When Employees Are in Crisis: A Practical Resource to Guide Employers

Courtesy of Fisher & Phillips LLP

When an employee stops showing up to the office, talks about wanting to give up, or appears impaired during work hours, managers and HR staff might feel unsure how to respond. But you can be supportive while also addressing legal obligations, safety, and business needs through a bit of planning, training, and resources. While employers are generally not mental health professionals, you can play a critical role in identifying warning signs and connecting employees with the support they need. Here are eight practical steps to help your managers and HR department respond in real time to serious and sensitive situations, as well as the key legal points to keep in mind.

1. Train Managers and Employees to Recognize Warning Signs

Managers and co-workers are often the first to notice changes in an employee’s behavior. Watch for frequent absences, poor performance, detachment, or comments that suggest they feel hopeless or are thinking about self-harm.

Action Items

• Provide managers with a reference guide that includes check-in language, such as: “I’ve noticed you seem overwhelmed lately. How are you doing?” The National Alliance on Mental Illness (NAMI) says the key is being understanding and non-judgmental.
• Emphasize that employees and managers alike should follow the organization’s crisis and workplace violence prevention protocols rather than attempt to manage the situation themselves. They should raise concerns with their manager or HR as soon as they see a potential issue.
• Remind managers and HR that they should respect employee privacy and should not ask for a specific diagnosis, details of treatment, or other unnecessary medical information.

2. Establish Clear Internal Response Procedures

Developing a clear internal process for handling a crisis at work – and ensuring employees are familiar with it – can help ensure a consistent and safe response.

Additionally, it is recommended to develop a workplace violence prevention plan with procedures for responding when an employee’s conduct poses a safety risk to others. Note that:

• California requires that virtually all employers have workplace violence prevention plans, which include procedures for alerting employees of the presence, location, and nature of workplace violence emergencies.
• Otherwise, employers are expected to maintain a hazard-free workplace under the Occupational Safety and Health Act’s General Duty Clause.
• When it comes to enforcement, OSHA agencies typically look at whether an employer knew or should have known of a serious risk and failed to act. Yet employers need to balance their OSHA obligations with confidentiality concerns under disability discrimination and privacy laws.
• This underscores the benefit of engaging legal counsel early to mitigate risks in difficult situations with complex compliance considerations.

Action Items

You may want to create written procedures that outline:

• Who employees should contact internally when a crisis arises.
• When emergency services should be called.
• When crisis resources such as the 988 Suicide and Crisis Lifeline may be appropriate.
• When to call legal counsel.

You should train managers on these procedures periodically, so the appropriate protocols remain fresh in their minds if a situation arises.

3. Consider ADA and FMLA Implications

When you’re managing employee mental health, you’ll need to consider potential implications under the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and similar state laws. Key considerations include:

• Employees with mental health conditions may be entitled to a reasonable accommodation, such as leave time, additional breaks, or a modified schedule. You should engage in a back-and-forth “interactive” dialogue to identify potential reasonable accommodations.
• Certain mental health conditions may also qualify as a serious health condition under the FMLA, particularly if they involve inpatient care or ongoing medical treatment.
• Recognize that additional laws and resources may come into play, such as state leave and disability-related laws and short-term disability.

Action Items

• When an employee’s crisis affects attendance or performance, HR should evaluate whether leave or other workplace accommodation is required.
• Ensure managers know to contact HR when an employee references difficulty performing their job because of a health condition.
• When requesting medical information to support leave or accommodation, limit requests to functional limitations and anticipated restrictions, consistent with applicable federal and state law.

4. Address Unexplained Absences Thoughtfully

Unexcused no-shows and prolonged absences are often legitimate grounds for terminating employment, but they may also signal a crisis.

• Employers should maintain consistent attendance policies while allowing HR to evaluate whether to excuse such absences based on legal protections or company policy as applied.
• Employers commonly have policies that require employees to give reasonable notice regarding absences – and they may consider a three-day “no show” a voluntary separation (unless state laws require longer notice). While this is generally a permissible policy, it should also allow HR to evaluate whether FMLA leave, ADA accommodations, or other leave rights apply.

Action Items:

• Create a fair and consistent process for handling no-shows in a way that balances operational needs, legal protections, and potential health conditions.
• Work with experienced legal counsel to create balanced policies and procedures in this area.

5. Handle Substance Use Concerns with a Safety Focus

Substance use disorder may intersect with mental health conditions, and in some cases, may qualify as a disability under the ADA and equivalent state law. At the same time, employers must maintain safe workplaces and are not required to allow an employee to be impaired on the job. Therefore, substance abuse policies should distinguish between:

• Active impairment while working or on work premises
• An underlying substance use disorder
• Lawful use of prescribed medication
• Participation in treatment or recovery programs

Action Items

• You should train managers to focus on observable workplace behaviors (such as unsafe equipment operation or clear signs of impairment) rather than speculating about a medical condition.
• Managers and supervisors should know when to halt unsafe activities immediately – and know who to contact in HR or on your legal team to guide them through the process from there. Safety comes first, but it’s also important to avoid assumptions.
• Employers may also consider recovery-supportive approaches, such as allowing time off for treatment or using return-to-work agreements where appropriate, as well as legally compliant drug testing protocols.

