New Year, Big Changes: HR and Payroll Changes Coming in 2026

Every new year brings a new wave of changes for human resources and payroll – and 2026 isn’t any different. From new tax deductions to wage increases, these changes may seem small, but they’ll have a big impact on you, your business, and employees.

Hawaiʻi Minimum Wage Increase

Minimum wage is a topic that’s been debated since the 1900’s in the United States. Many argue that minimum wage should increase with inflation while others say a higher minimum wage could have a ripple effect on the cost of housing and goods and could lead to raised operating expenses for businesses causing potential job losses and hiring freezes. In 2026, the minimum wage in Hawai’i will increase from $14.00 to $16.00 per hour while the maximum tip credit remains at $1.25. This increase is part of a series of minimum wage increases that first began in 2022. The final scheduled minimum wage increase will take effect on January 1, 2028, raising the rate to $18.00 per hour.

Hawaiʻi Retirement Savings Program

Enacted in July 2022 and projected to be implemented in mid-2026, the Hawai’i Retirement Savings Program (HRSP) will have a positive impact on both employees and employers. HRSP is a program that will provide retirement savings options to employees who don’t have access to an employer-sponsored program. Like employer-sponsored retirement plans, retirement contributions will be deducted from the employee’s payroll. The biggest difference is that this program is provided at no cost to the employer and they can’t contribute to their employees’ accounts. As of April 2025, the HRSP was amended to automatically enroll qualified employees into the program. This program will allow local businesses who historically could not offer retirement benefits to compete with larger companies when attracting and retaining talent.

Social Security Wage Base Increase

Another significant change is the increase in the Social Security Contributions and Benefits wage bases. Social Security tax is a federal tax that is automatically collected from employee payroll to fund the retirement, disability, and survivorship benefits provided by the Social Security Administration. The Social Security tax rate is evenly split between the employers and employees and includes an income base that changes annually.

SECURE Act 2.0

The SECURE (Setting Every Community Up for Retirement) Act that was passed into law in 2022 is continuing to implement new provisions affecting retirement plans. For 2026, there are two key provisions taking effect that you should plan for: retirement plan auto-enrollment and expanded eligibility for part-time employees.

Auto-Enrollment for Retirement Plans

Most new 401(k) and 403(b) plans must automatically enroll eligible employees with a contribution rate between 3% and 10%, with an annual 1% increase until it reaches 10%, but no more than 15%. Employees can also opt out or adjust their contribution rate. Automatic enrollment applies to most plans established after December 29, 2022. However, there are a few exceptions to this rule: businesses with ten or fewer employees, organizations that have been in operation for less than three years, and certain church or governmental plans are exempt.

Part-Time Eligibility Expanded

SECURE Act 1.0 first introduced this expansion by allowing employees who worked at least 500 hours in three consecutive years to be eligible for company retirement plans. Now, with SECURE 2.0, any employee who works at least 500 hours in two consecutive years is eligible to participate in the company’s retirement plan, which includes a 401(k). Although eligible part-time employees can participate in retirement plans, their employers aren’t required to make contributions on their behalf.

One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA) is the most recent legislation that was passed by Congress in July 2025. These provisions will stagger into effect, with some beginning, changing, expiring, or becoming permanent, between now and 2030. During the 2026 tax year, there are two new deductions you should be aware of: the deduction on tips and overtime pay.

“No Tax on Tips”

During the 2025 to 2028 tax years, eligible taxpayers may deduct their qualified tips regardless of whether they itemize or take the standard deduction. However, only tips earned in an occupation that “customarily and regularly receives tips” as determined by the IRS qualify for this deduction. Many refer to this new deduction as “No Tax on Tips.” The truth is that federal payroll and state taxes are owed on tips; this deduction just reduces taxable income and tax liability for taxpayers. The maximum annual deduction is $25,000. For higher earners, the tip deduction will begin to phase out at a 10% rate until it reaches $0 when a single taxpayer’s modified adjusted gross income (MAGI) surpasses $150,000 ($300,000 for joint filers).

Overtime Pay Deduction

OBBBA also introduced a new federal income tax deduction on overtime pay. Similar to the deduction on tips, only “qualified overtime compensation” is eligible for this above-the-line deduction. Qualified overtime compensation refers only to overtime pay that is required by the Fair Labor Standards Act (FLSA). State, local, or contract overtime that is not required by FLSA is not eligible for the tax deduction. A single filer can deduct up to $12,500, and $25,000 for joint filers. However, the deduction will begin to phase out at $150,000 adjusted gross income (AGI), and $300,000 for joint filers, at 10% until it reaches $0.

With the end of 2025 looming around the corner, now is the perfect time to prepare for these changes by implementing new processes. Begin updating your payroll, amend benefit plans, and review compensation to account for these state and federal changes. Most importantly, stay informed. If you’re not sure where to start, then partner with a professional employer organization like simplicityHR by ALTRES to help ensure you’re always in compliance.