Are you sure your employee payment policies and record keeping are compliant with California's complex labor laws?  Are you willing to bet your business on it?  Because with the significant potential fines, penalties, and costs the Division of Labor Standards Enforcement ("DLSE") can impose on your business for even the smallest, most innocent payroll mistakes or misunderstandings, that is exactly what you could be doing.

DLSE HAS THE POWER TO INSPECT OR AUDIT YOUR BUSINESS AT ANY TIME

DLSE, one of the primary labor enforcement agencies for the State of California, has incredibly broad power to show up at your business's doorstep at any time.  Its inspection agents have authority to interview your employees on the spot, and demand copies of any business records deemed relevant to their task- ensuring that each and every California employer is in full compliance with California labor laws. 

Unfortunately, once your business is on the DLSE's radar, it is already too late to make the necessary changes to avoid the potentially devastating penalties provided by law. 

HOW BAD COULD THE FINES AND PENALTIES BE?

They can destroy your business.  By way of example, consider a business that has 10 employees who are all paid on a commission basis.  The employees are happy because they have the potential to earn more money than if they are paid hourly.  The employer is happy because it does not have to keep track of hours to determine employee wages, and only has to pay employees as money comes in the door.

DLSE may have another view of this arrangement.  Unless the company fits into a very narrow exclusion, its commission-based employees are not exempt from minimum wage or overtime laws.  Failure to keep the proper records can lead to the following penalties, in addition to any back pay found owing after DLSE carefully reviews the last three years of your business records:

1)         For each pay period an employee did not receive at least the minimum wage for all hours worked, or failed to receive proper credit for overtime hours worked, DLSE has the power to penalize the employer in the amount of $250-$1,000 for failing to provide accurate pay records and keep proper time records.  This penalty may be assessed on a per employee, per pay period basis.  Looking back at the records for 10 employees over a three year period, this minimum fine could amount to $180,000 (10 employees x 72 pay periods x $250 fine per pay period).

2)         If there has been any employee turnover during this period, your business may be subject to "waiting time" penalties for any employee who no longer works for you.  A former employee who is found to have been shorted on even one pay check is entitled to receive his full compensation for a period of up to 30 days to make up for the discrepancy.  For example, if over the three year period, you have had 20 employees leave your company, and each of those employees had even one pay period where they did not receive the proper minimum wage based on the commissions received, the minimum fine you are facing is $38,400 ($8/hr x 8 hours/day x 30 days x 20 employees).

In this example, one inadvertent misclassification of employees and failure to properly keep track of employee time records could result in nearly $220,000 in fines and penalties, in addition to any backwages and interest which are owed. 

These same types of penalties can be assessed for a number of different reasons.  Improper uniform deductions.  Deductions from employees' checks for cash shortages.  Docking employee pay for failing to clock out in a timely manner.  Failing to provide proper meal breaks and rest breaks.  Improperly classifying employees as "independent contractors."  The list is long, and the penalties are severe.

WHAT CAN YOU DO?

DLSE agents are out in full force.  If they have not already knocked on your door, it could happen any day.  Every day your pay policies and time records are out of compliance, you are rolling the dice that you will not be subject to a random audit, or that one disgruntled employee will not report you to the DLSE for further investigation.  Ignorance of the labor laws is no excuse and will not save you if and when the time comes. 

A complete and thorough review of your wage and hour policies, time and record keeping policies, and employee classifications will help you identify problem areas before DLSE comes knocking, and will help ensure that when it does, your business will not face crushing fines that could put you out of business.  Navigato & Battin attorneys have helped a number of businesses through the process and are well versed in the complex labor law arena.  If you would like to have more information about the internal audit procedures available or have other questions about wage and hour policy, employee classifications, or other employment related questions, please contact us at your convenience.