Many state Paid Family and Medical Leave (PFML) programs update their benefit calculations each year based on changes to the state’s average weekly wage (SAWW). As a result, employers with multi-state workforces should expect annual and sometimes mid-year changes to benefit levels, payroll calculations, and employee communications.  Several states have now announced updated benefit amounts that became effective during the summer of 2026, while others have scheduled increases later this year.

Paid Family and Medical Leave laws continue to expand nationwide, and each state has its own eligibility rules, benefit formulas, notice requirements, and payroll obligations. Employers with multi-state workforces should review their leave policies annually and verify that payroll systems are applying the correct state-specific rules.

Forework helps employers stay ahead of changing leave laws by combining payroll technology with employment law expertise making it easier to administer complex leave programs while reducing compliance risk.

Here’s a summary of the latest changes.

Colorado (FAMLI)

Effective July 1, 2026, Colorado increased both its State Average Weekly Wage (SAWW) and maximum weekly benefit under the Family and Medical Leave Insurance (FAMLI) program.

• State Average Weekly Wage: Increased from $1,534.94 to $1,608.91
• Maximum Weekly Benefit: Increased from $1,381.45 to $1,448.02

District of Columbia

The new benefit amount has not yet been announced but will reflect the District’s increase in the minimum wage to $18.40 per hour, effective July 1, 2026.

The District’s Paid Family Leave program is expected to increase its maximum weekly benefit beginning October 1, 2026.

The current maximum weekly benefit remains $1,190 until the updated amount is published.

Maine

Maine’s Paid Family & Medical Leave program also implemented increases effective July 1, 2026.

• State Average Weekly Wage: Increased from $1,198.84 to $1,249.12
• Maximum Weekly Benefit: Increased to $1,249.12

These updated benefit amounts apply to new claims beginning on or after July 1, 2026.

Oregon

Paid Leave Oregon updated its benefit calculations effective June 28, 2026.

• State Average Weekly Wage: Increased from $1,363.80 to $1,410.13
• Maximum Weekly Benefit: Increased from $1,636.56 to $1,692.16

The new benefit levels apply to new claims filed on or after June 28, 2026.

Rhode Island

Rhode Island increased benefits under its Temporary Disability Insurance (TDI) and Temporary Caregiver Insurance (TCI) programs effective July 1, 2026.

• State Average Weekly Wage: Increased from $1,297.06 to $1,352.74
• Maximum Weekly Benefit: Increased from $1,103 to $1,150
• Maximum Benefit with Dependency Allowances: Increased from $1,489 to $1,552

These updated amounts apply to new claims beginning on or after July 1, 2026.

`Washington

Washington’s Paid Family & Medical Leave program also announced updated benefit calculations.  Effective July 1, 2026:

• State Average Weekly Wage: Increased from $1,830 to $1,919

Beginning January 1, 2027:

• Maximum Weekly Benefit: Will increase from $1,647 to $1,727

What Employers Should Do

While these updates generally affect benefit calculations rather than employer contribution rates, employers should ensure they are prepared for the changes by:

• Updating employee leave information and internal guidance where necessary;
• Confirming payroll and leave administration systems reflect the new benefit calculations;
• Coordinating with payroll providers and leave administrators to ensure compliance; and
• Monitoring additional state announcements, as several jurisdictions continue to expand or modify their Paid Family and Medical Leave programs.

For employers operating in multiple states, staying current on annual PFML updates is essential. Benefit amounts, contribution rates, eligibility requirements, and reporting obligations continue to evolve, making regular compliance reviews an important part of payroll and HR administration.

Forework combines payroll technology with employment law expertise to help employers manage these evolving requirements more proactively. As leave laws continue to change across the country, Forework helps businesses keep their payroll and HR processes aligned with the requirements affecting their workforce.

Home care sits at an awkward intersection of the tax code. You’re running a business with W-2 caregivers, but you’re also operating under domestic-service labor rules that were written for a very different era — and both sets of rules moved this year. If you process payroll for caregivers, 2026 brings new dollar thresholds, a still-unsettled overtime picture, and a brand-new reporting obligation that lands squarely on your W-2s. Here’s what an experienced advisor would flag.

1. The 2026 numbers your payroll needs to be running

Three federal figures reset for 2026, and getting any of them wrong compounds across every paycheck:

• Social Security wage base: $184,500 (up from $176,100 in 2025). The rate is unchanged at 6.2% each for employer and employee. Most caregivers earn well under the cap, so in practice you’ll withhold 6.2% on essentially all their wages.
• Medicare: 1.45% each, no wage ceiling. An Additional Medicare Tax of 0.9% kicks in on an employee’s wages above $200,000 in a year — employee-only, no employer match. Rare in home care, but your system still has to catch it if a caregiver holds multiple roles at your agency.
• FUTA: 6.0% on the first $7,000 of each employee’s wages, reduced to an effective 0.6% once you claim the full 5.4% state credit. That credit shrinks in a handful of “credit reduction” states, so the effective rate isn’t universal.

For agencies, the combined employer-side FICA of 7.65% plus FUTA is a real line item on thin home care margins. The advisor’s point: these are per-employee, per-year mechanics, and high-turnover workforces multiply the number of times each threshold has to be tracked correctly. This is precisely the arithmetic [Your Company] automates so a caregiver who works three weeks in January and returns in September doesn’t quietly reset a wage base you thought was settled.

2. The overtime question every agency is asking — and why the answer is “it’s complicated”

This is the big one for 2026, and it’s easy to get dangerously wrong.

Background: from 1975 to 2013, third-party home care agencies could treat companionship and live-in caregivers as exempt from federal minimum wage and overtime. A 2013 DOL rule (enforced from 2015) took that exemption away from agency employers — meaning most caregivers became entitled to time-and-a-half.

In 2025, the pendulum started swinging back. On July 2, 2025, DOL proposed a rule to restore the companionship and live-in exemptions for third-party agencies. On July 25, 2025, DOL issued Field Assistance Bulletin 2025-4, telling its own investigators to stop enforcing the 2013 rule.

