How to Treat Wage and Hour Compliance Like Health and Safety, Reduce Your Risk, and Prevent Lawsuits (Part 5 of 5)
This is the fifth part of our five-part series on Why You Should Treat Wage and Hour Compliance Like Safety in California. Part 1 | Part 2 | Part 3 | Part 4 | Part 5 (this is it!).
In Part 1, we demonstrated how wage and hour lawsuits present California employers’ most significant legal threat due to a lack of administrative or preventative infrastructure and enormous costs.
In Part 2, we covered how high wage and hour exposure is because it often involves all your California hourly (non-exempt) employees and goes back up to four years of previous violations.
In Part 3, we warned you about California’s wage and hour penalty multiplier, a major reason why wage and hour lawsuits are so costly.
In Part 4, we showed you exactly how California’s enforcement system for wage and hour compliance pits employees against employers and incentivizes wage and hour lawsuits.
For our final article in this series, we’d like to share the essential best practices every California employer needs to know to treat wage and hour compliance like health and safety, meet the requirements put forth by the California Supreme Court in Donohue v. AMN Services (2021), and reduce their exposure to wage and hour lawsuits.
To do that, we recommend the following steps:
Understand your exposure to wage and hour lawsuits.
Embrace comprehensive workplace compliance.
Adopt and integrate wage and hour best practices into your organization.
Let’s dive in.
Understand Your Exposure to Wage and Hour Lawsuits
As the articles in this series have demonstrated, California employers should be extremely concerned about their exposure to costly wage and hour lawsuits.
According to SHRM, wage and hour class action and PAGA filings have continued to increase since the COVID-19 pandemic. In 2023 alone, there were 5,117 class action filings and 7,826 PAGA filings. This represents a 20% increase in class action filings and a 34% increase in PAGA filings from 2022.
The increase in class action and PAGA filings is the result of multiple decisions in recent years from the Supreme Court of California that are favorable to employee plaintiffs, including a July 2023 ruling on arbitration, and an increase in the number of plaintiffs’ law firms resulting in a larger volume of claims.
This is the most significant legal threat to California employers. The settlement amounts in wage and hour class and PAGA actions can be massive, and that’s just part of the story. They don’t account for the defendant’s time, resources, and attorneys’ fees required to litigate the cases. When you add everything up, the financial and reputational implications of non-compliance with California’s wage and hour laws can be huge, making establishing and maintaining robust employment practices imperative.
Common Misconceptions
Before we discuss the specific costs of a wage and hour lawsuit, California employers need to be aware of several common misconceptions that increase their exposure to wage and hour lawsuits. We cover these in detail in our free guide, Top 10 Wage and Hour Risks in California and How to Avoid Them. To summarize:
It is not enough to treat employees well and avoid intentionally violating the law. Employers are no longer innocent until proven guilty. This is an enforcement environment that punishes every instance of non-compliance.
Your handbook is important and necessary, but it’s not enough. An updated employee handbook will help avoid many traditional HR/legal risks but does little to combat a wage and hour lawsuit.
Third-party payroll providers do not protect you. In almost all cases, they are not responsible for legal compliance and will not take responsibility for compliance.
Employment firms and HR professionals are likely not equipped to manage wage and hour compliance. Trusting HR to manage multi-million-dollar complex legal risk is like trusting your billing department to ensure you follow all tax laws. You need a CPA for that.
Your insurance won’t help. Most business insurance policies, including EPLI policies, don’t cover wage and hour, and such actions are explicitly excluded from the policies. More on this here.
While all these things—good intentions, an employee handbook, payroll providers, HR professionals, and business insurance—are necessary, they will not prevent a wage and hour lawsuit.
The Costs of Defending a Wage and Hour Lawsuit
The potential costs of a wage and hour lawsuit extend beyond mere monetary fines. Employers in California should recognize the more significant impact on their organization, ranging from financial liabilities to the overall health of their workplace environment and public standing.
The direct costs of defending a wage and hour lawsuit are estimated at an average of $250,000 per every 100 employees, not including your defense fees. For organizations with over 500 employees, the direct total cost can quickly balloon into seven figures. This includes back pay, interest, penalties, court costs, etc.
There are also indirect costs to consider, including time and energy from a defendant’s executive and operational team, opportunity costs, the potential impact on company culture and employee loyalty, and any negative impact on public perception and your brand image.
Returning to our comparison with health and safety issues—the immediate financial consequences of a safety violation may arise from fines imposed by regulatory bodies such as OSHA. Long-term financial implications, however, are often eclipsed by those associated with wage and hour violations. The potential economic impact of wage and hour lawsuits can be substantial and have enduring effects on a company’s bottom line.
