Discussion

Virginia: Minimum Wage Increases Are on the Horizon 

The state legislature has passed HB 1/SB 1, which would increase the state minimum wage to $13.75 per hour, effective January 1, 2027, and to $15.00 per hour, effective January 1, 2028. Starting January 1, 2029, and every January 1 thereafter, the minimum wage would be further adjusted for inflation. Although the bill has not yet been signed by Governor Spanberger, she has indicated she plans to sign it into law.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase

IRS Issues FAQs on Qualified Overtime Deduction

APPLIES TO All Employers

EFFECTIVE JAN 23, 2026

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look New IRS FAQs clarify the definition of “qualified overtime” under the One, Big, Beautiful Bill and outline employer reporting requirements for tax years 2025 and 2026.

Discussion

The IRS has released a new set of Frequently Asked Questions (FAQs) addressing the implementation of the qualified overtime deduction created under the One, Big, Beautiful Bill Act (OBBB). Although the deduction is available to employees on their individual tax returns, several of the FAQs contain important information for employers. Key aspects are summarized below.

 

• Definition of Qualified Overtime Compensation. The FAQs clarify how overtime compensation qualifies for the deduction, explaining that “qualified overtime compensation” is the portion of overtime required under Section 7 of the Fair Labor Standards Act (FLSA) that exceeds an employee’s regular rate of pay. For example, if an employee receives time‑and‑a‑half for an hour of overtime, only the “half‑time” premium represents qualified overtime compensation. Importantly, only overtime required by the FLSA can be considered “qualified overtime” compensation. If an employer pays above the FLSA minimum (for example, double time), only the amount needed to satisfy the FLSA requirement counts toward the deduction.
• Reporting Clarification. The IRS confirms that for tax year 2025, employers are not required to separately report qualified overtime compensation on Forms W‑2, 1099‑NEC, or 1099‑MISC. Employers may voluntarily provide separate reporting using Form W‑2 box 14, an online portal, or a separate statement. That said, the FAQs indicate that, beginning in tax year 2026, employer reporting becomes mandatory. Forms W‑2, 1099‑NEC, and 1099‑MISC will be updated to include designated fields for qualified overtime compensation. Employers should monitor IRS updates and ensure payroll systems are configured appropriately for the 2026 reporting year.

 

The FAQs also highlight that employees who qualify for the deduction but do not receive separate reporting for tax year 2025 may need to determine their own amount of qualified overtime compensation using IRS instructions or payroll records. Employers may therefore see an increase in employee inquiries related to overtime calculations, which they should be ready to address. Although employers are not obligated to calculate the deduction for employees, payroll departments may need to assist employees in locating or interpreting payroll data.

 

Action Items

1. Update payroll practices and platforms for appropriate tracking and reporting of qualified overtime for tax year 2026.
2. Prepare for employee questions regarding qualified overtime calculations.
3. Monitor additional guidance from the IRS and Treasury Department.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase

DOL Updates: New Guidance, Proposed Rules and Compliance Tools

APPLIES TO As Indicated

EFFECTIVE As Indicated

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look New FLSA and FMLA opinion letters clarify exemption standards, regular rate calculations, compensable work time, school closure impacts on FMLA leave, and travel time for medical appointments. The DOL has advanced a new independent contractor rule, expanding its scope across multiple statutes. The WHD has released new compliance assistance tools, including updated websites, FMLA videos, and refreshed industry-specific toolkits.

Discussion

The U.S. Department of Labor (DOL) has begun the year with several notable regulatory and interpretive actions impacting employers, including new opinion letters under the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA), progress on a proposed independent contractor rule, and the release of updated compliance‑assistance tools. Key updates are summarized below.

 

FLSA Opinion Letters

 

On January 5, 2026, the DOL’s Wage and Hour Division (WHD) issued four new opinion letters interpreting key provisions of the FLSA. While not binding law and typically tied to specific fact patterns, these opinion letters reflect the agency’s interpretation and provide insight into potential enforcement strategies.

