Changes to California’s Private Attorney General Act (PAGA) establish ways for employers to avoid Labor Code violation claims — and the substantial penalties these claims carry. First enacted in 2004, legislative changes made in 2024 allow employers to take “reasonable steps” to stay in compliance with the California Labor Code.
Although the definition of “reasonable steps” can be somewhat subjective, it is important that employers take action now to create and reinforce a culture of compliance and sidestep hefty costs.
Consider that the base penalty under PAGA is usually $100 per employee per pay period for a violation, which can quickly add up depending on the company size and duration of the violation. This would translate to approximately $2,400 per employee per year assuming staff is paid twice a month. Typically, a claim is for multiple years. So, if you have 20 employees with a three-year claim, the minimum base penalty would be $144,000. Usually there are stacking claims and repeat violations or malicious conduct that can lead to doubled penalties, further increasing costs.
HR Compliance Audits are Key to Avoiding PAGA Claims
Given these significant and expensive risks, making proactive investments in compliance and risk mitigation efforts are a financially sound decision for employers.
This includes conducting annual HR compliance audits for both hard copy documents and the actions surrounding policy implementation, as this proactive approach can be more cost-effective than dealing with the financial repercussions of a PAGA lawsuit.
Hard copy audits should include anything and everything that is tangible and could be considered a violation of the California Labor Code, including:
- Paid time off (PTO) records
- Sick leave records
- Wage statements
- Employee classifications
- Injury and Illness Prevention Program (IIPP) policies
- HRIS systems setup
Management Behavior Matters Under PAGA
Beyond the tangible aspects of HR compliance, it’s equally important to consider the intangible factors that can impact a company’s vulnerability to PAGA claims. Management behavior significantly impacts most claims and the overall employee experience. Providing regular training for managers and employees on company policies and procedures is considered a reasonable step to ensure compliance and a safe and healthy work environment.
For instance, offering management training on basic wage and hour compliance, policies around meal periods and breaks, and protocols for addressing employee concerns can strengthen frontline defenses. Employers should incorporate topics such as the importance of rest breaks into safety meetings to emphasize employee health and safety. Additionally, establishing an anonymous feedback mechanism is an inexpensive measure that can foster a culture of compliance. Swiftly addressing any complaints and implementing disciplinary actions for non-compliant behavior are essential practices.
It’s important to remember that a PAGA claim can encompass any violation of the California Labor Code, and even the most well-intentioned employers can find themselves facing one. That’s why engaging with subject matter experts to mitigate risk and prioritizing regular compliance audits is crucial.
While there are no guarantees, taking these reasonable steps demonstrates a good-faith effort to comply and can ultimately minimize your risk.
Whether you’re looking to proactively strengthen your compliance efforts or need guidance navigating a PAGA claim, PBO Advisory Group’s HR consultants are here to help. We offer independent annual compliance audits to identify potential risks and develop effective solutions. We will provide your leadership team with clear visibility into your current risk position and offer tailored solutions to address any areas of concern. Schedule a consultation today to discuss what “taking reasonable steps” means for your team and how we can help you proactively avoid costly violations and preserve a positive company culture.
Key Takeaways:
- Legislation passed in 2024 encourages employers to take “reasonable steps” to reduce PAGA risks. Annual HR compliance audits should be a top priority.
- Investing in compliance audits and expert guidance can prevent substantial financial losses from PAGA lawsuits.
- Hard copy audits should include anything and everything that could be considered a violation of the California Labor
Overlooking details can be risky. - Intangible factors like management behavior significantly impact PAGA claims. Regular training and clear policies are essential.
- Establishing an anonymous feedback system and promptly addressing complaints are essential practices for fostering a culture of compliance and reducing risk.
- Engaging with subject matter experts can help identify risks and develop tailored solutions for better compliance.
- Proactive measures can give leadership visibility and confidence in their current risk position and solutions to address any areas of concern.
Nicole Devine
Consulting Chief People Officer
[email protected]
858-622-1681 Ext. 287