6. Make Use of Employee Assistance Programs

Employee Assistance Programs (EAPs) can provide confidential counseling and referrals to outside services, among other resources. An effective EAP can be the foundation of an employer’s workplace mental health support system.

Action Items:

• Promote the EAP as a voluntary and confidential resource for employees and their families.
• Clearly communicate protections and limitations.
• Consult legal counsel before requiring EAP participation as part of a return-to-work agreement, since mandatory participation may raise concerns under various employment laws.

7. Protect Confidentiality But Don’t Overpromise

Confidentiality requirements apply to employee medical information, including mental health conditions. Additionally, employers should store medical information separately from personnel files.

However, to the extent an employee seeks confidentiality in raising concerns about their own or a co-worker’s condition, you don’t want to promise complete confidentiality. You may need to share critical information with appropriate internal leaders and outside resources or emergency service providers on a need-to-know basis.

Action Items

Ensure your policies and practices:

• Prohibit disclosure of an employee’s health condition to co-workers with no need to know.
• Share only necessary information, such as adjustments to tasks, assignments, and duties – or temporary coverage arrangements.
• Curb workplace gossip and maintain employee privacy.

8. Plan for Return-to-Work and Continued Support

Employees returning from mental-health-related leave often need additional support as they adjust to being back at work.

Action Items

• Review your return-to-work procedures and consider addressing fitness-for-duty certifications, modified schedules, and other accommodations when appropriate.
• Schedule check-ins during the first few weeks back to review expectations and provide support.

👉 For more tips on mental health awareness in the workplace, read the Fisher & Phillips complete guide here.

AAG’s 2026 Educational Seminar Recording is Available

The recorded presentation of AAG’s 2026 Educational Seminar held on April 22, 2026 is now available for viewing. Guest Speaker and Attorney Keith Hammond, of Hammond Law Center, focused on the Best HR Practices & Tips for Avoiding Employee Lawsuits.

This seminar is also approved for 2 Professional Development Credits (PDCs) with SHRM for all attendees.

Please let us know if you would like access to the recording or need the activity code to claim your PDCs with SHRM.

AI Glasses Entering the Workplace

AI-enabled smart glasses – which combine eyewear with real-time audio, video, and AI functionality – are now entering the workplace. They provide productivity and accessibility benefits by allowing users to capture information, receive prompts, and interact with AI systems hands-free. But they also introduce legal risks that your existing policies and regulatory frameworks were likely not designed to address. As adoption increases, you should evaluate whether your existing workplace rules and compliance frameworks are equipped to manage the legal, privacy, and operational implications of AI-enabled eyewear. The following Insight provides answers to common questions employers are asking as AI glasses enter the workplace.

Do AI Wearables Raise Workplace Recording Concerns?

Yes – and in many cases, the risks are more significant than employers initially realize.

Unlike smartphones, AI-enabled glasses may:

• Operate hands-free and discreetly
• Record audio or video passively or continuously
• Connect automatically to cloud-based AI platforms
• Capture, analyze, and store data without obvious user action
• Collect, use, and disclose biometric information

In many instances, smart glasses are indistinguishable from ordinary eyewear, making it difficult for managers or coworkers to determine whether recording is occurring. This creates enforcement challenges and potential compliance exposure if workplace communications are captured without authorization.

The risk is heightened by state recording laws, which vary across jurisdictions. Eleven states require all-party consent before conversations may be recorded. If an employee uses AI glasses to record workplace discussions without proper consent, the employer may face legal exposure, particularly where confidential internal meetings or customer-facing interactions are captured. Even if the employer did not direct or approve the recording, a lack of clear policies or enforcement protocols may complicate response efforts and increase litigation risk.

Do Restrictions on AI Glasses Raise NLRA Concerns?

Not necessarily.

Section 7 of the National Labor Relations Act (NLRA) protects employees’ rights to engage in concerted activity concerning wages, hours, and working conditions. AI smart glasses, by their nature, typically include the ability to record audio and video, take photographs, and sometimes even stream content in real time. These functions may be analogous to those found in cell phones and other electronic devices previously considered by the National Labor Relations Board (NLRB).

In certain circumstances, recording workplace conditions may qualify as protected activity. This is particularly true where the recording documents safety concerns, harassment, discrimination, or union-related activity, and is undertaken to further a group interest, such as preserving evidence for collective action.

The NLRB 2023 Stericylce standard remains in effect despite recent guidance from the Board’s General Counsel, and it means that labor officials will scrutinize even facially neutral workplace policies that prohibit  recording in the workplace. The current standard says that workplace rules are presumptively unlawful if a reasonable employee could interpret them as chilling protected concerted activity under Section 7 of the NLRA. To overcome this presumption, employers have to demonstrate that the rule is narrowly tailored to address a legitimate and substantial business interest such as trade secrets, confidentiality, or customer privacy,

With this in mind, employers should review their policies governing AI glasses to ensure they are narrowly tailored and clearly tied to legitimate business justifications so as not to infringe on employees’ Section 7 rights.

Do AI Glasses Create Data Security Risks?

Quite possibly. Data security risks associated with AI-enabled wearables could be significant and, in some cases, difficult to detect.

