7 Wage and Hour Audit Tips

Posted by onepoint-admin on Sep 23, 2018 11:38:02 AM

Avoid The Million Dollar Mistake


Million dollar fines, penalties (i.e. Waiting Time Penalty), back pay, and claims have again surfaced in several high profile court cases involving wage and hour violations for some very recognizable companies.  Which means that no one is immune from potential risks of violating wage and hour laws.   Industries like restaurants, hospitality, manufacturing, healthcare with a higher mix of hourly workers, varied schedules, varied /cost centers and schedules create additional complexities to track and manage things like rate of pay, minimum wage, and more, thus making compliance and proof of compliance if the business has a claim against them an even bigger challenge.

Take into account that if one claim exists, such as paying one employee wrong, your likely to be doing the same for all the other employees also in that business unit or classification.  This compounds exposure.  When a wage and hour lawsuit is filed, including civil claims such as Private Attorneys General Act violations (PAGA) and Unfair Business Practices laws in California there is a time frame in which the suit must be claimed by the individual, aka the “statute of limitations”.  The specific wage and hours situation will be assessed for which statute of limitation applies.

  • 1 year for PAGA
  • 2 years for Federal
  • 3 years for California Labor Code
  • 4 years for unfair business practices

Therefore, the individual could claim back wages for all hours unpaid going back 4 years to the most recent incident of the violation.

So, what do you do to steer clear from the wage and hour monster? Simple answer: take all measures to ensure you are 100% in compliance.  Consider starting with an assessment of these 7 wage and hour issues and audit your organization’s risk to any that apply to your organization.


1. Are you requiring proper meal and rest breaks?

While no federal legislation requires employers to adhere to a minimum time for meals or rest periods, individual states have a variety of rules.  Some states simply allow for 30 minutes of rest or a meal after five hours worked, but the rules can range from an optional 30-minute meal or rest break after five continuous hours to complex policies and laws that require a minimum of 30 minutes of uninterrupted time after five hours worked.  To add to the confusion, some states distinguish between paid breaks and non-paid breaks by the amount of time an employee takes while on break.

Knowing the applicable meal and rest breaks rules and staying compliant is important. Not adhering to break laws has consequence is HUGE and likely will turn into a class action lawsuit as more employees join.  For example in a recent class action case Ibarra v. Wells Fargo Bank the court entered an order awarding the Plaintiffs $97.2 million for rest break violations.  The original complaint alleged various wage and hour violations, and after the parties filed cross motions for summary judgment, all was dismissed but the rest break claims.  The claims were brought under Labor Code section 226.7 and derivative claims under California’s Unfair Competition Law (Business & Professions Code section 17200).

Be sure to know the break rules where you are operating and have policies to track and enforce with the applicable employees.


2. Are ALL your employees, who are not classified as exempt employees, getting paid at least minimum wage despite how their pay is being determine?  

You may pay some employees a commission or on a piece rate basis; however, this does not mean that the minimum hourly wage obligation does not apply.   If the employees earnings do not equate to at least the minimum wage for the time period they worked, the employer is obligated to pay the remainder wages to bump them up to minimum wage at least.  If they worked any time that would be considered Overtime, you must break their wages down for that week, to an hourly basis  and than determine the overtime premium amount and pay them accordingly.  This is true for BOTH Piece Rate workers as well as commissioned employees (for example inside sales representatives).


3.  Are all your non-exempt employees paid for the mandated rest periods?

In the lawsuit Vaquero v. Stoneledge Furniture LLC, the court explained that piece-rate compensation plans do not directly account for and pay for rest periods because the employee is not working during the rest period and therefore is not being paid.  The Wage Order requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.  The court set out in Stoneledge that Wage Orders apply “equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time.”

The compensation structure at the  issue in Wells Fargo involved advances against monthly draws, commissions, and other incentive bonuses, which are clear violations.


4.  Is your Overtime being calculated correctly?

Although tracking employee wages and overtime can be challenging, it’s critical for employers to understand payrules and how they impact not only an employee’s pay but also the organization.

Inaccurate overtime tracking and calculations can lead to noncompliance penalties fines, and fees. Most states follow the federal rules set forth under FLSA (Fair Labor Standards Act), but there are exceptions. While no state can require less than the federal FLSA rules, states can create more employee-friendly regulations. These exceptions can quickly create issues for an employer.

