PAGA: It’s Audit Time

Earlier this month, Governor Gavin Newsom signed Senate Bill 92 and Assembly Bill 2288 which amended the California Private Attorneys General Act (PAGA). The new legislation is effective immediately.

The California legislature enacted PAGA 20 years ago as a mechanism to punish and deter employers who failed to comply with the CA Labor Code and Wage Orders, and award employees (and their counsel) for acting on behalf of the State by bringing lawsuits against non-compliant employers.

Ultimately, PAGA brought more injustice than fairness.

The law offered a mechanism for pursuing penalties without considering the type of violation or injury involved. It unfairly targeted employers who paid on a weekly basis. With limited exceptions, PAGA did not offer employers an opportunity to cure alleged violations. And it applied a one-sided attorneys’ fees provision, which only allowed prevailing employees to recover fees and costs, but not prevailing employers.

This is a just a partial list of why PAGA did not work for its intended purpose.  

As the concerns with PAGA grew, employer and business groups sought to reform it. To avoid a costly ballot measure, business and labor groups negotiated and reached a deal to amend PAGA and address some of the concerns employers have been voicing for years. This is the first of a three-part series that will cover SB22 and AB2288’s changes to PAGA. In this part, we will address the importance of conducting a wage and hour audit in an effort to limit PAGA penalties.

“Reasonable Steps” Defense

Prior to the PAGA amendment, steps to cure violations received little to no deference. Now, correction measures can substantially reduce an employer’s alleged PAGA penalties:

• Penalties can be capped at 15 percent if, prior to receiving PAGA notice or request for records, the employer “has taken all reasonable steps to be in compliance with all provisions identified in the notice.”
• Penalties can be capped at 30 percent if, within 60 days after receiving PAGA notice, the employer “has taken all reasonable steps to prospectively be in compliance with all provisions identified in the notice.”

“All reasonable steps” is a defined term in the revised PAGA statute (Labor Code Section 2699(g)(2), (h)(2)), and in large part means:

• Conducting payroll audits
• Taking action in response to the results of the audit
• Disseminating lawful policies
• Training supervisors on wage and hour compliance
• Taking corrective action with regard to supervisors

If an employer takes “all reasonable steps” AND cures a violation, the employer may be able to avoid paying a civil penalty for that violation.

Next Steps for Employers

Conduct an audit.  Either internally, with counsel, and/or with outside vendor, review your practices to confirm compliance. For example:

Check that your paystubs include everything required by the law, including:

• Legal name and address of hiring entity; 
• Name of employee and employee’s ID/last four digits of social security number
• Pay periods and pay dates;
• Total hours worked
• Net wages earned
• All applicable rates
• Available balance of paid sick leave

Review your pay practices

• Are you paying the proper minimum wage?
• Are your employees working off the clock?
• Are you paying overtime correctly?
• Are you providing proper meal and rest breaks?
• Are you paying meal/rest break premiums as needed?
• Does your overtime pay and meal/rest break premium pay include other forms of compensation such as commissions or incentive bonuses?
• Are your exempt employees properly classified?
• Are you paying exempt employees the requisite minimum salary required for the exemption?
• Are you correctly calculating paid sick leave?
• Are you properly reimbursing your employees for all business expenses incurred?
• If employees earn piece rates, are you paying extra compensation for paid rest breaks? Does your paystub correctly reflect piece rate sums?

Review your time keeping practices

• Do employees perform tasks before/after clocking in/out?
  • Do employees lock doors/activate alarms after clocking out?
  • Do employees need to wait for long periods of time or go through security controls before clocking in or after clocking out?
  • Do employees need to wait for a computer/software to upload to clock in?
• Can employees easily request correction of time record?
• Do employees record the start and end times of their work days?
• Do employees record the start and end times of their meal breaks?
• Can employees review and confirm their time records?
• Do employees report to different worksites on a regular basis, and if so, do they record travel time to distant worksites?

Review your written policies and training practices

When was the last time you circulated employment policies?

• Have you provided supervisory and employee training on wage and hour issues?
• Do you have valid and updated policies regarding overtime, meal and rest breaks, accuracy of time, and prohibited off-the-clock work?
• Do you remind employees about their right to take meal/rest breaks?

Being proactive now can save you time, money, and headaches later.

Sue M. Bendavid and Tal Burnovski Yeyni defend employers in wage and hour, and other employee claims.