AI-enabled glasses could capture proprietary processes, trade secrets, internal communications, and customer or patient data. Since these devices often connect to third-party AI platforms, information may be transmitted, stored, or processed outside the employer’s direct control.

Once data leaves the organization’s internal systems, questions arise regarding retention practices, secondary use, security safeguards, and regulatory compliance. Employers may have limited visibility into how that information is handled, which can create exposure under confidentiality agreements, trade secret laws, and applicable privacy statutes.

Organizations in regulated industries, including healthcare and financial services, should be especially cautious. The inadvertent capture or transmission of protected or confidential information through wearable AI devices may implicate industry-specific privacy and security obligations.

How Do Disability Accommodation Obligations Apply to AI Glasses?

Many AI glasses are designed to look and function like ordinary eyewear and may even contain prescription lenses. While the glasses themselves may provide vision correction, the AI functionality embedded within the device is a separate consideration.

At present, ordinary prescription eyewear does not constitute a disability under the Americans with Disabilities Act (ADA), and employers are not required to permit AI-enabled glasses simply because they include corrective lenses. In other words, presence of prescription lenses does not, by itself, transform the device into a protected accommodation.

However, this may change since wearable AI glasses can function as assistive technology. Emerging AI glasses now can provide real-time transcription, object recognition, navigation assistance, visual magnification, which may be in the future considered workplace accommodations for individuals with visual, auditory, or neurological impairments. As the technology continues to evolve, employers may consider conducting a case-by-case assessment if you identify the possible need or request for an accommodation. This may include evaluating whether the device is medically necessary, whether it addresses a documented limitation, whether there are alternative accommodations available, and whether the use of AI glasses presents safety, confidentiality, or operational concerns.

Can Employers Prohibit AI Glasses in the Workplace?

In most cases, yes.

Employers generally may restrict or prohibit AI-enabled glasses and other wearable devices where the policy supports legitimate business interests. Common justifications include maintaining workplace safety, protecting confidential or proprietary information, safeguarding customer, employee, or patient privacy, and ensuring compliance with applicable recording and data privacy laws.

If an employer decides to implement a ban, consistent enforcement is essential. Any uneven application of the policy may give rise to disparate treatment or retaliation claims.

What Steps Should Employers Take Now?

Given these new slate of risks, many employment law firms recommend you consider the following steps.

1. Review and Consider Updating Applicable Policies

• Audit electronic device, recording, confidentiality, and acceptable use policies to determine whether they expressly encompass AI-enabled glasses and other recording-capable wearables
• Identify outdated language that references only “phones” or “cameras” or broadly prohibits “unauthorized recording.”
• Revise policies to clearly define the scope of covered devices to include wearable AI technology and ensure that legitimate business justifications for such restrictions are articulated.

2. Consider Building an Accommodation Framework That Considers AI Glasses 

• Ensure workplace policies allow for case-by-case assessment where an employee asserts that AI glasses are medically necessary as a reasonable accommodation.
• Establish a clear internal process for engaging in the interactive process, including evaluating medical documentation, identifying the specific limitation at issue, and determining whether the device enables the employee to perform essential job functions.
• Document the analysis and decision-making process to support defensibility in the event of future challenges.

3. Train Managers on AI Glasses and How to Deal With Them 

• Ensure supervisors understand what AI-enabled glasses are, how they function, and how to identify potential recording, safety, or confidentiality concerns.
• Provide guidance on how to respond if a manager observes an employee wearing AI glasses, including when to escalate issues to HR, compliance, or legal.
• Train relevant stakeholders on how to handle accommodation requests appropriately and avoid making unilateral decisions that could create ADA or retaliation risk.

4. Consult Experienced Legal Counsel 

• Engage workplace counsel/attorney who understands the intersection of data privacy, cybersecurity, workplace safety, labor law, and disability accommodation to evaluate and mitigate risks associated with AI glasses in the workplace.

Conclusion

We will continue to monitor developments related to AI wearable technology.

A Costly Oversight: The Importance of a Written Section 125 Plan

Many employers offer popular pre-tax benefits such as health insurance premiums, health FSAs, and dependent care FSAs, assuming that running deductions through payroll on a pre-tax basis is enough. However, one critical component to offering these plans that is often overlooked is that these benefits generally must be offered pursuant to a written Section 125 plan. Often discovered during an audit or transaction, the failure to maintain a written plan document can expose employers to unexpected tax penalties.

What Is a Section 125 Plan?

A Section 125 plan, commonly referred to as a cafeteria plan or Premium Only Plan (POP), provides employees with the option of purchasing employer-sponsored benefits on a pre-tax basis. These plans allow employees to pick between increased total compensation and contributing part of their compensation towards the payment of benefit premiums. Employees that choose to contribute part of their salary to premiums can do so by making an election. These elections are generally irrevocable during the plan year and a new election cannot be made until the next annual open enrollment period. 

Pre-tax salary reductions are only permitted if they are made under a written cafeteria plan. If no written plan exists, or if the document is outdated or inconsistent with actual operations, the IRS may treat all employee contributions as taxable income. A common misconception is that payroll practices or other enrollment materials can substitute for a written plan, however, SPDs, benefit summaries, or other insurance carrier certificates do not replace a Section 125 plan document. The plan must be formally adopted and should clearly spell out:

• Eligible employees
• Benefits offered on a pre-tax basis
• Election rules (including irrevocability and change-in-status events)
• Other administrative provisions required under Section 125.