Here’s where agencies get into trouble. A non-enforcement bulletin is not a change in the law:

• The 2013 rule is still the law. No final rule has been issued. DOL has simply chosen not to enforce it for now.
• The bulletin does not touch private lawsuits. Caregivers and plaintiffs’ attorneys can still sue for unpaid overtime under the 2013 rule, and that’s historically where most home care wage claims originate.
• Courts are still enforcing it. In April 2026, the Sixth Circuit upheld the 2013 rule as valid in DOL v. Americare — even after the Supreme Court’s 2024 Loper Bright decision — finding DOL had express authority to define these exemptions.
• State law runs on its own track. New York, New Jersey, California and others require overtime regardless of the federal posture. An agency that stops paying overtime based on the federal bulletin can be fully compliant with DOL and still be exposed under state wage law.

The advisor’s read: do not change your overtime practices based on the non-enforcement bulletin alone. The prudent move is a state-by-state analysis with employment counsel before touching a single pay rule, and payroll configured to keep paying overtime where the law — federal or state — still requires it. [Your Company] configures overtime rules at the state level and preserves the timekeeping records that survive an audit or a plaintiff’s discovery request, so you’re not betting the agency on a bulletin that could be reversed.

3. “No tax on overtime” — what it actually does (and the new job it hands your W-2 team)

The One Big Beautiful Bill Act (OBBBA, signed July 2025) created a temporary deduction employees hear about as “no tax on overtime.” For a workforce that logs a lot of overtime hours, caregivers will ask about it. Here’s the accurate version:

• It’s an income-tax deduction of up to $12,500 ($25,000 for joint filers), available for tax years 2025 through 2028, phasing out above $150,000 MAGI ($300,000 joint).
• Only the premium portion counts — the extra “half” of time-and-a-half required by the FLSA, not the full overtime paycheck.
• Critically for payroll: overtime is still fully subject to Social Security and Medicare tax. Nothing about your FICA withholding or employer match changes. “No tax” refers only to a slice of the worker’s income tax, claimed on their return.

The part that lands on you: reporting. For tax year 2025, the IRS granted transition relief (Notice 2025-69) — separate W-2 reporting was optional, but you still had to give employees a reasonable approximation of their qualified overtime (often in Box 14 or a year-end statement). Starting with tax year 2026, separate reporting is mandatory, the W-2 is being updated, and there’s a revised 2026 Form W-4 with a worksheet for employees expecting overtime or tips. Your payroll system has to isolate the qualifying overtime premium from regular wages all year long — you can’t reconstruct it in January.

The advisor’s point: this is a tracking problem disguised as a tax break. Agencies still capturing overtime as one lump sum need their systems reconfigured now for the 2026 mandate. [Your Company] already separates qualified overtime at the paycheck level and populates the new W-2 fields automatically — turning a compliance headache into a checkbox.

4. The misclassification trap: caregivers are almost never independent contractors

The single most expensive payroll mistake in home care is issuing a 1099 to a caregiver who is legally an employee. When you control what work is done and how it’s done — schedules, tasks, methods — the worker is your employee, full stop, regardless of what any agreement says.

Get it wrong and the bill is brutal: back Social Security and Medicare (often both halves, because the IRS generally won’t let you retroactively collect the employee’s share), back FUTA, and penalties on top. It also cascades into workers’ comp and state unemployment exposure. In an industry the DOL has historically targeted for enforcement, misclassification is low-hanging fruit for an auditor.

The advisor’s point: “1099 to save on payroll tax” is not a strategy — it’s a deferred liability with interest. Running caregivers as proper W-2 employees through [Your Company] closes the exposure and produces the clean records that make an audit boring.

5. Don’t forget the household-employer segment (Schedule H)

Part of the home care market isn’t agencies at all — it’s families hiring a caregiver directly, and consumer-directed / self-directed Medicaid programs where the client (or a fiscal intermediary) is the employer. Different rules apply:

• The household-employee FICA threshold is $3,000 in cash wages for 2026 (up from $2,800). Cross it and Social Security and Medicare become mandatory on all of that employee’s cash wages for the year — not just the amount above $3,000.
• The FUTA trigger is separate: $1,000 in total cash wages to household employees in any single calendar quarter. The classic error is filing a Schedule H with the FICA columns filled in and the FUTA column blank because the family only heard about the first number.
• Household employers file Schedule H with their personal Form 1040 (no quarterly 941s), and generally pre-pay via estimated taxes or extra withholding to avoid an underpayment penalty.

The advisor’s point: families and self-directed clients rarely realize they’ve become employers until they’ve already crossed a threshold. [Your Company] handles household-employer registration, W-2s, and Schedule H worksheets so a family caring for an aging parent isn’t blindsided at tax time — a natural add-on service for agencies that also support consumer-directed clients.

The 2026 home care payroll checklist

• Update your Social Security wage base to $184,500 and confirm FUTA credit-reduction status for your states.
• Keep paying overtime unless and until counsel confirms a specific federal and state basis not to — the 2013 rule and state laws remain live.
• Reconfigure payroll to isolate qualified overtime premiums and populate the new 2026 W-2 fields; roll out the revised 2026 W-4.
• Audit every 1099 caregiver against the control test — reclassify before an auditor does.
• For direct-hire and self-directed clients, track the $3,000 FICA and $1,000-per-quarter FUTA thresholds independently.

None of this is optional, and most of it is invisible until it’s a penalty notice. If you’d rather your team spend its hours on care instead of on wage bases and Schedule H, that’s the conversation [Your Company] is built for.

This article is for general information and is not tax, legal, or accounting advice. Home care wage-and-hour rules are unsettled at the federal level and vary significantly by state; consult qualified employment counsel and a tax professional for your specific situation.

Sources

• IRS, Publication 926, Household Employer’s Tax Guide (2026) — thresholds, rates, wage base: https://www.irs.gov/publications/p926
• IRS, Topic No. 756, Employment Taxes for Household Employees: https://www.irs.gov/taxtopics/tc756
• U.S. DOL, Fact Sheet #25, Home Health Care and the Companionship Services Exemption: https://www.dol.gov/agencies/whd/fact-sheets/25-flsa-home-healthcare
• U.S. DOL, Direct Care Worker / Domestic Service Final Rule FAQs: https://www.dol.gov/agencies/whd/direct-care/faq
• IRS, One, Big, Beautiful Bill Act — Deductions for Working Americans (overtime/tips deduction, reporting): https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
• IRS, FAQs on the qualified overtime deduction (Fact Sheet 2026-01): https://www.irs.gov/newsroom/treasury-irs-issue-faqs-to-address-the-new-deduction-for-qualified-overtime-compensation-under-the-one-big-beautiful-bill

DOL Field Assistance Bulletin 2025-4 (July 25, 2025) and the Sixth Circuit’s April 2026 decision in DOL v. Americare Healthcare Services are the primary references for the companionship-exemption enforcement status described in Section 2.

