As 2026 moves into its second month, employers continue navigating a labor market defined by measured hiring, moderate wage growth, and expanded pay transparency enforcement. Below are the latest labor market signals from the Bureau of Labor Statistics (BLS) and the most important pay-related legislative developments shaping compliance in early 2026.
The U.S. economy and labor market
The latest Employment Situation report (for January 2026, released February 2026) points to a labor market with restrained growth.
Total nonfarm payroll employment rose by 130,000 in January — an 80,000+ increase from December, but still modest compared to monthly gains from prior years. The unemployment rate changed little at 4.3% (7.4 million unemployed).
As the year unfolds, a restrained labor market combined with expanding transparency expectations reinforces the need for disciplined compensation strategy, reliable market data, and proactive compliance planning.
Payscale’s Compensation Best Practices Report Launched
Payscale’s 2026 Compensation Best Practices Report (CBPR) released in February, offering an industry benchmark to guide organizations in designing pay strategies to reward and retain top talent.
The 17th annual CBPR finds that the average pay increase being given in 2026 is 3.5%, a modest budget aligned with broader labor market cooling while still above inflation. The research report reveals that 2026 is set to become “The Year of Strategic Alignment,” as compensation professionals and HR teams feel increased pressure from executives to center compensation in talent strategy.
Data from CBPR shows that a majority of organizations (61%) now have a defined compensation strategy and that executive leadership views compensation as a strategic business priority (68%).
Compensation management in 2026 is less about reacting to wage spikes and more about strategic calibration — aligning pay decisions with business performance, risk management, and focused talent retention.
Organizations should invest in modern compensation infrastructure and prepare for the human-AI blend in the workforce, along with the fundamental shifts in performance and engagement strategy that AI adoption will bring about.
“Peanut butter” pay increases continue to dominate the conversation
Peanut butter pay increases (typically small, across-the-board pay raises) is an emerging trend in compensation strategy in 2026 as employers balance equity and cost control, but the practice is controversial.
According to CBPR, 44% of organizations are either considering, newly implementing, or already using peanut butter increases. However, 48% of organizations report plans to continue performance-based pay increases in 2026.
While peanut butter increases can help maintain baseline competitiveness and employee goodwill, they are most effective when paired with targeted, performance- or skills-based adjustments. However, CBPR findings show only 75% of organizations are committed to giving pay increases at all in 2026, with 18% reporting no formal process to reward pay-for-performance through base pay, promotions, or variable pay.
What employers should do:
- Identify where peanut butter increases are a strategic advantage and where targeted merit pay increases are needed to retain top talent and reward performance.
- Lean on real-time or near real-time compensation benchmarks where possible, especially for roles with fast-moving market rates.
- Consider compensation software like Paycycle from Payscale to alleviate the administrative burden of performance-based pay increases.
Pay transparency legislation
United States
Pay transparency enforcement and refinements continue to expand. As of 2026, 16 states have enacted pay transparency laws, while there is still no policy in place at the federal level. While no major new statewide laws took effect on February 1, 2026, regulatory guidance, enforcement activity, and employer scrutiny are increasing across jurisdictions.
The 2026 CBPR tells us that 57% of organizations say they post salary ranges in job ads, though only 42% do so across all jobs regardless of location, highlighting a gap between intent and broad implementation.
California (SB 642) - Effective January 1, 2026: Employers should define the posted pay scale as a good-faith estimate of the salary or hourly wage range they reasonably expect to pay upon hire (not a broader internal range).
Delaware: New legislation introduced in 2025 and taking effect in 2027 mandates retaining salary records for a minimum of three years, which will require compliance in 2026.
Massachusetts: An expanded pay transparency law requiring disclosure of pay ranges in job postings and to applicants/employees for employers with over 25 employees went into effect October 29, 2025, influencing compliance in 2026.
Oregon (SB 908) - Effective January 1, 2026: Employers must provide employees with detailed explanations of payroll codes, itemized deductions, and pay rates at the time of hire.
Local trend: City-level pay posting ordinances are increasingly common; employers should monitor local requirements where they recruit.
Europe
EU employers should continue preparing for the EU Pay Transparency Directive implementation deadline of June 7, 2026. While Member State progress varies, the direction is clear: more candidate disclosure, more accessible pay information, and increased reporting obligations for larger employers. The German software company SAP has introduced new pay equity and compliance capabilities aimed at helping organizations meet expanding EU pay transparency requirements.
Countries furthest along include Belgium, Malta, Poland, and the Czech Republic, which have enacted partial legislation covering elements such as pay disclosure to job candidates, bans on pay secrecy, and expanded employee rights to pay information. Belgium has also updated its minimum salary thresholds used for work permits and EU Blue Card applications, affecting compensation considerations for employers and international mobility.
A second group — Sweden, Ireland, the Netherlands, Finland, Lithuania, and Slovakia — has published advanced draft legislation or detailed proposals and is widely viewed as on track for compliance ahead of the June 2026 deadline.
In contrast, several countries are lagging, with little or no formal legislative activity reported to date, including Austria, Bulgaria, Croatia, Denmark, Greece, Hungary, Italy, Latvia, Luxembourg, Portugal, and Slovenia.
Major economies such as Germany, France, Spain, and Romania fall in the middle: they have acknowledged the EU Pay Transparency Directive and begun preparatory or consultative work but have not finalized or enacted implementing laws.
What employers should do:
- Review job posting practices, internal pay communications, and compensation documentation to ensure compliance and foster trust with candidates and employees.
- Employers operating internationally should track both EU-wide requirements and national legislation to prepare for compliance deadlines from mid-2026 onward.
Upcoming events
As HR and compensation leaders look ahead to March, industry events will provide timely opportunities to exchange ideas and benchmark strategies.
Conferences like HR Transform and UNLEASH America in Las Vegas will spotlight the evolving intersection of pay transparency, workforce technology, and strategic compensation planning. With regulatory complexity rising and labor markets stabilizing, these gatherings offer a valuable forum for practical insight and peer learning.
Payscale will be exhibiting at HR Transform — attendees are encouraged to visit the booth to explore how modern compensation solutions can support smarter, data-driven pay decisions in 2026.
How Payscale can help
Payscale provides compensation data and software that enables:
- Optimized budgets – Making the most of every compensation dollar.
- Confident pay decisions – Using trusted data to guide fair, effective pay strategies.
- Risk mitigation – Reducing legal and reputational exposure from pay inequities.
