Published: December 23, 2024 | Author: Vanessa G. Nelson, CLRL
Introduction
As we close out 2025, elite CEOs aren’t just reflecting—they’re strategically positioning their organizations to scale in 2026 without compliance roadblocks 
derailing their growth.
Because here’s what separates elite CEOs from everyone else:
They know that the time to eliminate $500,000 in hidden exposure isn’t after the DOL audit letter arrives—it’s now, in December, before the calendar flips.
You’ve spent years building something significant. You refuse to let preventable compliance issues threaten what you’ve worked so hard to create.
And for good reason.
2026 will bring intensified enforcement of 2025 laws, expanded state-level requirements, and emerging compliance areas that most Michigan employers aren’t ready for yet.
The employers who wait? They’re the ones facing $200,000-$500,000 in exposure when enforcement catches up.
The employers who prepare now? They’re the ones who scale confidently, avoid costly violations, and protect what they’ve built.
So let me ask you directly: Are you prepared for 2026?
Why 2026 Compliance Preparation Matters NOW
Here’s what most Michigan employers don’t realize:
The compliance gaps that exist in your organization right now—the ones you haven’t addressed from 2025’s law changes—don’t just sit quietly waiting for you to get around to them.
They compound.
Every week that passes with:
- Incomplete ESTA implementation = more exposure
- Misclassified FLSA employees = more back pay owed
- Unvalidated AI hiring tools = more discrimination risk
- Improperly structured independent contractors = more liability
And when enforcement catches up (and it will), you won’t just owe for the current violation.
You’ll owe for months or years of accumulated exposure.
That’s how a $50,000 problem becomes a $200,000 problem.
That’s how a $200,000 problem becomes a $500,000 settlement.
So the question isn’t whether to address these issues.
The question is: Will you address them proactively in December 2025, or reactively after a DOL audit letter arrives in March 2026?
The Six Critical Compliance Areas for 2026
Let me walk you through the six areas every Michigan employer needs to audit before the calendar flips to 2026.
1. Michigan ESTA (Earned Sick Time Act) Implementation
What changed: Michigan’s Earned Sick Time Act became effective February 21, 2025, requiring employers to provide earned sick time to employees.
The requirement:
- Employers with 11+ employees: 72 hours earned sick time annually
- Employers with 10 or fewer: 40 hours (effective October 1, 2025)
- Accrual rate: 1 hour per 30 hours worked
- Carryover: Up to 72 hours to next year
- Use cap: 72 hours per year
Why most employers aren’t compliant yet: Many Michigan employers implemented basic policies but haven’t:
- ✓ Set up proper tracking systems
- ✓ Updated payroll systems to track accruals
- ✓ Trained managers on approval processes
- ✓ Created compliant written notices
- ✓ Addressed carryover procedures
Your exposure if incomplete:
- Per violation: $1,000 penalty
- Typical organization (50-100 employees): $50,000-$100,000 total exposure
- What triggers enforcement: Employee complaints, DOL audits, retaliation claims
Action items before 2026:
- Audit your current ESTA tracking system
- Ensure accrual calculations are accurate
- Verify written notice was provided to all employees
- Train managers on ESTA approval and documentation
- Review handbook language for compliance
Resources:
- Michigan ESTA Official Text
- [DOL Enforcement Guidelines]
2. FLSA Classification Audits
What’s happening: After the November 2024 court ruling, the FLSA salary threshold reverted to $684/week ($35,568 annually). But many employers still have misclassified employees.
The problem: Employees making $25,000-$35,000 classified as “exempt” are ticking time bombs.
Why it matters: The DOL recovered $149.9 million in FLSA back wages in fiscal year 2024. And 30% of U.S. employers have at least one misclassified employee.
Your exposure per misclassified employee: Let’s use a real example:
Employee: Making $25,000/year, classified as exempt, working 45 hours/week
The math:
- Current pay: $481/week
- Actual hourly rate: $10.69/hour (below Michigan’s $12.48 minimum wage!)
- Should be paid: $592.80/week ($499.20 regular + $93.60 overtime)
- Shortfall: $111.80/week
Over 2 years:
- Unpaid wages: $11,627
- Liquidated damages (double): $11,627
- Subtotal: $23,254
- Plus: DOL penalties ($2K-$5K), legal fees ($10K-$20K), ESTA violations ($3K)
Total exposure: $38,254-$51,254
For ONE employee making $25,000/year.
