Is Your Business Ready For A Wage And Hour Audit In California?

In this article, you will discover:

• The triggers of a wage and hour audit in California
• How to proactively identify wage and hour compliance issues
• Common wage and hour violations found in audits

What Triggers A Wage And Hour Audit By California Authorities?

There are a few ways a wage and hour audit can be triggered. The California Labor Commission can randomly select an employer for audit, although this is a rare occurrence. One of the most common triggers is an anonymous tip from a current or former employee. They might contact the Employment Development Department (EDD) or the California Labor Commission, which could put the employer on the audit radar.

While the EDD doesn’t technically conduct wage and hour audits, it does audit state and federal employment tax withholding. Those taxes relate to wage and hour issues.

A typical way an EDD audit might occur is through the misclassification of a worker’s status as either an independent contractor or an employee.

Suppose an employer classifies a worker as an independent contractor, but the worker fails to understand that an independent contractor is not the same as an employee.

When the employer terminates the contract, the independent contractor files an unemployment insurance claim, which is only for employees. When that happens, the employer is flagged for an EDD audit.

How Long Does A California Wage And Hour Audit Typically Take From Start To Finish?

A typical California wage and hour audit probably lasts one to two years on average.

What Are The Most Common Wage And Hour Violations Found During Employer Audits In California?

While there are many possible violations, the most common violation is the failure to carry workers’ compensation insurance. Others include overtime violations, itemized wage statement violations, failure to include paid sick leave on the itemized wage statement or pay stub or failure to provide paid sick leave.

Attorney Scott Shibayama is a seasoned lawyer based in Roseville, CA, who has helped numerous clients just like you navigate the complexities of employment law. With decades of experience, he is prepared to assist you in preparing for wage and hour audits, enabling you to avoid unnecessary penalties for wage and hour violations.

Still have questions? Ready to get started? Contact Vision Law® today to schedule an initial consultation.

Call For A Free Consultation - (855) 534-1490

How Can California Employers Proactively Identify Wage And Hour Compliance Issues Before An Audit?

Do your best to comply with the various labor code sections or wage and hour laws that can result in a violation. That includes complying with:

• The minimum wage law
• California’s unique overtime requirements, which include not only paying overtime above 40 hours in a work week, but also over eight hours and up to 12 hours in a workday
• Providing meal periods
• Authorizing and permitting rest periods
• Having complete and accurate itemized wage statements, also known as pay stubs
• Having accurate daily time records that capture actual hours worked and unpaid meal periods
• Paying payroll on time during an employee’s employment
• The final payment of wages rules, which include paying immediately if an employer terminates the employment relationship

If an employer is compliant with the law and aware of potential violations and the requirements of the law, there should be minimal risk of issues during an audit.

Notes From The Field: Should California Employers Hire An Attorney For Legal Counsel During A Wage And Hour Audit?

What typically happens in an audit is that someone from the Labor Commission shows up at your business with an EDD representative and a Workers’ Compensation representative in tow to review documents and speak with your employees. Because employers are often surprised, intimidated and unaware of their rights, they permit these state officials to barge into their business.

Knowing that you can turn the auditors away is crucial, but many employers are unaware of their right to do so. If you’re not expecting them, you can say that it’s an inconvenient time, that you need to speak with counsel, and you’ll arrange another time for them to obtain the documents they need or talk with witnesses.

Once an audit commences, it’s up to you whether you want to retain counsel based on your comfort level in dealing with a state administrative body. My firm is pleased to assist employers in navigating the audit process. We can act as the middle person or run interference, ensuring that all information transfer, whether documents or witness interviews, goes through our firm.

Once the audit findings or results are presented to the employer, we can ensure the fines are valid and in appropriate amounts for each violation. Typically, the Labor Commissioner is correct about whether there is a wage or hour violation and the penalty calculations as well.

This entire process can take anywhere from one to two years. You may be comfortable handling it on your own because it’s simply providing the information you’re obligated to provide to the Labor Commissioner anyway. However, if you want the backing of a lawyer, experienced employment and labor law counsel can assist in this regard.

Case Study: Can You Share A Real Example Where A Business Thought They Were Prepared For A Wage And Hour Audit But Weren’t?

One recent example involved an ice cream franchisee who thought they had all of their HR policies and itemized wage statement information dialed. They worked with a payroll company that also offered HR consulting and employee documentation services.

The employer knew that California required 40 hours of paid sick leave for every 12 months of employment. They were not aware that the available paid sick leave balance needed to be displayed on each employee’s pay stub.

The employer believed that the payroll company, which helped prepare the handbook containing an accurate paid sick leave policy, would have met the requirement of displaying the available paid sick leave balance on the pay stub. The payroll company failed to do that.

The employer was audited and received a fine of $105,000 for failure to include the paid sick leave balance on the pay stub.

Still Have Questions? Ready To Get Started?

For more information on wage and hour audits in California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 534-1490 today.