The U.S. Department of Labor’s Wage and Hour Division recently released four new Opinion Letters interpreting the Fair Labor Standards Act (FLSA). While opinion letters are not binding law, they provide valuable insight into how the DOL is likely to interpret and enforce federal wage and hour requirements.  For employers—particularly those in healthcare, home care, and other industries with complex scheduling—these letters offer practical guidance on several common compliance issues. 

These opinion letters reinforce a broader trend: the Department of Labor continues to focus on accurate timekeeping, proper overtime calculations, and careful classification of employees.

Employers should periodically review:

• Exempt employee classifications
• Bonus and incentive compensation plans
• Meal period policies
• Timekeeping and rounding practices
• Off-the-clock work procedures

These are also areas where payroll, timekeeping, HR, and legal compliance need to work together. Forework is designed around that connection, helping employers maintain more consistent processes as wage-and-hour requirements evolve.

A proactive compliance review today may help avoid costly wage-and-hour litigation tomorrow.

Below is a summary of the key takeaways.

1. Exempt Employees Can Perform Non-Exempt Work—If Structured Properly

One of the most significant opinion letters addresses a question many healthcare employers face: Can a salaried exempt employee pick up hourly shifts without losing exempt status?  The DOL’s answer is yes, provided several important conditions remain true.

In the opinion letter, a hospital employed a Nursing Professional Development Specialist as an exempt employee. On weekends, she voluntarily worked bedside nursing shifts that were paid on an hourly basis. Although those shifts occasionally represented more than one-third of her weekly hours, the DOL concluded that she remained exempt because:

• Her primary duty continued to be exempt professional work;
• She continued to receive her guaranteed salary each week; and
• The additional hourly compensation was structured as permissible extra compensation under the FLSA.

Employers may compensate exempt employees separately for additional non-exempt assignments without automatically jeopardizing the exemption.  However, employers should periodically evaluate whether:

• the employee’s primary duties remain exempt;
• the guaranteed salary is always paid regardless of hours worked; and
• the non-exempt work has become so substantial that the employee’s primary role has effectively changed.

If the employee’s primary duty shifts toward non-exempt work, overtime obligations may apply to all hours worked.

2. Certain Quarterly Bonus Structures Eliminate Overtime Recalculations

Many employers struggle with calculating overtime when nondiscretionary bonuses are paid after the work has already been performed. Normally, a nondiscretionary bonus must be added into the employee’s regular rate of pay, requiring employers to perform a retroactive overtime calculation. The DOL explained that this additional calculation is not required if the bonus is designed as a valid “percentage of total earnings” bonus under 29 C.F.R. § 778.210.

In the opinion letter, employees shared a quarterly bonus pool based upon each employee’s percentage of the total wages earned by all eligible employees. Because overtime earnings were already included in that formula, the bonus automatically increased both straight-time and overtime earnings proportionately. As a result, no additional overtime calculation was necessary.

Thus, employers may be able to significantly simplify overtime administration by carefully structuring bonus plans.  To qualify, the formula must:

• be based on total earnings;
• include overtime earnings;
• exclude payments not included in the regular rate (such as discretionary bonuses or expense reimbursements); and
• be applied consistently.

Improperly designed bonus plans may still require retroactive overtime adjustments.

3. Off-Site Meal Break Travel Is Generally Not Compensable

Another opinion letter addresses a common employee complaint involving lengthy security procedures during meal periods.  An employee argued that walking to the parking lot and passing through security checkpoints consumed much of the employer’s unpaid 30-minute meal period, leaving little time to actually eat.  The DOL disagreed.

Under the FLSA, the relevant question is not how much time an employee actually spends eating.  Instead, the issue is whether the employee is:

• completely relieved from duty; and
• provided a bona fide meal period.

Because the employer:

• provided an unpaid 30-minute meal period,
• maintained an on-site eating area, and
• did not require employees to leave the premises,

the employee’s decision to drive elsewhere for lunch did not convert that travel time into compensable work time.

Therefore, employers generally are not required to pay employees for time voluntarily spent traveling off-site during unpaid meal breaks.

However, employers should ensure employees are genuinely relieved of all work responsibilities during unpaid meal periods and avoid interrupting employees with work-related duties.

4. The DOL Continues to Scrutinize Off-the-Clock Work and Rounding Policies

The final opinion letter contains perhaps the strongest compliance warning.  The DOL examined hospital employees who routinely performed pre-shift work such as:

• reviewing patient assignments,
• receiving shift handoff reports,
• preparing equipment, and
• getting ready for patient care.

The agency concluded these activities appear to be integral and indispensable to the employees’ principal duties, making the time compensable under the FLSA.  By contrast, simply waiting in line to clock in before any work begins—or waiting after the workday ends to clock out—generally remains non-compensable.

The De Minimis Defense Is Becoming Increasingly Difficult

Historically, employers sometimes relied upon the “de minimis” doctrine to disregard very small amounts of work time.  The DOL cautioned that advances in modern timekeeping technology have significantly weakened that defense. Where employees regularly perform even small amounts of off-the-clock work, employers should expect heightened scrutiny.

Rounding Policies Must Be Truly Neutral

The opinion letter also criticized an employer’s rounding practice that rounded away employees’ early clock-ins.  Although rounding remains permissible under federal law, it must operate neutrally over time.  If employees routinely begin performing work shortly after clocking in early, but the employer’s system consistently rounds that time away, the policy could create minimum wage or overtime violations.

Practical Takeaway

Employers should review whether:

• employees perform any work before scheduled start times;
• supervisors encourage or tolerate pre-shift work;
• rounding practices consistently undercount compensable time; and
• current timekeeping systems accurately capture all hours worked.

Healthcare employers, home care agencies, and employers with shift-change responsibilities should pay particular attention to these issues.

Why Opinion Letters Matter

Although DOL opinion letters are not binding on courts, they provide valuable insight into how the Wage and Hour Division interprets the Fair Labor Standards Act.

