As employers continue finding new ways to use artificial intelligence tools and software to support business operations, state legislators have taken notice. Specifically, lawmakers are increasingly scrutinizing employers’ use of AI and automated decision tools to set or influence employee compensation, with the stated aim of curbing potentially discriminatory impacts resulting from the use of algorithmic wage setting and increasing transparency to employees and applicants regarding the use of such technology.

See also: State AI regulation ban nixed. What it means for employers, tech firms

Recent state AI regulation activity

Several states—including California, Colorado, Illinois and Texas—have recently enacted legislation seeking to place parameters on AI-driven compensation and employment decisions. These include the following:

• The Colorado Artificial Intelligence Act (“CAIA”)—Effective Feb. 1 (with an enforcement date of June 30, 2026), the CAIA requires employers to exercise “reasonable care” when deploying AI systems in “high-risk” areas—including compensation, promotion, hiring and other employment decisions—to avoid “algorithmic discrimination.” To satisfy this duty of care, employers using AI systems to make employment decisions must implement risk-management policies and programs, conduct annual and other periodic impact assessments to identify potential bias, and notify employees if AI is used to make employment decisions.
• Illinois’ Amendments to the Illinois...

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