 

• Learned Professional Exemption (FLSA2026-1). The WHD considered whether a Licensed Clinical Social Worker, recently relieved of supervisory duties and reclassified from exempt to nonexempt, continued to meet the learned professional exemption under the FLSA. The WHD concluded that supervisory responsibilities are not a component of the applicable duties test, and instead, the focus remains on whether the employee performs “work requiring advanced knowledge,” such as clinical assessments, treatment planning, and documentation. The letter reiterates that employers may lawfully classify an employee as nonexempt even if the employee satisfies the exemption criteria.
• Nondiscretionary Bonuses and Regular Rate (FLSA2026-2). The second letter addressed whether incentive bonuses tied to an employer’s detailed “Safety, Job Duties, and Performance” plan qualify as discretionary. The WHD concluded they do not, reasoning that because the plan establishes defined, objective criteria that automatically triggers the bonus once met, the employer does not exercise sole discretion over the decision to award the payments or their amount. As a result, the WHD said these bonuses must be included in employees’ regular rate of pay for overtime purposes.
• Pre-Shift “Roll Call” Time Under CBA (FLSA2026-3). The WHD also clarified that a union‑negotiated, mandatory 15‑minute roll‑call period for emergency dispatch employees constituted compensable work time and must be included when calculating overtime. The union sought guidance on whether these 15 minutes could be excluded from overtime calculations to align employees’ total hours with the 2,080‑hour annual standard. The WHD rejected that approach, reaffirming that actual hours worked, not annualized schedules, control FLSA overtime applicability. Notwithstanding, the WHD noted that employers may negotiate collective bargaining agreements be structured to take advantage of partial overtime exemptions under FLSA sections 7(b)(1) or 7(b)(2), which allow overtime premiums only after 12 hours in a day or 56 hours in a week. The letter provides examples illustrating how such schedules may be designed to reduce overtime exposure.
• Minimum Wage Rate for 7(i) Exemption (FLSA2026-4). The final opinion letter resolves longstanding uncertainty regarding which minimum wage applies when determining whether a commissioned retail or service employee satisfies the minimum pay standard under the 7(i) exemption. The WHD confirmed that the federal minimum wage (currently $7.25/hour) controls, even in states with higher minimum wage rates. Employers must therefore ensure the employee’s regular rate exceeds 1.5 times the federal minimum wage (e.g., $10.875/hour) to satisfy the exemption’s first prong. The letter also clarifies that, for purposes of meeting the requirement that more than 50% of an employee’s compensation consists of commissions, tips generally do not qualify as “compensation.” However, where an employer takes a tip credit toward minimum wage obligations, that credited amount does count as compensation for 7(i) analysis.

 

FMLA Opinion Letters

 

In addition to the Opinion Letters above addressing the FLSA, the DOL issued two letters interpreting pieces of the FMLA, specifically providing guidance on how school closures affect the calculation of FMLA leave for school‑based employees and whether employees may use FMLA leave for travel time to and from medical appointments.

 

• School Closures and the FMLA (FMLA2026-1): The DOL clarified that the impact of a school closure of less than a full week depends primarily on (1) whether the employee is taking full‑week or intermittent leave, and (2) whether the employee would have been scheduled to work during the closure. For school employees taking intermittent FMLA leave, employers may deduct only the actual workdays missed (not the entire week) when a partial closure occurs. Conversely, if the school is closed on days for which an employee had already planned to take FMLA leave, those closure days cannot be counted against the employee’s FMLA entitlement because the employee would not have been expected to work. If an employee is on continuous, full‑week FMLA leave and the school closes for a portion of that week, the entire week may still be counted against the employee’s FMLA allotment. The DOL also emphasized that these principles apply regardless of whether the closure was planned or unplanned, and whether the missed instructional days are later made up.
• Travel Time for Medical Appointments (FMLA2026-2): The second opinion letter confirms that employees may use FMLA leave for reasonable travel time associated with attending medical appointments for a serious health condition, whether for themselves or a qualified family member. The DOL noted that travel time is a natural and necessary part of obtaining treatment, and therefore falls within the scope of leave protected by the statute. Travel time, however, must be directly connected to the medical appointment; time spent on unrelated personal errands during the trip is not protected. The DOL also clarified that medical certifications do not need to include specific information about travel time, meaning health care providers are not required to document or separately certify the need for travel. Employers should rely on existing medical documentation to support leave for both the appointment and the associated travel.