They can also provide employers with evidence that they acted in good faith, helping defend against allegations that an FLSA violation was “willful”—a distinction that can significantly affect damages and the applicable statute of limitations.

Need help evaluating your wage-and-hour practices?

Forework combines payroll technology with attorney-designed compliance expertise to help employers identify wage-and-hour risks before they become lawsuits. At the time of set up, we provide a FREE mini audit – conducted by wage and hour attorneys – to ensure that your compensation practices are in compliance.  Ready to make a meaningful change to your company?  

Why the One Big Beautiful Bill Act turns correct worker classification into a payroll advantage — not just a compliance chore

The One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025) created a temporary federal deduction — the widely publicized “No Tax on Overtime” — that, for the first time, attaches a concrete tax benefit to being a properly classified, overtime-eligible W-2 employee.

In a workforce defined by long hours and 24-hour shifts, that benefit lands squarely on home care. But it comes with real fine print, a new reporting obligation for agencies, and a genuine risk of over-promising to your caregivers. Here is what the law actually does — and does not — do.

What “No Tax on Overtime” Actually Is (and Isn’t)

Despite the headline, overtime is not tax-free. OBBBA created an above-the-line federal income tax deduction for the premium portion of qualified overtime — the extra “half” of time-and-a-half required by the Fair Labor Standards Act (FLSA). The key parameters:

• Deduction cap: up to $12,500 per year ($25,000 for joint filers).
• Premium only: if a caregiver earns $18/hour regular and $27/hour for overtime, only the $9/hour premium is deductible — not the full overtime wage.
• Above-the-line: available whether the worker itemizes or takes the standard deduction; claimed on the new Schedule 1-A (Form 1040).
• Temporary: tax years 2025 through 2028 only, unless Congress extends it.
• Income phase-out: begins at modified AGI of $150,000 ($300,000 joint), reduced by $100 for every $1,000 above the threshold.
• Still subject to FICA: the deduction reduces federal income tax only. Social Security and Medicare — and generally state income tax — are still owed on every overtime dollar.
• Eligibility limits: a Social Security number valid for work is required, and married-filing-separately taxpayers are excluded.

The deduction belongs to the worker, not the agency. But whether your caregivers can claim a single dollar of it depends entirely on how you classify and pay them — which is exactly where an agency’s payroll decisions come in.

How we can help  The way this deduction interacts with your pay rates, shift differentials, and state overtime rules is not always obvious. We can model the after-tax impact for your caregiving staff and confirm your payroll coding captures the premium correctly.

Why It Lands Hard on Home Care — and Rewards Correct Classification

Home care is one of the most overtime-intensive sectors in the economy. Long shifts, live-in arrangements, and weeks well past 40 hours are routine. That makes the overtime deduction unusually valuable to caregivers — but only when two conditions are met:

1. The caregiver is a W-2 employee, not a 1099 contractor. Independent contractors are not entitled to FLSA overtime, so they have no “qualified overtime compensation” to deduct. A 1099 caregiver gets nothing.
2. The caregiver is actually owed FLSA overtime — and here the ground is shifting. The 2013 Home Care Rule barred third-party employers such as agencies from claiming the FLSA’s “companionship” and live-in exemptions, which is why agency caregivers have generally been overtime-eligible. But in July 2025 the DOL proposed to restore those exemptions for third-party employers and, in Field Assistance Bulletin 2025-4, suspended enforcement of the 2013 rule against agencies. The 2013 rule technically remains on the books and still governs private lawsuits, so for now caregivers who perform substantial hands-on care — more than incidental “companionship” — generally remain non-exempt, and many states require overtime regardless of the federal exemption. In short, whether a given caregiver is owed federal overtime — and can therefore claim the deduction — increasingly turns on state law and the actual duties performed.

The strategic point connects directly to last month’s issue. The 1099 model doesn’t only expose your agency to back taxes and penalties — it now denies your caregivers a tangible, federally sponsored tax break. Proper W-2 classification has quietly become a recruiting and retention argument, not merely a compliance obligation.

A 1099 caregiver working sixty-hour weeks receives no overtime and no overtime deduction. The same caregiver, correctly classified as a non-exempt W-2 employee and owed overtime, receives both. In a tight labor market, that difference is a hiring advantage — one you can put in a job posting.

How we can help  If you’re weighing whether to reclassify contractors — or already planning to — we can pair the reclassification with the payroll setup needed to capture the overtime deduction, so the change becomes a benefit you can advertise rather than a cost you absorb.

The New Reporting Burden Agencies Can’t Ignore

The deduction creates work for employers. To let caregivers claim it, agencies must separately track and report the FLSA overtime premium — not total overtime pay, only the required “and-a-half” half.

• 2025 transition relief: for the 2025 tax year, the IRS is not requiring modified payroll forms and is waiving penalties for employers who don’t separately report qualified overtime, provided a reasonable, documented method is used.
• 2026 onward — mandatory: on the final 2026 Form W-2 (released by the IRS in January 2026), all employers — agencies and household employers alike — must report qualified overtime compensation using the new Box 12, Code TT, beginning with 2026 wages (on W-2s issued in early 2027). Payroll systems must be coded to isolate the FLSA premium so the correct figure lands in that box.
• Withholding: caregivers who want the deduction reflected in take-home pay should file an updated Form W-4. A start-of-2026 withholding review is prudent for both worker and employer.

How we can help  We can audit your payroll coding now — before the 2026 requirements bite — so the FLSA premium is isolated correctly, your W-2s are right the first time, and your caregivers actually receive the benefit you’re telling them about.

A Word of Caution on “No Tax on Tips”

OBBBA’s companion provision — a deduction of up to $25,000 for qualified tips — has generated understandable interest. For most home care agencies it is a limited story. The tips deduction applies only to occupations the Treasury has designated as customarily and regularly tipped as of December 31, 2024. Personal care and home health aides are not traditionally tipped occupations, so most caregivers will not qualify, and gratuities in an agency setting raise their own wage-and-hour questions. Before promoting a “tax-free tips” benefit to staff, confirm eligibility against the published occupation list.

How we can help  We can check your workforce against the Treasury’s tip-eligible occupation list and flag any roles that genuinely qualify, so your communications to caregivers stay accurate.