Offering pre-tax benefits is a valuable tool for both employers and employees, but only when done correctly. We frequently find that employers are not properly handling their pre-tax salary reductions for their benefit plans. Taking the time to confirm a written plan document is in place, up to date, and properly administered can help avoid unnecessary tax penalties. If you have questions or need assistance reviewing your current plan documents, please let us know.

DOL Releases AI Literacy Framework for the U.S. Workforce

The Department of Labor released a comprehensive AI Literacy Framework providing employers with a roadmap for training workers to use artificial intelligence technology responsibly and effectively. The framework marks the Trump administration’s latest effort to prepare American workers for an AI-driven economy, emphasizing that “every worker will need baseline AI literacy skills to succeed, regardless of industry or occupation.” While the framework doesn’t create any new legal requirements, it signals DOL’s expectations for how employers should approach AI training – and offers practical guidance for organizations looking to upskill their workforce. Here’s an overview and steps you should take.

DOL’s AI Literacy Plan

The framework builds on the Trump Administration’s AI Action Plan released in July 2025. Both prioritize worker training and upskilling. It defines AI literacy as “a foundational set of competencies that enable individuals to use and evaluate AI technologies responsibly, with a primary focus on generative AI.”

Absent from this framework is any discussion of worker protections, discrimination safeguards, or new regulatory requirements. This marks a departure from the Biden administration’s approach, which emphasized AI guardrails alongside worker training.

Foundational Concepts

The DOL framework starts by identifying five core competencies it believes every worker should develop.

1. Understand AI Principles

Workers need to understand how AI operates, not technical mastery, but enough to use AI confidently. This includes understanding that AI identifies statistical patterns (not “thinking”), can produce incorrect outputs (“hallucinations”), and reflects human design decisions.

2. Explore AI Uses

Workers should understand practical applications across workplace settings: using AI to draft documents, analyze reports, answer questions, generate creative assets, or support decision-making. DOL emphasizes that AI use varies by industry and context.

3. Direct AI Effectively

Because AI depends heavily on user input, workers must learn how to provide clear instructions, include necessary context, and iterate to improve results. This includes prompt techniques, supplying relevant data, and avoiding vague requests.

4. Evaluate AI Outputs

Workers need skills to assess whether AI-generated outputs are accurate, complete, and appropriate. This includes verifying facts, spotting logical errors, and applying human judgment rather than treating AI as a final authority.

5. Use AI Responsibly

Workers must understand the boundaries of appropriate use: protecting sensitive information, following workplace policies, avoiding misuse, and maintaining accountability for AI-assisted work.

The 7 Delivery Principles for Employers

The framework also offers seven principles for how employers should deliver AI training.

1. Enable Experiential Learning

Training works best through hands-on use, not abstract reading. Employers should embed AI tools into real work tasks, provide interactive exercises, and allow trial-and-error learning.

2. Embed Learning in Context

Training should be relevant to workers’ jobs and industries. The training should also use industry-specific examples, align with actual workflows, and integrate AI literacy into existing training programs rather than creating standalone courses.

3. Build Complementary Human Skills

The guidance notes that AI amplifies human capabilities, it doesn’t replace them. Training should demonstrate how AI enhances critical thinking, creativity, and communication, emphasizing that AI’s value depends on human judgment.

4. Address Prerequisites to AI Literacy

Some workers may lack digital literacy, device access, or broadband connectivity. Employers should identify and address these barriers, ensuring all employees can engage with training.

5. Create Pathways for Continued Learning

Foundational AI literacy is just the starting point. Employers will want to provide clear routes for workers to deepen skills, pursue specialized training, or transition into AI-related roles.

6. Prepare Leadership to Lead

Train managers, coaches, and team leaders separately. Each leadership position will need skills to guide others, integrate AI into operations, and support workplace adoption.

7. Design for Agility

AI evolves rapidly. Companies should build training systems that can be updated regularly, use modular content that can be refreshed, and incorporate feedback to stay current.

What Employers Should Do Now

Interested in adopting the DOL’s new framework? Here’s where to begin:

Assess Current State of AI Use– Identify where workers are already using AI tools (officially or unofficially). Survey employees about AI adoption, review workflows where AI could add value, and determine which roles need AI literacy most urgently.

Recognize and Address Employee Relations Hurdles to AI Use– Recognize and address any emotional resistance that employees may experience in the face of integration in the workplace linked to fear of job loss, loss of identity, or diminished value. Provide clear communication about how AI is intended to enhance productivity, reduce administrative burden, and support (not replace) human judgment.

Develop or Update AI Training Programs– Use DOL’s framework as a starting point to build training that fits your industry and workforce. Focus on hands-on practice with tools workers will actually use, not abstract AI concepts. Integrate training into existing onboarding and upskilling programs rather than creating standalone courses.

Create Clear AI Use Policies– If you haven’t already, establish guidelines for appropriate AI use in your workplace. Address data protection, output verification requirements, prohibited uses, and accountability standards. Make sure workers understand the boundaries before they encounter problems.