Multiply that by every misclassified employee in your organization.
Action items before 2026:
- List every employee classified as “exempt”
- Verify each earns at least $35,568/year ($684/week)
- Confirm they meet BOTH salary basis AND duties test requirements
- Reclassify any employee who doesn’t meet all three tests
- Implement time tracking for newly non-exempt employees
- Calculate and address any back pay owed
Resources:
3. PWFA (Pregnant Workers Fairness Act) Accommodation Requests
What’s happening: The Pregnant Workers Fairness Act enforcement escalated significantly in 2025, and this trend will continue into 2026.
The requirement: Employers must provide “reasonable accommodations” for known limitations related to pregnancy, childbirth, or related medical conditions—unless it causes “undue hardship.”
Common accommodation requests:
- Modified work schedules
- Light duty assignments
- Bathroom breaks
- Ability to sit or stand
- Temporary transfer to less strenuous work
- Time off for medical appointments
- Lactation accommodations
Why this matters in 2026: EEOC enforcement is active, and employees are increasingly aware of their rights.
Your exposure:
- Average settlement: $50,000-$200,000
- What triggers claims: Denial without interactive process, retaliation, termination
Action items before 2026:
- Create PWFA accommodation request process
- Train managers on interactive process requirements
- Update employee handbook with PWFA policy
- Document all accommodation requests and responses
- Ensure no retaliation for requesting accommodations
Resources:
4. Independent Contractor Misclassification
What’s coming in 2026: Increased scrutiny on 1099 vs. W-2 classifications from both federal and state enforcement.
Why this is urgent:
- Michigan uses the ABC test (very strict)
- Federal DOL enforcement shifting (more audits expected)
- IRS is cross-checking (1099s vs. payroll records)
The ABC Test (Michigan): To classify as independent contractor, worker must meet ALL THREE:
A) Free from control in performance of work
B) Work is outside usual course of business OR performed outside employer’s places of business
C) Engaged in independently established trade/occupation
If you fail ANY one test = They’re an employee
Your exposure for misclassified contractors:
Example: 10 contractors, $50,000 annual pay each
- Back wages/overtime: $75,000
- Liquidated damages: $75,000
- Payroll taxes: $45,000
- Penalties: $25,000
- Legal fees: $80,000
Total: $300,000+
Action items before 2026:
- List all independent contractors
- Apply Michigan ABC test to each
- Review contracts and actual working relationship
- Identify high-risk relationships (work exclusively for you, use your equipment, follow your processes)
- Reclassify or restructure as needed
- Consider professional contractor compliance review
Resources:
- Michigan ABC Test requirements
- IRS Common Law Test
- DOL Independent Contractor Guidance
5. Pay Transparency Expansion
What’s happening: Six states now require salary range disclosure in job postings, with more expected to follow in 2026.
Current pay transparency states:
- California
- Colorado
- Connecticut
- Maryland
- Nevada
- New York
- Rhode Island
- Washington
Why Michigan employers need to care: If you have remote employees in these states OR recruit candidates from these states, you must comply.
The requirement: Job postings must include:
- Salary range (minimum to maximum)
- Benefits description (in some states)
- Clear, good-faith ranges (not $50K-$500K)
Your exposure:
- Penalties: $1,000-$10,000 per non-compliant job posting
- What triggers enforcement: Employee complaints, competitor reports, state audits
Why this matters for 2026: More states are considering pay transparency laws, and multi-state employers face increasing compliance complexity.
Action items before 2026:
- Identify where your employees and candidates are located
- Determine which state laws apply to you
- Conduct salary benchmarking for all positions
- Create compliant salary ranges
- Update job posting templates
- Train recruiters on compliance requirements
6. AI in Hiring & Algorithmic Bias
What’s coming in 2026: EEOC is focusing enforcement attention on AI-driven hiring tools and algorithmic bias.