In a recent lawsuit, the California Labor Commissioner’s investigation and payroll audit of Kome determined that 69 cooks, sushi chefs and dishwashers typically worked more than 55 hours per week but were paid a fixed salary that did not include overtime. As a result, these workers are owed nearly $3 million in unpaid wages and penalties. Other staff, including hosts, servers and bussers, were found to be owed more than $1.4 million for overtime, split shift premiums, and unpaid minimum wage violations, including the illegal counting of tips received as part of the minimum hourly wage.


5.  Do your employees earn tips and do you have a tip pooling program?

Tips and their distribution among the staff have plagued the hospitality industry for years. Federal courts interpret the federal law differently and states have enacted their own statutes that place employers in constant uncertainty, depending on where they are located. Also, tip pooling arrangements have been a regular part of many restaurant operations and are generally allowed by both federal and state law. However, for years there was a lack of clarity and competing interpretations as to who can participate and how much can be contributed to the tip pool.

Department of Labor issued new guidance, in a “Field Assistance Bulletin,” on the recent amendment to the FLSA regarding tip sharing.  The recent amendment to the FLSA (which was included in the omnibus budget bill) bars “supervisors or managers” from retaining tips but expressly allows tipped workers to share tips with non-tipped workers, so long as the employer does not take a tip credit and the individuals participating in the tip sharing are not managers or supervisors. Tips are the sole property of the worker and cannot be credited towards an employer’s obligation to pay minimum wage.


6.  Look Out for Joint-Employer Issues

There have been some major lawsuits filed recently related to contracted and subcontracted workers.  Cheesecake Factory Restaurants, Inc. was found liable in a $4.57 million wage theft case where 559 janitorial workers managed by Magic Touch Commercial Cleaning were underpaid. California Labor Code Section 2810.3 holds client employers, that obtain labor from a subcontractor, responsible for their workplace violations.

Employers should be vigilant and scrutinize partner companies that provides services like janitorial/cleaning services or seasonal workers to make sure they are reputable and properly vetted.   It is the employer’s responsibility to make sure they are following all the applicable laws and applicable workplace rules.  A client employer may be liable for the subcontractor’s owed wages, damages and penalties, as well as workers’ compensation violations.


7.  Is your pay stub itemized?

Complying with mandatory pay statement information is not too difficult, but it is a commonly overlooked compliance issue that can lead to serious penalties and fines.  Labor attorneys are highly attuned to find pay statement violations because if there is an error or omission on their client’s pay stub, logically other employees are probably affected.  Lawsuits can be very costly.  California Labor Code §226 (e) states:

(1) An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a) is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and, one hundred dollars ($100) per employee for each violation in every subsequent pay period, not to exceed an aggregate penalty of four thousand dollars ($4,000).

Plus the employee is entitled to an award of costs and reasonable attorney’s fees.  Individually, the one claim may not seem large, but if a plaintiff’s attorney brings a PAGA claim on behalf of all prior employees, the civil penalties assessed can be very large.  This is why these lawsuits are being filed with increasing frequency over the past years, especially in California.

Download our Paystub Compliance Checklist



Due to the complications of some state laws, unless you have a wage and hour expert on staff, employers have a heavy compliance burden and the financial risk is severe.  There is no loopholes when it comes to wage and hour rules, so airing toward the ultra conservative is the best way to stay out of court.

Investing in HCM technologies that are adaptable to the complexities of wage and hour rules and other labor laws can alleviate a good deal of the uncertainty and burden of navigating the compliance and regulatory environment.  Truly seamless HCM platforms like OnePoint offer employers:

  • A comprehensive rules engine that can be configured to track various rules and can be edited as regulations are added and updated.
  • A single employee record and centralized rules establishes a single authoritative version of employee data in real-time across the applications.
  • Realtime dashboards and alerts to monitoring trends, flagging exception and alerting manager and employees to potential issues or violations in real-time minimizes the chance that a compliance violation goes unnoticed.
  • Peace of mind for employers by having all your employee data, payroll history in one place.

Being able to produce accurate records, reports and easily access historical data is critical when faced with a lawsuit.   Having the data to recognize potential issues and keep compliant can go a long way to avoid the Million dollar mistake.

Topics: HR Compliance, Wage and Hour, Time and Labor