Train Managers and Team Leaders First– Equip leadership with AI literacy before rolling out broader training. They need to understand AI capabilities, guide team adoption, address worker concerns, and model appropriate use. Managers who resist or misunderstand AI will undermine workforce training efforts.

Build Pathways Beyond Basic Literacy– Think about progression: Who needs advanced AI skills? Which roles might evolve significantly due to AI? How can high performers develop deeper AI proficiency? Create clear next steps for workers who master foundational skills.

Partner with External Resources– Consider leveraging state workforce development programs, community colleges, or industry associations for AI training. Many organizations signed the White House pledge to provide free AI education resources. DOL intends to help connect employers with these offerings.

An Employer’s 5-Step Guide to AI Interviewing and Hiring Tools

AI-enabled interviewing tools have emerged as a common solution for the administrative burdens associated with hiring. These tools improve efficiency, streamline operations, allow you to consider more candidates without expanding your hiring team, keep evaluations consistent across applicants, and make high-volume hiring easier. But their adoption also raises important legal considerations, including potential bias, compliance risks, and data privacy and cybersecurity obligations – all while we face a growing regulatory and litigation landscape targeting the use of these tools. 

5 Steps You Can Take to Mitigate Risks

If your organization uses or is considering AI interview tools, the following five steps can help proactively manage risk.

1. Develop Comprehensive AI Policies. While many organizations rely on a single, high-level AI policy, a more effective governance framework typically includes multiple, complementary policies tailored to different aspects of AI use. At a minimum, you should establish a comprehensive program to address three areas: organizational AI governance, ethical use of AI, and tool-specific acceptable use policies.

2. Ensure Ongoing Vendor Oversight. You should treat AI interview vendors as an extension of the hiring process rather than as standalone technology providers. Managing risk requires clear contractual guardrails, transparency into how tools function, and ongoing monitoring to ensure compliance and fairness.

3. Adopt Measures to Identity and Prevent Deepfakes. Adopting identity verification measures for candidates, particularly in asynchronous interviews, and establishing review protocols to flag irregular or suspicious interview behavior can help mitigate the use of deepfakes. For video interviews in particular, you should implement tools that support human review and train employees to recognize indicators of manipulated or synthetic content.

4. Audit AI Interview Tools and Systems. You should regularly audit AI interview tools to assess whether they rely on signals such as speech patterns, accents, tone, facial expressions, or eye contact, and limit or disable features that may disadvantage candidates with disabilities, neurodivergent traits, or culturally distinct communication styles. You should also ensure that alternative interview formats are available to help prevent qualified candidates from being screened out based on how AI systems interpret communication rather than job-related qualifications.

5. Establish Clear and Balanced Policies on Applicant AI Use. Your approach to applicant use of AI during interviews can present reputational risk if perceived as inconsistent, overly restrictive, or misaligned with the employer’s own use of AI tools. Prohibiting applicant AI use while deploying AI interviewers may be viewed as a double standard, potentially affecting employer brand, candidate trust, and overall recruitment outcomes. Accordingly, you should address applicant use of AI during interviews through transparent, balanced policies rather than blanket prohibitions. This includes clearly communicating what types of AI use are acceptable, such as accessibility tools or interview preparation support, and what uses are not permitted, such as real-time response generation intended to misrepresent a candidate’s abilities.

Reminder: OSHA 300A Logs Must Be Posted by February 1st

All OSHA 300A logs must be posted by February 1st in a visible location for employees to read. The logs need to remain posted through April 30th.

Please note the 300 logs must be completed for your records only as well. Be sure to not post the 300 log as it contains employee details.
The 300A log is a summary of all workplace injuries, including COVID cases,  and does not contain employee specific details. The 300A log is the only log that should be posted for employee viewing.

Please contact our office if you need a copy of either the OSHA 300 or 300A logs.

Separating Myth from Reality on New “No Tax on Overtime” Law: Key Facts Employers Must Know This Tax Season and Beyond

A new federal law enacted last year provides a tax benefit to employees who receive overtime pay – but calling it a “No Tax on Overtime” law is a bit of misnomer. For starters, OT pay remains taxable and subject to withholding rules. And while a new income tax deduction may be available to some employees who work overtime, only a limited portion of federally required overtime compensation is tax deductible. We’ll clear up some of the biggest misconceptions surrounding these new rules and provide some key employer takeaways – which will become especially important this tax season and beyond as more employees learn the realities of these rules and the IRS cracks down on employers’ new filing and information reporting obligations.  

Overview of “No Tax on Overtime”

The One Big Beautiful Bill Act (OBBBA), which President Trump signed into law last year, includes a new federal income tax deduction related to overtime pay. This new deduction:

• applies for tax years 2025 through 2028;
• allows eligible workers to claim up to $12,500 (or $25,000 if married filing jointly) in “qualified overtime compensation” they received during the applicable tax year;
• phases out for individuals whose modified adjusted gross income (MAGI) for the year exceeds $150,000 ($300,000 if married filing jointly); and
• is not available if the individual’s MAGI is at or above $275,000 ($550,000 if married filing jointly).

The deduction is allowed for both itemizers and non-itemizers, so long as the individual includes their social security number on their tax return. If an individual is married, they must file a joint return in order to claim this deduction.