Embrace Comprehensive Workplace Compliance
This is a call to action for California employers. Despite the high stakes of wage and hour lawsuits, many employers don’t take the threat of wage and hour lawsuits seriously. Most employers still approach these lawsuits and prevention of these lawsuits like they would the threat of individual discrimination, harassment, or retaliation suits.
It is paramount for employers to embrace a comprehensive view of compliance as the regulatory landscape evolves.
For wage and hour issues, the financial realities and reputational implications carry too much weight, creating enduring challenges beyond mere regulatory compliance. Employers must develop thorough, balanced compliance strategies to mitigate the heightened risks associated with wage and hour violations.
By proactively addressing wage and hour concerns, employers can foster a work environment that is not only legally resilient but also conducive to employee satisfaction, loyalty, and sustained organizational success in the diverse and dynamic California business environment.
Workplace Safety is Still Important
Make no mistake—workplace safety is a fundamental aspect of organizational responsibility, encompassing measures to protect employees from hazards and ensure a secure working environment. From inadequate training to lapses in emergency protocols, safety violations typically focus on physical well-being and the prevention of accidents or injuries. Worker safety is very important.
There is a stark contrast between safety, however, and wage and hour concerns, especially when we consider the financial impact, legal complexities, and long-term implications.
Employers need better solutions that can be easily implemented to protect their business.
Be Aware of the Top 10 Wage and Hour Violations in California
To implement better solutions, California employers first need to understand the most common wage and hour violations brought in lawsuits and then implement best practices to avoid them. The top wage and hour violations in California usually involve:
Meal period violations.
Rest period violations.
Extra breaks for longer shifts.
Meal/rest period premiums.
Inaccurate timekeeping.
Rounding time.
Off-the-clock work.
Overtime violations and bonuses.
Alternative compensation models.
Expense reimbursement and remote workers.
For more information, please read our article here: The Top 10 Wage and Hour Violations in California.
Adopt and Integrate These Top Best Practices for Wage and Hour Compliance
Once California employers understand wage and hour risks and potential violations, they can take steps to mitigate their exposure.
This means developing a wage and hour compliance program, providing sophisticated training on the subject, developing a system to monitor and enforce compliance, creating incentive and communication programs to encourage compliance, and improving record-keeping.
Until these types of measures are ubiquitous, wage and hour claims will continue to plague employers in California.
Here are five categories of best practices for wage and hour compliance you should adopt and integrate into your organization, followed by the specific best practices California employers should take in each category to lower their risk of being sued, as featured in our free guide, Top 10 Wage and Hour Risks in California and How to Avoid Them:
Policies.
Training.
Timekeeping.
Monitoring.
Enforcement.
Policy Best Practices
Over nearly twenty years of training, teaching, advising, and coaching businesses on compliance, we have identified ten policy best practices* that, if implemented, substantially lower a company’s risk of being sued in a wage and hour action. All these policies are built into Cal Comply for employees and managers.
Encourage accurate recording of all work time.
Prohibit off-the-clock work.
Require preapproval of overtime.
Pay daily and weekly overtime as required by law.
Provide timely 30-minute or more meal periods (within the first five hours.)
Provide second 30-minute lunch periods on days over 10 hours or obtain a valid waiver of the 2nd lunch (on days over 10 hours but no more than 12 hours.)
Provide timely 10-min or more rest periods every 4 hours worked or major fraction thereof.
Provide accurate wage statements (all info required by LC 226.)
Ensure reimbursement for all necessary business expenses.
Require preapproval of all or certain business expenses.
Training Best Practices
The number one reason most businesses become easy targets for lawsuits is that they do not effectively train their employees on their policies. Below are ten training best practices* businesses should implement to lower their lawsuit risk. The Cal Comply courses were designed to give businesses an easy way of implementing all these best practices within a streamlined training program.
Do not rely on only your handbook.
Provide wage and hour timecard orientation for employees.
Stress the importance of wage and hour compliance.
Make wage and hour compliance everyone’s responsibility.
Train managers, supervisors, and HR on work hours and breaks.
Teach managers and supervisors how to manage wage and hour issues.
Use tests and exercises when training employees.
Document training with tests and certification.
Implement routine procedures to make sure all employees regularly receive training.
Follow-up training—one-time training isn’t enough.
Timekeeping Best Practices
Most businesses have some form of timekeeping mechanism or system in place. Sometimes, businesses spend a lot of money investing in third-party timekeeping solutions that offer false hope or incomplete solutions regarding wage and hour compliance. The ten timekeeping best practices below will provide further protection against lawsuits.