What OBBBA Means for the Families You Serve

The families who hire caregivers — and the older adults who receive care — have their own set of changes worth flagging:

• The $6,000 senior deduction. For tax years 2025 through 2028, individuals aged 65 or older may claim an additional $6,000 deduction ($12,000 for a couple where both qualify), on top of the existing age-based standard deduction. It phases out above modified AGI of $75,000 ($150,000 joint) and is available whether or not the taxpayer itemizes. For many care recipients on fixed incomes, this is straightforward money.
• Dependent care benefits for adult care. Care for an aging parent or an incapacitated spouse can qualify for the Child and Dependent Care Credit and a dependent care FSA — but only when the care recipient is a “qualifying individual”: a spouse or dependent physically or mentally incapable of self-care. Where the conditions are met, 2026 brings permanently larger benefits: the dependent care FSA cap rises from $5,000 to $7,500, and the maximum credit rate climbs from 35% to 50% of eligible expenses (up to $3,000 for one qualifying individual, $6,000 for two or more).
• Coordination matters. Every dollar run through a dependent care FSA reduces the expenses eligible for the credit dollar-for-dollar. Maxing the FSA can eliminate the credit entirely, so the better choice depends on income, filing status, and the amount of care purchased.

How we can help  If your agency helps families with care coordination, this is a natural value-add. We can review a family’s situation to determine whether the senior deduction, the dependent care credit, or an FSA election produces the best result — and make sure they aren’t misclassifying the caregiver in the process.

Five Steps to Take Now

1. Confirm your caregivers are W-2 employees receiving FLSA overtime. The overtime deduction only reaches correctly classified, overtime-eligible workers. If you’re still running a 1099 model, last month’s issue explains the exposure — this month’s explains what your workers are losing.
2. Isolate the FLSA overtime premium in your payroll system. Total overtime pay is not the reportable figure; only the required “half” premium is. Code for it now.
3. Prepare for mandatory 2026 reporting. Household employers: plan for Box 12, Code TT. Agencies: confirm your payroll vendor will separately report qualified overtime on 2026 W-2s.
4. Prompt a Form W-4 refresh. Caregivers who want the deduction reflected in withholding should update their W-4 for 2026.
5. Advise client families on the senior deduction and dependent care coordination. A brief, accurate conversation can distinguish your agency — and keep families clear of the household-employer traps we covered last month.

The Bottom Line

The “No Tax on Overtime” deduction is modest in size and temporary in duration — but it changes the conversation about worker classification in home care. For years, the case for proper W-2 classification was defensive: avoid audits, back taxes, and penalties. OBBBA adds an offensive case. Correctly classified caregivers now gain a real federal tax benefit that no 1099 arrangement can deliver, while agencies that get their payroll coding and reporting right turn a compliance requirement into a recruiting advantage.

The agencies that move early — clean classification, correct premium tracking, and accurate caregiver communications — will be the ones telling a better story to both their workforce and the families they serve.

Our firm works exclusively with home care and senior living organizations. If you’d like a review of your 2026 payroll coding, help implementing overtime-premium reporting, or guidance for the families you serve on the senior deduction and dependent care benefits, we’re here to help.

Sources: IRS, “One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors” (2025) • OBBBA / Public Law 119-21 (July 4, 2025) • Treasury & IRS transition-relief guidance on tips and overtime reporting (2025) • IRS Publication 926, Household Employer’s Tax Guide (2026) • U.S. DOL Wage & Hour Division, Home Care Rule (2013) and Field Assistance Bulletin 2025-4 / proposed companionship rulemaking (July 2025) • IRS Publication 503, Child and Dependent Care Expenses • IRC §§ 21 and 129 (dependent care)

This newsletter is for general informational purposes only and does not constitute legal or tax advice. Figures and thresholds reflect guidance available as of June 2026 and may change as the IRS issues further guidance. Consult a qualified advisor regarding your specific circumstances.

Generative artificial intelligence (AI) tools such as ChatGPT, Claude, Gemini, and others are transforming nearly every industry—including employment litigation. While these tools have made legal information more accessible and lowered the barriers for individuals to pursue claims without hiring an attorney, they have also created new challenges for employers defending workplace lawsuits.

Artificial intelligence is changing the way employment disputes begin, but it has not changed the legal standards employers must meet.  Organizations with strong HR practices, compliant payroll processes, accurate timekeeping, and thorough documentation remain in the best position to defend workplace claims whether those claims are drafted by an attorney or generated with AI.

At Forework, we believe the best defense begins long before a claim is filed. Our attorney designed payroll and HR platform helps businesses strengthen compliance processes, improve documentation, and adapt their systems as employment laws and workplace risks evolve.

Today’s pro se (self-represented) litigants are no longer submitting handwritten complaints or informal filings. Instead, many are using AI to generate professionally formatted legal pleadings, motions, discovery requests, and correspondence. Although these documents often contain legal inaccuracies or unsupported arguments, they can substantially increase the time and expense required to defend a case.

For employers, the practical reality is clear: AI is changing not only how lawsuits are filed, but also how they are litigated.

AI Is Fueling an Increase in Pro Se Employment Claims

Employment litigation has seen a noticeable increase in self-represented plaintiffs over the past several years.  According to the LexMachina 2026 Employment Litigation Report, pro se employment filings increased from approximately 2,000 cases in 2021 to more than 4,300 cases in 2025—more than doubling in just four years. Many employment defense firms have similarly reported significant increases in AI-assisted filings.

Although AI has improved access to legal information, it has also made it easier for individuals to draft complaints, respond to motions, and pursue litigation without fully understanding the legal standards governing their claims.

Why AI-Generated Cases Can Cost Employers More

Contrary to what many employers expect, lawsuits filed by unrepresented plaintiffs are not always less expensive to defend.  In fact, many employment defense attorneys report that AI-assisted pro se cases often require more attorney time than traditionally filed cases.  Common challenges include:

• Numerous motions that lack legal merit but still require formal responses;
• Extremely broad or repetitive discovery requests;
• Procedural misunderstandings that prolong litigation; and
• Unrealistic expectations regarding case value and potential damages.

For example, some defense firms have reported cases in which a single pro se litigant filed dozens of motions and hundreds of written discovery requests, requiring significant defense resources simply to manage the litigation process.  The result is longer case timelines and increased litigation costs—even when the underlying claims ultimately lack merit.