The Big Question: What Does “Qualified Overtime Compensation” Mean?

The law defines “qualified overtime compensation” as “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act” (FLSA) that exceeds the individual’s “regular rate” (as determined by the FLSA), excluding qualified tips. This language expressly conditions an employee’s right to claim the federal tax benefit on federal labor law requirements, specifically excluding overtime compensation mandated solely by state law.

Is “No Tax on Overtime” a Misnomer? Top 3 Misconceptions and Employer Challenges

There are plenty of misconceptions floating around related to the implications of the Big Beautiful Bill, especially related to the “No Tax on Overtime” provisions. In order to separate myth from reality, here are three key clarifications on the top mistaken beliefs.

1. The new tax deduction is only available for overtime pay required by the FLSA.

The FLSA generally requires employers to pay covered, nonexempt employees at least 1.5 times their “regular rate” of pay for all hours worked beyond 40 hours in a given workweek. This is very important to keep in mind because some states have overtime laws that overlap with, but also go beyond, the requirements of the FLSA. For example:

• Some states impose daily overtime rules in addition to weekly overtime requirements.
• California requires double-time pay for hours worked beyond certain thresholds (in addition to daily, weekly, and other overtime requirements).
• Several states make it harder (compared to federal rules) for employers to classify employees as “exempt” from overtime pay requirements. Exemption rules can differ at state versus federal levels in terms of salary thresholds and/or industry- or job-specific criteria.

Therefore, if an employee receives overtime pay that is required by state, but not federal, law, such amounts are not “qualified overtime compensation” under the OBBBA, and no portion is deductible by the employee for federal income tax purposes. 

2. The deductible amount may be less than you think. 

As explained above, the new deduction related to overtime pay is capped at $12,500 ($25,000 for joint filers) and is reduced or phased out completely based on an individual’s MAGI for the year. In addition, the amount that is deductible is not the full amount of the individual’s FLSA-required overtime compensation – rather, it is the portion that exceeds the individual’s “regular rate” of pay as determined under federal law.

Here’s an example: 

• Scenario. Let’s say an employee’s regular rate of pay under the FLSA is $20 per hour and they worked 200 overtime hours in a given tax year. (Assume they are single and had MAGI of less than $150,000 for that tax year). The employee is a covered, nonexempt employee under the FLSA and therefore required to be paid 1.5 times their regular rate of pay for each hour of overtime worked. The employee therefore received $6,000 (200 x $30) in FLSA-required overtime compensation during that tax year.
• Outcome. Because the employee’s regular rate of pay for 200 hours worked would total $4,000 (200 x $20), the employee’s “qualified overtime compensation” is $2,000 ($6,000 – $4,000). The employee therefore may only claim $2,000 for the overtime pay deduction that year. (The actual value of this tax benefit would depend on the employee’s marginal tax bracket since tax deductions, unlike tax credits, do not give you a dollar-for-dollar tax reduction.)

3. All overtime pay remains subject to payroll taxes and withholding rules.  

The phrase “No Tax on Overtime” is misleading because it doesn’t actually mean that overtime pay is no longer taxable. To the contrary, all OT pay remains subject to federal income tax (though, as explained above, employees may be eligible to claim a limited income tax deduction for qualified overtime compensation) and therefore subject to income tax withholding rules. However, employees may opt to adjust their Forms W-4 to reflect any expected deductions for qualified overtime compensation.

In addition, all overtime compensation remains fully subject to other payroll taxes, such as Social Security and Medicare taxes (both the employer’s share and the employee’s share), because the OBBBA’s new tax deduction applies only for federal income tax purposes.

Why Should Employers Care About Any of This?

While the OBBBA’s new overtime deduction is a tax benefit for employees filing individual tax returns, it impacts employers in several important ways.

• New Filing and Information Reporting Requirements. The OBBBA requires employers to include the total amount of “qualified overtime compensation” on the employee’s Form W-2. For the 2025 taxable year, the IRS is granting employers penalty relief related to failures to separately report qualified overtime compensation. However, this relief will not be available in future tax years, so it is essential to understand how to correctly calculate qualified overtime compensation. (You can check out the agency’s proposed 2026 General Instructions for Forms W-2 and W-3 to get an idea of the applicable reporting requirements you can expect to roll out).
• Payroll Withholding. As mentioned above, employers must be aware of their withholding obligations in light of the new tax rules around qualified overtime compensation and look out for any employee updates to Forms W-4.
• Employee Relations. Many employees may be attracted to certain roles or motivated to work more overtime hours based on the OBBBA’s new overtime deduction, and employers should be prepared to respond to any employee confusion – and perhaps anger – related to any misconceptions surrounding it. You may consider working with counsel to determine the best approach here. In general, however, you should avoid giving employees any tax planning advice and remind them that the company is following IRS rules.

Conclusion

Overtime pay remains taxable – though some employees may be allowed to claim a portion of it as a federal income tax deduction. Employers should work with counsel on filing, reporting, and withholding issues, as well as employee communications, related to qualified overtime compensation.