Use accurate and reliable timekeeping.
Encourage contemporaneous time-in and -out recording.
Record time in and out for meal periods.
Consider using a lockout feature and/or grace period for meal breaks.
Make sure your time record allows for a second meal period to be recorded.
Have employees regularly authenticate time records with an attestation.
Have a process for reporting additional work time or missed meal or rest breaks.
Avoid exception reporting.
Avoid multiple sources of time data.
Avoid supervisor entry or revisions of employee time records.
Monitoring Best Practices
Wage and hour policies alone aren’t worth much if they are not monitored and enforced by the company. One of the most common reasons for wage and hour lawsuits is a failure of management. Many managers and supervisors don’t understand the rules themselves, don’t enforce them, don’t monitor them, or manage them in a way that results in violations. These ten monitoring best practices are critical to a compliant wage and hour program.
Train management to spot wage and hour issues. Your management team is your front-line defense against wage and hour claims.
Train management to communicate those issues. Management must follow through and communicate with the employee on any problems they spot.
Train management to effectively manage wage and hour issues by addressing the issue like any other policy non-conformation issue.
Review and audit your meal records for potential noncompliance issues. For example, it is important to review your meal period records to ensure meal periods aren’t missed, short, or late on a routine basis.
Review and audit your timekeeping and payment practices to ensure all work time is captured and employees are paid correctly.
Because wage and hour issues can easily fester undetected, you should regularly check in with employees to ensure they know the rules and do their best to follow them.
Verify regularly (minimally quarterly) that employees know the latest wage and hour rules and are following them.
Obtain signed verifications to rebut any presumption coming from records that may show potential compliance issues (e.g., late, short, or missed meal breaks).
Confirm you have the compliance records you need in the event of a personnel file request or lawsuit discovery, including all signed and documented training, certifications, and verification.
Make sure policies and training are current. California law is constantly changing.
Enforcement Best Practices
Enforcement is vital to stopping wage and hour compliance problems before a lawsuit. These ten enforcement best practices will help you enforce the wage and hour laws in a way that will prevent lawsuits.
Adopt a written enforcement policy and make this part of your handbook. This is the starting point of enforcement.
Identify a key member of your organization (e.g., a wage and hour advocate, HR representative, or other manager) who will be responsible for and accountable for wage and hour compliance. The buck should stop with someone.
Provide a precise mechanism for employees to report wage and hour problems (e.g., unpaid work time, short or late lunches, or unreimbursed expenses) and identify whom to contact to report these issues.
Have a system that allows paying premium pay (one hour of pay) to any employee who experiences a missed, short, late, uninterrupted, or on-duty meal or rest break due to business reasons (and not employee preference).
Follow up on any routine (quarterly or semi-annual) verifications to ensure all employees know the rules and are following them.
Document the reason for any wage and hour compliance issue, such as non-compliant meal and rest breaks, and note where noncompliance results from employee preference or failure to adhere to the rules.
Strictly prohibit any retaliation for any employee who reports wage and hour issues or requests premium pay.
Treat wage and hour compliance like a serious performance issue. If employees are not following the training or the rules, then they should be coached, counseled, and disciplined as necessary for noncompliance.
Have employees retake wage and hour training annually or as needed for performance issues with wage and hour compliance. An employee not following the rules can lead to an expensive lawsuit.
Make wage and hour compliance part of employee and manager performance reviews to ensure accountability.
It’s Time to Take Wage and Hour Compliance Seriously in California
California employers must prioritize wage and hour compliance as much as safety (if not more). We hope the information contained in this series has been a helpful resource for you.
When you get hit with a lawsuit, please do not try to fight the lawsuit. First, consult with a competent employment law firm like Medina McKelvey, the founders of Cal Comply. They will help you assess, manage, and resolve your wage and hour case effectively.
Next, start implementing a California compliance plan and train your employees in wage and hour policies and best practices, just like you probably already do for safety. Our training, testing, and certification platform helps California employers stay informed, compliant, and proactive in addressing potential issues, reducing the risk of costly wage and hour lawsuits and the associated legal, financial, and reputational consequences.
Our wage and hour training is an easy, cost-effective way to help prevent employment lawsuits by training every employee and manager on your wage and hour policies, confirming they know the law, certifying that they understand your policies, and documenting their training. Click here to learn more.
Interested? Click here to schedule a demo.
*In addition to these best practices, businesses should also have up-to-date legal postings in break rooms. Most businesses have break room postings. There is no shortage of providers. If you do not have postings, please get in touch with us, and we will refer you to a source that can provide you with current postings.