Courts Are Responding to AI in Different Ways

Courts across the country have begun developing rules governing the use of AI in legal filings. One of the primary concerns is that AI platforms occasionally generate inaccurate legal analysis or even fabricate court decisions and citations—a phenomenon commonly referred to as “hallucination.”  

To address these risks, courts have adopted a variety of approaches. Some courts now require parties to disclose when AI was used to prepare filings and certify that all legal citations have been independently verified.  Other courts have implemented certification requirements confirming that every cited authority actually exists and has been reviewed for accuracy.  A handful of judges have gone even further by prohibiting the use of AI in certain aspects of legal research or, in some instances, banning AI-generated filings altogether.

Although the approaches vary, the underlying objective is consistent: ensuring that court filings remain accurate, truthful, and professionally prepared.

AI May Also Affect Settlement Negotiations

Another trend employers are beginning to encounter is inflated settlement expectations. Generative AI tools often produce optimistic estimates of damages or suggest legal theories that may not accurately reflect the facts or applicable law. As a result, some self-represented plaintiffs enter negotiations believing their claims are worth substantially more than they realistically are.  This can make early settlement more difficult and, in some cases, encourage litigation that previously might have resolved quickly.  Employers should therefore evaluate settlement opportunities based on the actual legal merits of the case rather than assumptions about how quickly a pro se matter will resolve.

Practical Steps Employers Can Take

As AI becomes increasingly common in employment litigation, employers can reduce risk by adopting a proactive approach.  Consider the following best practices:

1. Carefully review legal citations.  AI-generated filings occasionally cite cases or legal authorities that do not exist or inaccurately describe the law. Employers and their counsel should verify all authorities cited in litigation and promptly raise any inaccuracies with the court when appropriate.
2. Manage discovery early. When discovery requests become excessive or disproportionate, early communication with opposing parties—and, when necessary, motions for protective orders—can help control costs before discovery expands unnecessarily.
3. Set realistic litigation expectations. Not every pro se case will settle quickly. Employers should recognize that AI-generated legal documents may encourage plaintiffs to pursue litigation longer than they otherwise might have, making early case evaluation and litigation strategy increasingly important.
4. Focus on compliance before litigation begins. Regardless of who prepares a complaint, the strongest defense remains the same: well-documented employment decisions, compliant wage-and-hour practices, consistent policy enforcement, and accurate recordkeeping.

Forework is the ONLY attorney-designed and operated payroll and HR SaaS company, automating compliance in a dynamic way as the laws change. If your company wants to be in a strong position for the rapidly changing, but never less complicated, workplace landscape, work with Forework.

Employment law changes often require more than simply updating a handbook. They can affect payroll configuration, leave tracking, employee notices, recordkeeping, offboarding, and other day to day HR procedures.

At Forework, we anticipate regulatory changes that affect payroll and HR administration and work to incorporate those changes into the systems, policies, and procedures our clients rely on. The goal is to help businesses stay ahead of new requirements rather than discover too late that their processes are no longer aligned with the law.

The new NYC Paid Safe and Sick Leave rules are a timely example of why that proactive approach matters.

The New York City Department of Consumer and Worker Protection (DCWP) has issued final regulations implementing the 2026 amendments to the Earned Safe and Sick Time Act (ESSTA). While many of the final rules mirror the agency’s proposed regulations released earlier this year, several important revisions create new administrative, payroll, and recordkeeping obligations for employers. The new rules take effect July 23, 2026, giving employers a limited window to review policies, update payroll systems, and modify leave administration procedures.

What’s Changing?

The 2026 amendments significantly expanded employees’ protected leave rights by:

• Creating a new 32-hour annual bank of unpaid protected time off that is available immediately;
• Expanding the qualifying reasons employees may use protected leave;
• Codifying up to 20 hours of paid prenatal leave; and
• Updating notice, payroll, and recordkeeping requirements.

The newly finalized regulations provide additional guidance on how employers are expected to administer these expanded leave entitlements.

New Offboarding Requirement for Former Employees

One of the most significant changes affects how employers provide leave records after an employee leaves the company.  Under the final rules, employers that maintain electronic payroll or leave tracking systems must now either:

• Continue allowing former employees to access their leave information electronically for six months after separation, or
• Provide a written statement showing the employee’s required leave information within one week after the employee’s final payday.

This is a new compliance obligation that was not included in the original proposal.

What Employers Should Do

Many employers automatically deactivate employee access to HR and payroll systems immediately upon separation. Those employers should review their offboarding procedures to ensure they can either maintain limited post-employment access or timely provide the required written leave statement.

Unused 32-Hour Leave Must Be Restored Upon Rehire

The final regulations also clarify an employer’s obligations when rehiring former employees. If an employee leaves employment and is rehired during the same calendar year, the employer must restore any unused portion of the employee’s 32-hour unpaid protected leave bank. This requirement is separate from the existing ESSTA rules governing reinstatement of accrued paid leave.

Clarification on the New 32-Hour Unpaid Leave Bank

The regulations provide additional guidance regarding the administration of the new unpaid leave entitlement. Employers may choose to provide some—or even all—of the required 32 hours as paid leave instead of unpaid leave. However, the regulations make clear that doing so does not eliminate the employer’s separate obligation to provide paid sick and safe leave under ESSTA’s existing accrual or frontloading requirements. In other words, employers cannot substitute the new 32-hour leave entitlement for their existing paid sick leave obligations.

Paid Leave Generally Must Be Used First

The final rules also explain how employers should administer leave when employees have both paid and unpaid protected leave available.  In most situations, if an employee requests leave for a qualifying reason and has available paid protected leave, the employer must apply the paid leave first unless the employee specifically elects to use unpaid leave instead. Only after available paid leave has been exhausted may the employer rely on the separate unpaid 32-hour leave bank.

Updated Recordkeeping and Payroll Requirements

The final regulations continue the City’s emphasis on accurate leave administration and documentation.  Among other changes, employers should ensure their systems can:

• Track paid and unpaid leave separately (unless all protected leave is provided as paid leave);
• Reflect the expanded categories of protected leave;
• Maintain required payroll and leave records; and
• Comply with updated notice and pay statement requirements.