Article courtesy of Fisher Phillips

10 Workplace Predictions for 2026: Key Trends for Employers to Track

We won’t pretend to have a crystal ball when it comes to what will happen in the labor and employment legal landscape in the new year, especially given the nature of modern-day politics. But despite the uncertainty, Fisher & Phillips’ developed their best predictions to help you plan for 2026. You can read the entire FP Workplace Law 2026 Forecast here, or you can dive into this Insight for the top 10 predictions pulled from our report.

Government Relations: DC Will Be Full Speed Ahead Once Again

The second Trump administration has been operating at a breakneck pace and there are no signs of that changing in 2026, especially with control of Congress on the line. The White House is aware that its agenda would face additional roadblocks if Republicans were to lose control of either the House or the Senate, so there will be concerted effort to move forward with the president’s priorities as soon as possible in the new year. This includes confirming judges to benches across the country (and potentially the Supreme Court if Justices Thomas or Alito retires), continued deportation efforts (especially given ICE’s boosted budget), and reducing the size of the federal government.

Immigration: An H-1B Lottery Overhaul is Coming

A growing series of pressures on the H-1B system in 2025 already brought heightened investigations, new fee requirements, intensified employer scrutiny, and a sweeping new social media vetting requirement for H-1B workers and their families.

In 2026, it is predicted that DHS will replace the current random H-1B cap lottery with a weighted selection system that gives higher-wage positions better odds of being chosen, potentially as soon as the March 2026 cap season. Even if litigation slows implementation this coming year, it’s likely to take effect during this administration. The change will heavily favor employers able to offer Level III–IV wages, making it harder for startups, non-profits, and entry-level roles to secure visas. This will force many organizations to rethink compensation strategies and diversify their global talent pipelines.

Artificial Intelligence: Bias Audits Will Become a Must-Have for Employers

Despite a recent executive order targeting “onerous” state AI laws, employers will continue to face a growing patchwork of state and local laws focused on combating AI bias in hiring and the workplace. And an AI bias audit is one of the most effective ways to identify and mitigate risk given the evolving state of AI-related laws springing up around the country. Indeed, plaintiffs’ attorneys are already using the absence of an audit as evidence of negligence or discriminatory design. 

Wage and Hour/Pay Equity: State Enforcement to Step Up

States with robust wage and hour and wage payment laws (such as CA, IL, NJ, NY, WA) will continue to aggressively enforce their laws during a period when DOL enforcement activities may decline (in part, due to a reduction in the number of investigators). On the other hand, expect federal enforcement to continue to take a business-friendly approach, and expand the multiple compliance assistance programs it rolled out in 2025.

Fisher & Phillip’s also anticipates a noticeable uptick in pay equity litigation, fueled by well-publicized gender pay settlements and pro-plaintiff decisions in states with robust pay equity statutes. Use the F&P Pay Equity and Transparency Map to track state developments on pay discrimination laws.

Workplace Safety: New Leaders Promise a Business-Friendly Approach

New leadership will mean a new day for employers. Now that David Keeling is in place as the new head of OSHA and Wayne Palmer has been confirmed to lead MSHA, it is expected that efforts to increase outreach to industry will begin. For example, F&P predicts OSHA will issue few, if any, press releases after an employer is cited for safety violations. We also expect fewer regulations to be proposed or promulgated.

Labor Relations: The NLRB Will Begin Dismantling the Biden-Era Board’s Legacy

The Board should finally return to a legal quorum by early 2026. It will likely seek to overturn several significant Biden-era cases in the months thereafter, including rulings that addressed restrictions on workplace conduct rules, remedies available for unfair labor practices, and mandatory captive audience meetings, among other precedent-setting decisions. In response, unions are expected to abandon their reliance on the NLRB. This could mean an increase in labor grievances in union shops. Unions may also revisit recognitional picketing to pressure employers into recognizing them outside the election process.

Sports: Continued Battle Over Student-Athlete “Employee” Status

Both the DOL and NLRB were directed by President Donald Trump to clarify the status of student-athletes as part of a July executive order. While it’s unlikely the Trump administration will be willing to upend the current college sports model by deeming college athletes as employees who have collective bargaining rights and overtime protections, guidance from these agencies on the issue has yet to materialize.

Privacy and Cyber: Wiretapping Litigation Wave Will Keep Churning

In addition to continued proliferation of privacy laws at the state level, we expect the plaintiffs’ bar to continue the wave of wiretapping and related claims against businesses relating to the use of tracking technology on company websites.

While the statutes being used as ammunition in these lawsuits predate the internet, courts are allowing them to move forward across the country, exposing businesses to expensive class action litigation. This trend began primarily in California, but it has already expanded to other states. It is anticipated that it will continue to do so, unless or until state legislatures or courts directly address the application of wiretapping and other long-standing laws (that were intended for other purposes) to the use of tracking technology on websites.

International: Expanded Protections for Non-Traditional Workers

Multinational businesses should prepare for upcoming regulatory changes related to non-traditional workers, including freelancers and gig workers. For example:

• EU member states will need to adopt a new directive before the end of 2026 that seeks to curb worker misclassification, ensure algorithm transparency, and enhance working conditions and data protection for individuals engaged in platform work, including freelance, on-demand, and gig work.
• The first-ever law protecting freelancers and independent contractors in Japan came into effect in 2024. The law already requires businesses that do work in the country to review their workplace practices and adjust as necessary, and we expect regulations to be expanded and refined in 2026.
• Companies doing business in Mexico should also expect the government to advance and strengthen regulations for digital platform workers in the year ahead.

