How Compliance Changes Will Affect How You Process Payroll in 2026 and Beyond

As we move through 2026, several important payroll, tax, and compliance updates are coming into effect in the United States and Canada. These changes will impact how employers manage overnight shifts, overtime reporting, tip income tracking, and retirement contributions. Below is a breakdown of what you need to know --- and how to prepare.

OBBB Reporting: New W-2 Requirements for 2026
Here’s What’s New:

The One Big Beautiful Bill (OBBB or OB3) introduces new reporting rules that took effect on Jan 1, 2026. These changes specifically affect how employers must report overtime premiums and tip income in Bow 12 of the W-2.

For Employers With Tipped Employees You Must Ensure Your Payroll System Can Separately Track the Following.

Cash Tips

Credit Card Tips

Tip-outs to support staff (e.g. bussers, hosts, kitchen staff)

Overtime Premiums: Half-Time Portion Must Be Broken Out
Under The New Rules , Employers Must Now Separately Report Only The "Half-time" Premium Portion of Overtime Pay on Form W-2 (see example below).

The "premium" portion --- the extra half-time --- is $10/hour.

That premium portion is what must now be reported separately under box 12 of the W2 form.

SECURE Act 2.0: Roth Catch-Up Contributions For High Earners
What This Means:
Beginning In 2025, High Earners (generally those making $145,000 - $150,000 or more) Will Be Required To Make 401(k) Catch-Up Contributions To A Roth (after-tax) Basis.

Pre-tax catch-up contributions will no longer be allowed for affected employees.

Payroll systems must identify eligible high earners and route their catch-up contributions accordingly.

Employees may need guidance on what "Roth catch-up" means for their tax and retirement planning

Final Thoughts
As compliance requirements become more detailed and payroll reporting grows increasingly complex, staying ahead of regulatory changes is essential. Now is the ideal time to do the following.:

Audit your payroll system

Review data-tracking capabilities

Prepare employee communications

Train payroll and HR teams on the new reporting standards

Why It Matters

At EW Payroll Consulting, we help businesses navigate these changes with precision and confidence. Whether you’re updating your payroll systems, training your HR team, or rethinking your compensation strategy—now is the time to act.

Tags
#Employee Training #Federal Payroll Law #Overtime Pay #Payroll Audits #Payroll Compliance #Payroll Records & Reporting #Payroll System Updates #Payroll Taxation #Tipped Employees #Wage & Hour Compliance

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