The concern: AI tools can create discrimination liability if they:
- Screen out protected classes disproportionately
- Use facial recognition with bias
- Analyze resumes with embedded bias
- Make decisions without human oversight
Common AI hiring tools under scrutiny:
- Resume screening software
- Video interview analysis
- Personality assessments
- Automated candidate ranking
- Chatbot pre-screening
Your exposure: Varies by hiring volume and tools used, but EEOC charges can result in:
- Six-figure settlements
- Required algorithm audits
- Mandatory process changes
- Reputational damage
Action items before 2026:
- Inventory all AI tools used in hiring
- Request bias audit reports from vendors
- Ensure human oversight in final decisions
- Document how AI tools are used
- Monitor for disparate impact
- Have legal review before implementing new AI tools
Resources:
Take the 2026 Compliance Readiness Assessment
Score yourself honestly:
☐ ESTA Implementation – Full tracking, notices, policies in place
☐ FLSA Classifications – All exempt employees verified to meet all three tests
☐ PWFA Accommodations – Process established, managers trained
☐ Independent Contractors – All ICs reviewed under Michigan ABC test
☐ Pay Transparency – Compliant for all applicable states
☐ AI Hiring Tools – Audited for bias, human oversight confirmed
Your Score: ___/6
0-2: HIGH RISK – Significant exposure exists, immediate action needed
⚠️ 3-4: NEEDS ATTENTION – Some gaps exist, should address before 2026
✅ 5-6: READY FOR 2026 – Well-positioned, minor refinements only
Most Michigan employers score 2-3.
Where did you land?
The Real Cost of Waiting
Let me be direct:
Most Michigan employers are sitting on $200,000-$500,000 in hidden compliance exposure across these six areas right now.
And here’s what happens when you wait:
Scenario 1: Employee files complaint (ESTA, FLSA, PWFA)
- DOL investigates
- Discovers violations across multiple areas
- Assesses back pay + penalties
- Audits entire organization (not just complainant)
- Result: $150,000-$300,000 settlement
Scenario 2: State/Federal audit (IC, I-9, Pay Transparency)
- Random selection or triggered by something else
- Comprehensive review across all compliance areas
- Multiple violations discovered
- Result: $200,000-$500,000 exposure
Scenario 3: Class action (FLSA, AI bias)
- Multiple employees/applicants
- Attorney fees
- Publicity
- Result: $500,000-$2,000,000+
The question isn’t whether these issues will surface.
The question is: Will you find them first, or will enforcement?
Next Steps: How to Prepare for 2026
Option 1: Self-Assessment (Do It Yourself)
Resources needed:
- Review all six areas above
- Audit your current practices
- Identify gaps
- Create action plan
- Implement changes
- Document everything
Timeline: 2-3 months (if you have internal resources)
Investment: Time + potential implementation costs
Risk: May miss nuanced compliance issues
Option 2: Professional Compliance Assessment
What it includes:
- Comprehensive review of all six areas
- Gap identification
- Exposure quantification
- Prioritized action plan
- Implementation guidance
- Q1 2026 roadmap
Timeline: 2-3 weeks
Investment: Varies by organization size
Benefit: Expert identification of issues you might miss
Get Your Complimentary Year-End Compliance Assessment
Before 2026 arrives, I’m offering complimentary year-end compliance assessments for Michigan employers.
Here’s what you’ll get:
✓ Review of your current status across all six compliance areas
✓ Identification of specific gaps and exposure
✓ Prioritized action plan for Q1 2026
✓ Recommendations for immediate vs. medium-term fixes
✓ Resources and next steps
To request your assessment:
[Schedule Your Complimentary Assessment] ← (Button/link)
Or email me at [your email]
Limited spots available before the holidays – first come, first served.
Conclusion: Clarity and Preparation Protect Leaders
As we close out 2025 and prepare for 2026, remember this:
Compliance isn’t about checking boxes.
It’s about protecting what you’ve built.
You’ve spent years—maybe decades—building your organization.
You’ve invested in your people, your systems, your growth.
You’ve created jobs, served customers, contributed to your community.
Don’t let preventable compliance issues derail what you’ve worked so hard to build.
Elite CEOs know: The $35,000 invested in proactive compliance assessment beats the $500,000 DOL settlement every single time.
Smart CEOs don’t leave this to chance.
Are you prepared for 2026?
Let’s make sure the answer is yes.
About the Author
Vanessa G. Nelson, CLRL, CEOI is the Founder and President of Expert Human Resources LLC, a Michigan-based HR consulting firm specializing in compliance audits, workplace investigations, and policy development. With 16+ years of experience and certifications as a Certified Labor Relations Leader (CLRL) and Certified EEO Investigator (CEOI), Vanessa has helped hundreds of Michigan employers eliminate millions in compliance exposure.
Contact: [email protected] | (810) 813-8732 | Contact
