Washington businesses will see several significant changes take effect beginning January 1, 2026. These changes impact employee leave rights, workplace protections, and state tax obligations.
B&O Tax Increase
Increased B&O Tax obligations will also take effect in January, impacting some of the state’s larger employers. A 0.5% temporary surcharge on taxable income above $250 million, applicable for four years. Starting in 2027, the state will also permanently raise the B&O tax rate for manufacturing, retail, and wholesale businesses to 0.5%. For larger employers, this is on top of the temporary tax increase.
Unemployment for Striking Workers
Starting January 1, any individual who is unemployed due to a strike at their place of employment will be disqualified for benefits until the earlier of the second Sunday following the first date of the strike or the date the strike is terminated. After that, striking workers may qualify for up to six calendar weeks of benefits following the standard one-week waiting period, provided that the strike is not found to be prohibited by federal or state law in a final judgment (in which case, any benefits paid are liable for repayment).
In addition, striking workers will be required to repay overpayments to the state’s Employment Security Department (ESD) for benefits received for any week for which they subsequently received retroactive wages from the separating employer.
Paid Family Medical Leave
Significant changes to Washington’s Paid Family and Medical Leave Act (PFML) will lower the employment threshold for job protection and broaden employer responsibilities.
Beginning in 2026, employees will qualify for job-restoration rights after 180 days of employment, half of the current requirement. The law also expands which employers that are covered:
· 2026: Employers with 25 or more workers must comply
· 2027: Threshold drops to 15 workers
· 2028: Expands further to 8 workers
For job-protection purposes, an employer is considered to have 25 or more employees when it has at least 25 employees on its Washington state payroll each workday for 20 or more calendar weeks in the current or preceding calendar year.
Additional employer responsibilities under the new law include:
· Maintain employee health insurance during PFML as if they were still actively working.
· Notify your employee after they are on PFML for a total of 14 days about when their job protection will expire and when they are expected to return to work.
Any employee who is returning from Paid Leave on or after January 1, 2026, is entitled to job protection based on the 2026 eligibility requirements. This is true even if the leave started before January 1, 2026. Example: An employee at a business with 25 employees, who has worked there for more than 6 months, takes 5 weeks of Paid Leave. The Paid Leave starts in December of 2025 and ends in January of 2026. Because this employee is returning to work on or after January 1, 2026, they are entitled to job restoration.
Click here for Employment Security Department resources to help employers.
Victim Protections
Washington is expanding its victim-protection leave laws to cover victims of hate crimes beginning January 1, 2026. The protections, previously limited to victims of domestic violence, sexual assault, or stalking, will now allow workers to take protected time off and request workplace safety accommodations.
Luxury Tax -Aircraft and Vehicle
Another notable change is the introduction of a statewide luxury tax beginning in 2026. The 8% tax applies to the portion of a vehicle or private aircraft’s sale, lease, or transfer value that exceeds $100,000. For example, a $130,000 vehicle would incur tax on the $30,000 above the threshold, adding $2,400 in additional cost. Exemptions include commercial vehicles, most vehicles over 10,000 pounds (except recreational vehicles), off-road vehicles, and farm equipment.
If you have questions regarding any of these new laws, reach out to AGC’s government affairs team, Jerry VanderWood or Michele Willms.