Construction: AI Claims, Immigration Enforcement to Increase

As the adoption of drones and AI-driven tools become commonplace, issues around privacy, data protection, off-the-clock work, and workplace surveillance will require contractors to develop clearer policies and disclosures. Additionally, we expect wage-theft enforcement actions to expand in more states, leading to more audits and increasing the importance of compliance and record-keeping.

Increased I-9 audits and ongoing jobsite raids will also require employers to continue to be vigilant about verification and compliance. Fisher Phillips offers a Rapid Response Team for DHS Raids to support employers when an workplace enforcement action occurs at your business.

 

2026 ACA Reporting Deadlines and Compliance Requirements for the 2025 Calendar Year

As employers prepare for the next Affordable Care Act (ACA) reporting cycle, understanding the 2026 deadlines and new compliance options is critical. The IRS has finalized the reporting forms and instructions for the 2025 calendar year, along with updates that simplify the process for Applicable Large Employers (ALEs).

Here’s what employers need to know.

---

Key ACA Reporting Deadlines for 2026

Applicable Large Employers (ALEs) must meet the following ACA reporting deadlines for the 2025 calendar year:

• Employee Forms (1095-C):
  Must be furnished to employees no later than March 2, 2026.
  Alternatively, ALEs may now post an online notice of availability instead of distributing the forms to all employees individually.
• IRS Filing (Forms 1094-C and 1095-C):
  Must be electronically filed with the IRS by March 31, 2026.

Non-ALEs that sponsor self-insured or level-funded plans face the same deadlines when submitting Forms 1094-B and 1095-B.

---

ACA Reporting Overview

Under the ACA, employers are required to report information about health coverage offered to employees:

• ALEs (employers with 50 or more full-time or full-time equivalent employees) must report whether they offered minimum essential coverage (MEC) that was affordable and provided minimum value.
• Employers with self-insured plans—including level-funded arrangements—must also report months of coverage for all enrolled individuals.

Reporting is completed through IRS Forms 1094-C and 1095-C (for ALEs) or 1094-B and 1095-B (for non-ALE self-insured plans).

---

New Option: “Alternative Manner of Furnishing” Employee Forms

Thanks to the Paperwork Burden Reduction Act (PBRA), ALEs now have a new way to fulfill their reporting obligations without furnishing a Form 1095-C to every full-time employee.

Instead, employers can:

1. Post a Notice of Availability:
   Make a clear, conspicuous notice available on the company’s benefits website by March 2, 2026, informing employees they may request a copy of their Form 1095-C.
2. Provide Upon Request:
   Furnish a copy by the later of January 31 or 30 days after the employee’s request.

The online notice must:

• Use plain language and legible formatting (e.g., a large font or graphics that draw attention).
• Remain accessible through October 15, 2026.
• Include clear instructions on how to request the form.

Example:
A “Tax Information” link on a benefits website leading to a page labeled “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS” with instructions for obtaining the form.

This streamlined furnishing method mirrors an existing option for insurance carriers and non-ALEs reporting via Form 1095-B.

---

Electronic Filing Now Required for All Employers

Starting with the 2025 reporting year, the IRS now requires electronic filing for virtually all ACA reports.
Previously, employers filing fewer than 250 forms could submit on paper—but that’s no longer an option.

Under the new aggregation rule, employers that file 10 or more total information returns (including Forms W-2, 1099, and ACA forms) must file electronically through the IRS Affordable Care Act Information Returns (AIR) system.

Because the AIR system requires a specific XML schema format, most employers will need to work with an ACA reporting vendor—such as a payroll provider, benefits administration platform, or specialized ACA reporting service.

---

Penalties for Late or Incorrect ACA Reporting

Failure to comply with ACA reporting requirements can be costly.
For forms due in 2026, the IRS penalties are as follows:

Violation	Penalty per Form	Maximum Annual Penalty
Late or Incorrect Filing or Furnishing	$340	$4,098,500
Intentional Disregard	$680 per form (no max)	—

Reduced Penalties for Timely Corrections

• Within 30 days of due date: $60 per form (max $683,000)
• By August 1, 2026: $130 per form (max $2,049,000)

Employers may also qualify for “reasonable cause” relief if they can demonstrate responsible efforts to comply and mitigating circumstances beyond their control (see Treas. Reg. §301.6724-1 and IRS Publication 1586).

---

Action Steps for Employers

To prepare for 2026 ACA reporting:

1. Confirm ALE status and determine which forms (1094/1095-B or -C) apply.
2. Decide whether to furnish forms directly or use the online notice of availability option.
3. Engage an ACA reporting vendor capable of e-filing through the IRS AIR system.
4. Review 2025 IRS Forms 1094-C, 1095-C, and instructions to ensure accurate completion.
5. Establish internal deadlines to avoid costly penalties.

---

Bottom Line

For 2026, ACA reporting brings both greater convenience and stricter electronic filing rules.
Employers should take advantage of the new online furnishing option while ensuring they’re ready to meet the March deadlines and avoid compliance penalties.