 

DOL Advances New Independent Contractor Rule

 

On January 8, 2026, the DOL submitted a new proposed independent contractor rule to the White House, as part of the early-stage rulemaking process. Although details of the rule are not yet public, the scope of the proposed rule appears broader than initially expected, now referencing the FMLA and the Migrant and Seasonal Agricultural Worker Protection Act in addition to the FLSA.

 

For now, the agency has paused enforcement of the 2024 Biden‑era independent contractor rule and is instructing investigators to rely on earlier, more business‑friendly guidance from 2008 and 2019. While it remains unclear whether the DOL will reinstate the 2021 Trump‑era rule or introduce a new standard, employers should expect potential changes and continue monitoring the rulemaking as it progresses.

 

DOL Releases New Compliance Assistance Tools

 

On January 26, 2026, the WHD released new compliance‑assistance resources aimed at helping employers understand and meet their obligations under federal labor laws. The updates include a redesigned compliance‑assistance webpage, new FMLA video tutorials, and updated industry‑specific toolkits. The WHD emphasized that these tools are designed to support proactive compliance, reduce enforcement risk, and make it easier for employers to access cleat, user-friendly explanations on federal requirements.

 

Action Items

1. Review employee exemptions, bonus plans, and overtime practices for compliance.
2. Review FMLA leave administration practices.
3. Have appropriate personnel trained on applicable wage and hour and leave administration requirements.
4. Review updated compliance assistance tools for additional guidance.
5. Monitor additional guidance and instruction from the DOL on worker classifications.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase

Ninth Circuit: Religious Nonprofits May Require Non‑Ministerial Staff to Share Their Beliefs

APPLIES TO Qualified Religious Employers with Employees in AK, AR, CA, HI, ID, MT, NV, OR, WA, Guam, and Northern Mariana Islands

EFFECTIVE JAN 6, 2026

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look The Ninth Circuit ruled that the First Amendment’s church‑autonomy doctrine protects a religious nonprofit’s decision to hire only co‑religionists for non‑ministerial roles when tied to its faith‑based mission.

Discussion

In Union Gospel Mission of Yakima Washington v. Brown, the Ninth Circuit Court of Appeals upheld a preliminary injunction preventing enforcement of the state’s anti-discrimination law against a Christian ministry in connection with the organization’s hiring of non-ministerial employees.

 

The case arose after the Mission received an application for a non-ministerial position from an individual who openly expressed beliefs and conduct that were inconsistent with the organization’s religious teachings on marriage and sexuality. Because adherence to its statement of faith is required of all staff, the Mission ultimately declined to hire the applicant and later filed suit, arguing that Washington’s updated anti-discrimination law interfered with the organization’s ability to maintain a faith-based workforce.

 

As part of employment, the Mission required all employees, including administrative, IT, and operations staff, to participate in prayer and chapel services and to follow its religious teachings. The organization emphasized that these shared beliefs were essential to its internal faith community and its service-based ministry.  The Court agreed, holding that, beyond the ministerial exception, the First Amendment’s broader church-autonomy doctrine also protects a religious organization’s ability to require non-ministerial staff to adhere to the organization’s sincerely held religious beliefs when those beliefs are central to the organization’s mission.

 

The Court’s ruling prevents the state from enforcing the Washington Law Against Discrimination against the Mission’s religious-based hiring criteria, confirming that religious nonprofits may rely on the church-autonomy doctrine when making faith-based hiring decisions for non-ministerial roles, when such criteria is tied to their religious identity and mission.

 

Action Items

1. Review hiring practices for compliance with applicable federal and state requirements.
2. Consult with legal counsel regarding application of religious-based hiring criteria.
3. Have appropriate personnel trained on employer hiring practices and applicable requirements.

 

 

Ninth Circuit: Misleading Communications May Render Arbitration Agreement Unenforceable

Applies to:          All Employers with Employees in AK, AR, CA, HI, ID, MT, NV, OR, WA, Guam, and Northern Mariana Islands

Effective:            JAN 28, 2026

 

Quick Look v  Class action courts have authority to deny enforcement of arbitration agreements where they impact the class process. v  Arbitration agreements may not be enforced due to an employer’s misleading communications.

