the business must anchor its compensation decision in defensible and well-documented justifications. With that in mind, here are five important trends to consider when planning new year raises for employees.
Trend 1: Pay Transparency Is Driving Salary Restructuring
California requires employers to disclose the pay scale for any position they post. Current employees are also entitled to receive a copy of the pay scales upon request. Employees are increasingly aware of these laws, which has prompted them to ask questions and compare their pay to that of other employees in similar roles.
Your HR department should consider these risks as they relate to pay transparency:
- Disclosing pay ranges increases scrutiny of disparities
- Employees may challenge how raises were calculated
- Pay compressions can emerge if new hires receive labor market-rate salaries
Therefore, your business should proactively conduct pay studies before announcing new-year raises for employees. While you need to offer competitive salaries to new hires, you should also minimize compression to prevent morale issues within the organization.
Trend 2: Competitive Markets Are Driving Variable Pay Growth
Base salary increases for 2026 are projected to be similar to those in 2025. However, many employers are turning to variable pay programs and optional perks.
If your organization intends to make bonuses, incentives, or performance-based compensation part of its plan in 2026, be prepared for greater scrutiny. Clearly document who is eligible and what the thresholds are for each bonus or incentive. Any gray area can cause distrust among your workforce and lead to concerns of favoritism.
Trend 3: State and Local Minimum Wage Laws Raise the Floor
In California alone, several areas have scheduled wage increases through 2025 and 2026. Meanwhile, industries such as healthcare and fast food have unique wage mandates. For employers, this creates challenges such as:
- Compression between entry-level roles and higher positions
- Increased payroll budgets
- Difficulty maintaining consistent compensation structures
To stay compliant and to defend new year raises for employees, you must track wage mandates across the areas that you operate.
Trend 4: Remote Work Is Reshaping Geographic Pay Strategy
Remote work and hybrid options are here to stay. If your business relies on off-site or hybrid talent, your compensation strategy must account for:
- Employees moving to lower-cost areas
- Multi-state compliance requirements
- Market-based pay structures that differ geographically
Some employers are shifting to role-based national ranges instead of location-based pay. This avoids the legal risks associated with varying minimum wage requirements.
Trend 5: Pay Equity Audits Will Become a Standard Practice
There is expanding litigation in the equal pay space. State regulators and the EEOC continue to scrutinize disparities based on gender, race, and age. Your organization can protect itself from these risks by conducting periodic equity assessments that focus on:
- Job classifications
- Seniority pay calculations
- Performance evaluation criteria
- Compensation historical practices
The goal is to ensure employees in equal roles or with similar experience levels have access to equitable compensation opportunities. Documenting the steps your organization has taken to promote pay equity can be a critical defense strategy if your compensation decisions are challenged later.
Risk Management Strategies for 2026 Raises
As we prepare for the new year, your HR team needs to focus on the big picture. The following strategies help minimize legal risk while supporting the needs of your workforce:
Document Everything
Gray areas in your policy open the door to civil liability. Therefore, you need to record the following when rolling out new year raises for employees:
- Market data
- Internal pay structures
- Performance metrics used
You should also document the rationale behind your decision-making processes. The goal is for every decision to be defensible using real-world labor market data.
Reevaluate Job Descriptions and Classifications
Misclassifying an employee as an independent contractor is a common source of litigation. Make sure that:
- Job duties match actual responsibilities
- Salary ranges align with classifications
- Exempt/non-exempt status is updated
When in doubt, partner with an experienced business law firm to refine your job description and classification policies. That way, you can enjoy peace of mind while taking advantage of outsourcing opportunities.
Trains Supervisors to Communicate Compensation Decisions
Supervisors may unintentionally expose employers to risk through comments that can be interpreted as discriminatory or retaliatory. Your HR team should provide management with approved talking points and training in advance.
Conduct a Legal Review
Partnering with an employment defense law firm ensures:
- Compliance with state and federal laws
- Identification of risk areas
- Support with audits and restructuring strategies
The right legal team can protect your business while promoting a safe compensation strategy for the new year.
How Your Business Can Prepare Today
The new year will be here soon, which means your business should focus on:
- Running compensation simulations
- Conduct internal pay-equity and wage-and-hour audits
- Verify compliance with state law
- Review incentive compensation plans
These pre-planning steps help you implement new year raises that are fair and defensible.
Be Proactive and Transparent to Protect Your Workforce
Offering new year raises for employees is part of a broader talent acquisition and retention strategy. When done right, it can protect your business from churn and help you attract new talent. Thoughtful compensation planning allows you to plan ahead and use raises as a tool that drives your business forward in 2026.
If you want help making sure your compensation plans are fair, competitive, and compliant, the team at Pearlman, Brown & Wax, LLP can guide you. They’ll help you navigate pay-equity audits, wage regulations, and other potential risks so you can protect both your employees and your business. Reach out to Pearlman, Brown & Wax, LLP today to get your 2026 compensation planning on the right track.