For employers using HRIS or payroll software, these changes may require system updates before the July 23 effective date.

What Employers Should Do Now

Before the new rules become effective, employers should:

• Review and update employee handbooks and leave policies;
• Confirm that payroll and HR systems properly track the expanded leave entitlements;
• Update offboarding procedures to address post-separation leave record requirements;
• Review rehire procedures to ensure unused leave is restored when required; and
• Train HR personnel, payroll staff, and supervisors on the new rules.

When was the last time your payroll company through so far ahead for your business, and actually programmed the new law into payroll and HR, without you having to ask?  With Forework, clients always have peace of mind that they are on track.

As artificial intelligence becomes increasingly integrated into workplace operations, employers are beginning to face a new and unexpected compliance issue: employees requesting religious accommodations to avoid using AI tools. 

The Emerging Issue

Recent reports have highlighted employees who claim that using artificial intelligence conflicts with their sincerely held religious beliefs.  Some objections are rooted in concerns about human dignity, automation replacing human judgment, environmental impact, or broader ethical considerations that employees connect to their religious convictions.  As religious leaders and organizations continue to weigh in on the societal implications of AI, employers should be prepared for an increase in accommodation requests from employees who believe AI use conflicts with their faith.

What Does the Law Require?

Under Title VII of the Civil Rights Act, employers with 15 or more employees must provide reasonable accommodations for an employee’s sincerely held religious beliefs unless doing so would create an undue hardship on the business.  Importantly, courts interpret “religion” broadly. Protected beliefs may include what are thought of as “traditional” religious beliefs, but also individually held religious convictions, or other forms of what would be considered non-traditional religious beliefs.  This means an employer cannot automatically dismiss an AI-related objection simply because it appears unusual or unfamiliar, or non-religious.

What Employers Should Not Do

One of the biggest mistakes employers make is evaluating whether an employee’s belief makes sense.  Employers generally should not ask whether the purported religious belief is truly religious by questioning the employee’s belief system, whether the employee has a letter or certificate from their religious leader endorsing the employee’s perspective, or to prove that the employee is generally religious.   

Practical Steps When an Employee Requests Exemption from the Business’s Requirement to use AI

Initially, all requests for an accommodation at work based on religious grounds should be taken seriously.  Even if the request appears unusual, managers should avoid dismissing it outright. Accommodation requests involving religion should be routed through HR or legal counsel for evaluation.

The employer should then discuss which AI tools are involved, and what specifically about the AI tool conflicts with the employee’s religious beliefs.  The parameters of the objection should be discussed, and the employee should be asked if he/she specific accommodations in mind (short of entirely avoiding the use of AI).  

Once the employer and employee have had sufficient dialogue to discuss the employee’s request for an accommodation, and the employer understands the limitations and the employee’s request in the context of the employee’s job and the overall work environment, the employer needs to actually consider the request.  

Not every accommodation will be reasonable, but employers should document their process and analysis.  Employers are not required to eliminate essential job functions or create significant operational burdens.  If accommodating the request would substantially impact productivity, customer service, compliance, or business operations, the employer may have grounds to deny the accommodation.  The key is to conduct a thoughtful analysis rather than issuing an automatic denial.  

Ultimately, whatever decision is reached must be conveyed to the employee.  While only some states and localities require the decision to be provide in writing (such as in New York City), if the employer will deny the request, it would be prudent to convey the employer’s decision verbally and explain the employer’s rationale.  Employees who understand that a process was followed and who are given information, in a transparent fashion, are less likely to sue and create additional challenges for the employer if their request is denied.   

The Forework Perspective

Artificial intelligence is transforming the workplace, but traditional employment laws still apply. Religious accommodation obligations existed long before AI, and employers should expect those obligations to evolve alongside new technologies.  If the business is leaning towards integrating AI or already heavily leans on AI, or it builds forms of AI, it should be prepared to deal with employees’ pushback on the use of such tools.  Forework’s team of employment attorneys and HR professionals are here to help for those clients who utilize Forework’s Human Resources services. 

In EEOC v. A&A Appliance, Inc., a Colorado federal court not only dismissed the Equal Employment Opportunity Commission’s (EEOC) disability discrimination claims against an employer, but also ruled that the EEOC’s case was so lacking in factual support that the employer may recover its attorneys’ fees.  While fee awards against the EEOC remain relatively uncommon, the decision highlights several best practices that employers should incorporate into their leave management and accommodation processes, so that they too can prevail in a EEOC (or a State-level agency) discrimination, accommodation, harassment or retaliation case. 

What Happened?

In the A&A Appliance case, an employee requested and received a period of protected leave during the COVID-19 pandemic. After her approved leave expired, the employer and employee continued communicating regarding a possible extension.  But when the employee did not return to work and the employer determined there was insufficient information demonstrating a qualifying disability requiring accommodation under the Americans with Disabilities Act (ADA), the employer terminated the employee’s employment.

The employee later filed a charge with the EEOC alleging disability discrimination and retaliation. After investigating the claim, the EEOC filed suit against the employer.

The court ultimately dismissed all of the EEOC’s claims, finding that the agency could not establish a critical element of its case: that the employer had sufficient knowledge of a qualifying disability that would trigger ADA accommodation obligations.

Why This Matters for Employers

The decision reinforces an important principle that many employers misunderstand: An employee’s medical condition is not automatically a disability under the ADA. Likewise, an employer’s awareness that an employee has a medical condition does not automatically mean the employer has notice of a legally protected disability requiring accommodation. Employers must evaluate accommodation requests and seek information out.  A statement or representation, even by a doctor, might not be enough.  Follow-up is permitted, and required in many instances, before an employer can make a decision regarding requested accommodations.

Key Compliance Lessons

The employer prevailed in part because it maintained records of communications regarding leave approvals, leave expiration dates, extension requests, and return-to-work expectations. Employers should maintain written documentation whenever discussing, investigating or processing medically-necessitated leave from work or accommodations. 

The court noted that the employer followed a consistent process regarding leave administration and extensions.  Inconsistent treatment of employees often creates legal risk, even when an employer’s intentions are good.

Clear communication and documented follow-up efforts remain critical.

One notable aspect of the decision is that the employer repeatedly identified factual and legal weaknesses in the EEOC’s claims throughout the litigation.  The court specifically noted that the employer consistently raised these issues, which helped support its request for attorneys’ fees.