 

Discussion

 

In Avery v. TEKsystems, Inc., the Ninth Circuit Court of Appeals said that an employer’s communications about signing a mandatory arbitration agreement during a class action lawsuit from employees were misleading, giving the lower court a basis on which to deny arbitration enforcement for class members.

 

Here, a lawsuit against the employer for alleged wage and hour violations of its California employees was in the process of seeing class action certification. While this was happening, and near the winter holidays, the employer sent two emails – (1) notifying all employees of a mandatory arbitration agreement and requesting that it be signed even though the language of the communication indicated that a signature was unnecessary, and (2) notifying potential class employees that they could opt out of the arbitration agreement in favor of class action participation, but that they needed to sign the opt out to do so. However, the potential class employees had no knowledge yet of the lawsuit or pending class certification, and the employer’s communication failed to sufficiently address this information. There were also two different deadlines for each action.

 

Moreover, the employer repeatedly disparaged the efficacy of class actions and claimed that class actions are “wasteful, inefficient means for resolving disputes” that “tend to enrich only attorneys rather than the individuals who may have legitimate claims.” Further, the employer inaccurately stated that a class action “requires [the employer] to ignore individual employee issues and concerns.” The communications also said that employees could consult with their own legal counsel but also said they were not allowed to share the emails.

 

The Ninth Circuit said that a district court in a class action has “the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties,” including to control the opt-out process. The court said that the employer’s actions ultimately sought to interfere with statutory opt-out procedures by changing it from an opt-out process to an opt-in process through the arbitration agreement and through misleading communications sent to employees.

 

Action Items

1. Review arbitration agreements and communications around arbitration agreements with legal counsel.

 

 

Eleventh Circuit: McDonnell Douglas Standard Isn’t the Only Hurdle in Discrimination Cases

Applies to:          All Employers with Employees in AL, FL, and GA

Effective:            DEC 5, 2025

 

Quick Look v  The McDonnell Douglas standard of proof does not eliminate the need for a broader “convincing mosaic” standard in the context of a motion for summary judgment. v  Even if an employer can show it had a legitimate reason for its actions, a totality of the circumstances approach may cause its motion to fail.

 

Discussion

 

In Ismael v. Roundtree, the Eleventh Circuit Court of Appeals said that the McDonnell Douglas framework does not necessarily apply in the context of a summary judgment motion. The McDonnell Douglas standard says that a plaintiff must prove their case on its face, which then shifts the burden to the defendant to show a legitimate business reason for their action, and finally allows the plaintiff to show that the employer’s reason was just pretext. Here, the court found the McDonnell Douglas standard to be too rigid in the context of a summary judgment motion, saying that a “convincing mosaic” standard was appropriate under the circumstances.

 

Here, an employee filed a discrimination claim against his employer, who then made a motion for summary judgment. The district court found that, even though the plaintiff proved his case on its face, the employer met its burden under the McDonnell Douglas standard and granted the motion. However, there was significant additional evidence presented indicating that the employer’s presented evidence was unreliable and that the employer treated the plaintiff differently from other employees.

 

The appellate court indicated that lower courts should use a convincing mosaic standard in summary judgment, which has its own procedural standard of proof. Specifically, a convincing mosaic standard means “(1) that a plaintiff will always survive summary judgment if he presents circumstantial evidence that creates a triable issue concerning the employer’s discriminatory intent,” and (2) that a “triable issue of fact exists if the record, viewed in a light most favorable to the plaintiff, presents a convincing mosaic of circumstantial evidence that would allow a jury to infer intentional discrimination by the decisionmaker.” The court said that the pretext standard under McDonnel Douglas should not be confused with the convincing mosaic standard that should apply in the context of a summary judgment motion.

 

Ultimately, the broader convincing mosaic standard means greater potential scrutiny over employer actions in litigation. Although this case focuses on legal procedure, it highlights the need for employers to be consistent in their policy enforcement and discipline and to document their legitimate business reasons for disciplinary action.

 

Action Items

1. Have appropriate personnel trained on employer policies and consistent enforcement.
2. Implement processes to consistently document legitimate business reasons for disciplinary action.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase