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In this episode of California Employment News, Meagan Bainbridge and Ryan Abernethy break down the latest PAGA reforms and what employers need to know to reduce penalties and stay compliant. From new cure opportunities to proactive audits, they cover actionable steps to protect your business.
Watch this episode on the Weintraub YouTube channel.
Show Notes:
Meagan:
Hello, everyone. Thank you for joining us for this installment of California Employment News, an informative video and podcast resource offered by the Labor & Employment Group at Weintraub Tobin. My name is Meagan Bainbridge, and I’m a shareholder in the firm’s Labor & Employment Group. And today, I’m joined by my partner, Ryan Abernethy. As we recap for you, a recent seminar we presented on discussing how employers should respond to that dreaded PAGA letter.
Ryan, can you remind us what the current state of PAGA is?
Ryan:
Sure thing, Megan. Yeah. So as many of you probably already know, there were some massive PAGA reforms back in July of 2024 that were actually mostly employer-friendly, provided the employers actively took advantage of the new opportunities. Later in the year, in October of 2024, the LWDA gave us some more information about these new options that we’ll discuss here. Some of these beneficial changes for employers include things like, for instance, there’s no more stacking for certain derivative penalties for certain violations. This way, employers are less likely to get buried in snowballing penalties for relatively minor violations. In addition, penalties are determined by pay period. Employers who paid weekly could be subject to double liability simply because they generously paid their employees every week. Under the reform, penalties are now reduced by 50% by employers who pay weekly. Perhaps most significant were the enhanced cure opportunities that the new Paga reforms present for employers. To cure just means to rectify the violation by, for example, paying for an unpaid wage or fixing an incorrect wage statement. So under the old PAGA, employers had the opportunity to cure only a limited number of violations within a very narrow 33-day window after they received the Paga notice.
Now, employers can reduce their penalties by up to 85% if they can show that they took all reasonable steps to maintain compliance with the labor code before they received the PAGA notice. So this change is really exponential essentially increased the value of taking proactive measures to become labor code compliant right away. Such steps could include manager trainings and payroll audits, which Megan will discuss in greater detail later on this episode. In addition, employers can now see a reduction in PAGA Penalties by 70% by taking all reasonable steps to remedy a violation within 60 days after they were served with a PAGA notice. Now, even if the LWDA decides to investigate the PAGA allegations, the employer can still cure the violations during the 120-day notice period and avoid penalties that way as well. Small employers, which is defined as those with fewer than 100 employees, can also now submit a cure plan within 33 days after receiving the Paga notice. This is different than actually effectuating the cure. All they have to do is propose a plan during that time. Then a conference will then be set to evaluate the sufficiency of the proposed cure, and the employer has 45 days after that plan is approved to complete the cure.
So, Meagan, with that, can you tell us more about steps employers can take right now to limit their pocket liability in the future?
Meagan:
Yeah. Well, the receipt of a pocket letter is a great opportunity for employers to audit their employment policies to ensure compliance with California’s wage and hour laws. The purpose of the self-audit is to identify and correct issues to reduce possible exposure. We generally recommend employers their employment policies regularly to ensure compliance, but it absolutely should be done when wage and hour violations have been alleged. Here are a few recommendations with respect to completing that wage and hour audit. First, you’re going to want to figure out who’s going to conduct the audit. We always recommend working with your attorney to conduct the audit to ensure that the attorney-client privilege is retained. The last thing you want is to have some discoverable document detailing all your suspected wage and hour violations. Second, decide the scope of the audit. Are you reviewing all records? Are you reviewing the records within a certain department? Are you spot checking your employees? That’s going to be something you want to decide before you delve into the actual review process. Third, you’re going to review documents. This includes wage statements and time records to ensure they contain all information necessary. For example, do your wage statements include the legal name and the address of the hiring entity?
Are the name of the employee and the employee’s ID number their last four digits of their social security number included on the pay stuff? Do your time records contain started in times and all meal breaks? If a meal break appears untimely, was a premium paid? Fourth, you’re going to want to review your pay practices. Are you paying the correct minimum wage? Are your employees working off the clock? Are you paying overtime correctly? Are you providing regular meal and rest breaks? Are you paying meal and rest break premiums as needed? Does your overtime pay and meal and rest break premium pay include other forms of compensation, such as commissions or incentive bonuses? Are your exempt employees actually classified properly? Are you paying exempt employees the requisite minimum salary for the exemption? Are you calculating paid sickly properly? And are you properly reimbursing your employees for all business expenses incurred? Fifth, review your timekeeping practices. Do employees perform tasks before or after clocking out? For instance, do they have to lock up and they’re not getting paid for it? Can employees review and confirm their time records? Are attestations being utilized to confirm meal and rest breaks are being provided each day?
Sixth, review your written policies and training practices to ensure still comply with the law and have been regularly updated. That’s just a quick review with the types of things we would like to see included in any audit being conducted. Ryan, why don’t you now provide some suggestions for what employers could do with the results of that investigation?
Ryan:
Well, when possible, employers should correct the issue. To do this, we generally recommend the following five-step procedure. First is to calculate how much the employee was underpaid. Next is to inform the employee of the mistake, and the next course of action, which is repayment. Third, or often repayment. Third is, remedy the situation by including the missed wages as soon as possible and no later than the next paycheck, and consider whether any penalties are owed because of that. Fourth, you want to get the employee to sign an acknowledgement that the error was fixed and that no other wages are owed. And then fifth, you can get an actual waiver of claims. Or can you get a waiver of claims? Is it something you have to determine? There are many times, however, correction is not possible. In these circumstances, employers really should work with their counsel to reduce liability, but at the very least, fix the issue immediately, so liability is limited on an ongoing basis. Take steps to ensure some mistakes aren’t made again. This can include future audits and training of your supervisors.
Meagan:
Thanks, Ryan. That’s it for today. Thank you all for joining us. You can continue to find episodes of the California Employment News that cover many other topics that are of interest to California employers at the Weintraub Tobin YouTube channel, wherever your favorite podcast is found, or on our LNE blog at www. TheLELawblog.Com. We’ll see you next time.