Employers aren’t just dealing with policy updates—they’re navigating a fundamental shift in how workforce decisions are made. From increased scrutiny around workplace programs to evolving immigration enforcement and mounting economic pressure, federal priorities are actively reshaping hiring, compliance, and long-term workforce strategy. Organizations that continue to react to changes as they happen are already behind. The real priority now is building compliant, defensible frameworks that can withstand constant change.
HR Compliance Update: Managing Workforces Amid Shifting Federal Priorities
Employers are navigating a period of heightened regulatory uncertainty as federal policy direction continues to evolve. Recent survey findings from the Littler Workplace Policy Institute survey of employers confirm what many organizations are experiencing in practice: workforce strategy is increasingly being shaped by changes in enforcement priorities, particularly in the areas of workplace programs, immigration, and cost management. For employers, the focus should not be on reacting to individual policy changes, but on building compliant, defensible frameworks that can withstand ongoing shifts.
Diversity, Equity, and Inclusion (DEI)
One of the most significant developments is increased scrutiny around workplace programs and employment practices. Diversity, Equity, and Inclusion (DEI) policy changes during the first year of Trump’s presidency brought far-reaching impacts.
· The majority of employers responding to the survey said that DEI (71%) changes over the past year impacted their businesses.
· Those figures rose to 86% for DEI changes among large employers (10,000+ employees).
· 55% of employers considered rolling back DEI programs, and 60% of large employers said they were concerned about potential DEI-related lawsuits, according to a separate Littler report.
Federal agencies are reinforcing long-standing nondiscrimination requirements, while also signaling closer examination of how programs are structured and implemented. Guidance from the U.S. Equal Employment Opportunity Commission continues to emphasize that all employment decisions—whether in hiring, promotion, or development—must be based on job-related criteria and applied consistently.
Contractors should conduct a thorough review of their internal policies, ensuring that training programs, hiring procedures, and promotion practices align with the new regulatory landscape that emphasizes strict anti-discrimination enforcement over previous diversity goals.
Immigration Policy
Immigration policy changes are creating operational challenges that extend beyond compliance into workforce planning.
· More than 6 in 10 employers in the survey (63%) – and 75% of large employers – experienced workforce staffing challenges as a result of the administration’s immigration policies. This surpasses the unease expressed about workforce staffing in Littler’s 2025 Employer Survey, when 58% expressed concern that such hurdles could arise due to the administration’s immigration policies.
Recent realignment of U.S. government priorities, resources, information sharing, and public relations to focus on deportations includes $170 billion allocated in overall immigration enforcement spending over four years, mandating new fees for applications filed with U.S. Citizenship and Immigration Services (USCIS) and a general reduction in overall legal immigration.
Industries dependent on immigrant labor (e.g., construction, hospitality, and agriculture) experienced high turnover and difficulty filling positions as the U.S. workforce shrunk by roughly 1.2 million immigrants in the first half of 2025. Stricter I-9 verification procedures and enforcement led to more ICE audits of employer’s Form I-9 records and worksite inspections. Stricter H-1B visa rules and reduced visa interview waivers have led to longer wait times for specialized talent, disrupted project timelines, and limited access to foreign workers.
In the Littler survey, nearly two-thirds (65%) of respondents said immigration policy shifts in 2025 affected their business causing business to hire differently based on immigration status, reduced immigration sponsorship, and stop sponsoring H-1B visas. Updates from the U.S. Citizenship and Immigration Services reflect a more complex and resource-intensive sponsorship landscape, prompting employers to reassess how and when they support work authorization. Many organizations are becoming more selective in sponsorship decisions, aligning them with critical roles while strengthening domestic recruiting pipelines.
Economic Uncertainty
Economic pressures are adding another layer of complexity, with many employers reevaluating hiring plans, compensation strategies, and workforce size.
· Thirty-five percent of survey respondents – and 42% of large employers – said their organizations made workforce reductions as a result of regulatory and economic uncertainty over the past year. Another 30% said their organizations have paused or reduced hiring amid regulatory and economic uncertainty.
Factors contributing to current economic and employment environment include:
· Rising Costs for Consumers: Tariffs on major trading partners are raising prices on groceries, household appliances, and electricity.
· Manufacturing and Trade Struggles: Over 75,000 manufacturing jobs were lost in the first year of the new trade war and companies faced rising costs for raw materials and uncertainty deterred investment.
· Labor Market Weakness: The mass deportation agenda and, in some cases, targeted attacks on federal workers have led to job losses and reduced labor force participation.
· Reduced Economic Growth: Policy decisions, including uncertainty from shifting trade deals and strained relationship with the Federal Reserve have heightened concerns about a potential recession and slowed overall economic growth.
Survey responders paused or reduced hiring (30%), reduced or eliminated workplace perks (18%), or delayed promotions / pay raise increases (17%). While cost management actions may be necessary, they also carry compliance and employee relations implications. Employers must ensure that workforce decisions are supported by legitimate business reasons, consistently applied, and aligned with applicable wage and hour requirements enforced by the U.S. Department of Labor, as well as state-specific laws. Just as importantly, how these decisions are communicated can significantly impact employee morale and retention, making clear and consistent messaging a critical component of risk management.
Federal contractors in 2026 are navigating a unique government contracting landscape characterized by a mix of steady, high-demand, mission-critical spending and significant, ongoing economic uncertainty. Inflation remains above the 2% target continuing to create cost pressures for materials and wages. The available workforce faces a projected shortage of 349,000 workers in 2026, exacerbated by an aging workforce and immigration restrictions. Continued risk of federal budget shutdowns and heavy reliance on Continuing Resolutions (CRs) are causing delays in payments and new contract awards. Finally, federal policy shifts, including a reduction in set-aside opportunities and agency restructuring, have created significant hurdles for small contractors.
Defense, AI, and cybersecurity sectors are seeing the most robust funding. For AI, construction firms are seeking data center and power facility projects. Under defense & technology, the Department of Defense (DoD) is prioritizing procurement, particularly for AI, cloud services, and cybersecurity.
Key Takeaways
Workforce reductions and cost-cutting moves can help manage expenses in the short term, but they also have a lasting impact on employee morale and engagement. The way leadership communicates changes can shape how employees process the change and stay productive.
Transparent, consistent communication about the reasons behind changes and what comes next is crucial for keeping teams aligned and psychologically safe. Managers can engage in more frequent team check-ins, have role-clarification discussions, and conduct employee engagement activities to reinforce commitment and reduce anxiety.