Bottom Line for Forework Readers

Employee leave situations cannot be put on auto pilot and often require months-long delicate handling between Human Resources and employment counsel well versed in accommodation and leave issues.  This case serves as a reminder that employers who maintain strong documentation, administer leave consistently, and carefully evaluate accommodation requests are in a far stronger position when employment disputes arise. 

As a reminder, Forework provides employers with 10 hours of employment attorney support each month, as well as leave of absence management, to ensure employers handle these, potentially expensive litigation-sensitive, cases and reduce employers’ exposure to lawsuits.

A recent California appellate court decision serves as a cautionary reminder that employee departures can create significant legal and operational risks when confidential information, customer relationships, and business opportunities are involved.  In Guild Mortgage Co. v. CrossCountry Mortgage LLC, the California Court of Appeal reinstated numerous claims brought by an employer that alleged a competitor business orchestrated a coordinated effort to recruit its employees, divert customers, and obtain valuable business information before those employees resigned.

What Happened?

According to the lawsuit, Guild Mortgage alleged that a competing mortgage company engaged in an 18-month effort to recruit key employees from one of Guild’s branches while those employees were still actively working for Guild.  The complaint alleged that employees accessed company systems and copied confidential business information, including customer data, employee information, and prospective borrower information, before resigning and joining the competitor.  Guild further alleged that the competitor used this information to gain a competitive advantage and facilitate the transition of customers and business opportunities. The alleged effort ultimately resulted in the departure of virtually the entire branch workforce.

Guild previously obtained nearly $11 million in damages against its former employees through arbitration and pursued separate claims against the competing company.  While a lower court initially dismissed those claims, the California Court of Appeal reinstated them, allowing the case to move forward.

Why This Matters for Employers

The decision highlights several risks that employers face when key employees leave for a competitor:

• Loss of confidential business information
• Unauthorized access to company systems
• Customer diversion before employee departures
• Misuse of prospect and lead data
• Coordinated team resignations
• Disruption of operations and client relationships

The court also reaffirmed that employees owe duties of loyalty to their employer while they remain employed and that employers may have multiple legal avenues available when those duties are violated.

Compliance and Risk Management Lessons

1. Restrict Access to Sensitive Information

Employers should regularly review who has access to:

• Customer lists
• Prospect pipelines
• Pricing information
• Payroll and employee data
• Financial records
• Strategic business information

Access should be limited to employees with a legitimate business need.

2. Monitor Unusual Data Activity

Many employee-raiding disputes involve allegations of downloading, copying, emailing, or transferring company information shortly before resignations.  Employers should consider implementing controls that monitor:

• Large file downloads
• External email forwarding
• USB device activity
• Cloud storage uploads
• Unusual system access patterns

3. Strengthen Offboarding Procedures

A well-designed offboarding process can help minimize risk when employees leave.  Best practices include:

• Immediate termination of system access upon separation
• Recovery of company devices
• Review of confidentiality obligations
• Exit certifications confirming return of company information
• Documentation of customer and account transitions

4. Protect Customer and Employee Data

Whether information qualifies as a trade secret is often heavily litigated. Employers should not rely solely on trade secret laws for protection. Instead, organizations should maintain written policies addressing:

• Confidential information
• Acceptable technology use
• Data security
• Employee privacy
• Information retention and destruction

5. Coordinate HR, IT, and Leadership Teams

Employee departures frequently involve issues that extend beyond HR.  Effective protection requires coordination among:

• Human Resources
• Information Technology
• Payroll and Operations
• Legal Counsel
• Executive Leadership

A unified response can help identify risks before they become costly disputes.

The Forework Perspective

This case illustrates the importance of understanding what the key business assets are, and how to protect them.  It’s a matter of business survival.  Businesses cannot sleep on these practices; asset protection is a daily obligation of the business C-suite executives and ownership.  At Forework, when onboarding clients, we take a detailed approach to understanding your business and your key assets.  We automate the protections discussed her whenever possible (e.g., proper confidentiality agreements and procedures, careful off-boarding procedures, and carefully written nonsolicitation agreements), but we also counsel our clients to ensure they are watchful of what is happening in their businesses, so that they can respond quickly and properly to any situations that involve employees (current or former) attempting to “steal” employees, vendors, patients, customers, or otherwise unfairly gain a competitive advantage. 

Employers may soon see a shift in federal guidance on voluntary affirmative action programs.  On May 27, 2026, the Equal Employment Opportunity Commission (EEOC) submitted a proposal to rescind its 1979 interpretive guidance on voluntary affirmative action under Title VII of the Civil Rights Act. The existing guidance, found at 29 C.F.R. Part 1608, explains when employers may voluntarily adopt affirmative action measures to address workforce imbalances or barriers to equal employment opportunity.

The current guidance also provides a framework for when employers may rely on the EEOC’s interpretation as a defense in certain Title VII matters, including where the employer acted in good faith and in reliance on the agency’s written guidance.

What This Means

The EEOC’s proposal does not immediately change the law. OIRA review is only one step in the regulatory process, and the EEOC would need to take further action before any rescission becomes effective.

The proposal also does not amend Title VII or overturn U.S. Supreme Court decisions recognizing that voluntary affirmative action plans may be permissible in limited circumstances. However, it signals that federal agencies are continuing to reassess employment programs that consider race, sex, or other protected characteristics.

This development follows broader federal scrutiny of diversity, equity, and inclusion initiatives, affirmative action programs, and other employment practices tied to protected characteristics.

Why Employers Should Pay Attention

If the EEOC ultimately rescinds the guidance, employers may have less agency guidance to rely on when evaluating or defending voluntary affirmative action plans. The change could also affect how the EEOC reviews these programs in future enforcement matters.

Employers should be especially cautious with programs that involve hiring goals, representation targets, preferences, set-asides, or other practices that reference protected characteristics.

Forework Takeaway

Employers with voluntary affirmative action plans, DEI initiatives, representation-focused programs, or hiring practices tied to protected characteristics should:

• Review whether the program is legally required or voluntary.

• Confirm the business and legal basis for the program.

• Avoid rigid quotas, preferences, or set-asides.

• Ensure employment decisions remain individualized and merit-based.

• Monitor further EEOC action before assuming the guidance has been rescinded.