Back to Compliance Basics: A Practical 2025 Checklist for California Employers

As we move deeper into 2025,it’s the perfect time for California employers to return to the fundamentals. With ever-evolving employment laws and aggressive enforcement—especially around wage and hour issues—getting the basics right can mean the difference between smooth operations and costly litigation.

This article is focusing on five common wage an hour issues California employers should routinely audit.

Whether you’re scaling a team or managing a legacy workforce, use this as a checklist to stay compliant and protect your business.

1. Payroll Compliance: The Foundation

Payroll isn’t just about issuing paychecks on time. Employers must ensure their systems and practices comply with California’s detailed legal requirements:

• Established Workweeks and Paydays: Are your workweeks clearly defined and paydays     consistently scheduled within required timelines?
• Wage Statements: Do your itemized wage statements meet all     statutory requirements? Common issues include missing hours worked, incorrect rates, or omitting the employer’s name and address.
• Sick Leave Accruals: Each pay period must include an update on accrued and used paid sick leave as required under California law and may local city and county jurisdictions throughout California. 
• Vacation Tracking: Ensure vacation policies are documented, accurately tracked, and accrued benefits are reflected properly.

2. Wages and Deductions: Avoiding Costly Errors

Missteps in deductions or reimbursements can lead to major penalties.

• Permitted Deductions: Only a narrow list of deductions is allowed under California law. Err on the side of caution and consult counsel before withholding anything beyond taxes and benefits.
• Expense Reimbursement: Are employees reimbursed for work-related expenses such as uniforms, personal cell phone use, mileage, and tools?
• Final Paychecks: For terminations, final pay must include all wages and accrued vacation, and must be provided according to the requirements under California law.

3. Employee Classification: Exempt vs. Nonexempt (and Contractors)

Improper classification continues to be a top litigation trigger.

• Exempt Status Review: Ensure duties and salaries meet California’s specific tests for exempt employees. Titles alone don’t determine exemption.
• Independent Contractors: Use caution post-AB 5. Apply the ABC test to confirm true independent contractor status.

4. Timekeeping: Precision Prevents Problems

Timekeeping issues are among the most frequently litigated wage and hour claims.

• Overtime Tracking: Ensure nonexempt employees are paid correctly for all overtime, and that policies prohibit unauthorized off-the-clock work.
• Training Managers: Managers should know how to identify and prevent off-the-clock work—and understand the consequences of ignoring violations.
• Time Rounding: If rounding is used, the policy must be neutral and not result in underpayment over time.  Employers should note that meal breaks cannot be rounded pursuant to Donohue v. AMN Services, and whether California employers may use time rounding at all is currently being reviewed by the California Supreme Court. Employers are cautioned about using time rounding given these cases.

5. Meal and Rest Breaks: Small Breaks, Big Liability

Meal and rest break violations are usually a key claim for PAGA and class action lawsuits.

• Handbook and Reminders: Policies must be clearly documented and regularly communicated to employees.
• Timely Breaks and Premium Pay: Breaks must be timely, and any missed meal or rest periods must be compensated with premium pay (and properly noted on wage statements).
• Recordkeeping and Training: Are employees recording their meal breaks? Are managers trained to monitor compliance and escalate issues?

Final Thought: Routine Audits Are a Must

Employment laws don’t standstill—and neither should your compliance practices. Schedule a semiannual auditor partner with employment counsel to review these core areas. A proactive approach in 2025 will reduce risk, improve operations, and reinforce your commitment to treating employees fairly.

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