Prepare for 2027: Proactive Compliance Can Reduce PAGA Penalties by 85%

California employers have a compelling reason to review their employment practices before year-end: proactive compliance can help prevent violations and provide substantial protection if a PAGA claim arises.

Under California’s reformed Private Attorneys General Act (PAGA), qualifying employers that take all reasonable steps to comply with the law before receiving a PAGA notice, or certain employee records requests, can limit covered PAGA civil penalties to 15% of the amount otherwise sought—an 85% reduction.

A year-end compliance review offers an opportunity to identify problems, implement corrections, and document the steps your business is taking to comply while preparing for 2027.

An Audit Is the Starting Point

Follow Through Matters

Labor Code section 2699(g) identifies measures that may demonstrate an employer’s reasonable compliance efforts, including:

• Conducting periodic payroll audits and taking action in response to the findings;
• Distributing lawful written workplace policies;
• Training supervisors on applicable Labor Code and wage order requirements; and
• Taking appropriate corrective action regarding supervisors.

An audit alone does not guarantee the penalty cap. The employer’s actual efforts, the provisions at issue, and the surrounding circumstances matter. A documented process that combines review, corrective action, policy implementation, and supervisor training can help establish the basis for this protection.

Timing matters. Do not wait for a PAGA notice. Certain requests for payroll, personnel, or signed employment records from an employee or the employee’s attorney can also affect eligibility for the pre-notice penalty cap.

The cap is subject to statutory exceptions and applies to covered PAGA civil penalties. It does not eliminate liability for unpaid wages or other available remedies.

MS&A Employment Practices Audits

Michael Sullivan & Associates offers comprehensive employment practices reviews and targeted PAGA “reasonable steps” audits. We help employers identify potential exposure, develop corrective measures, and document their compliance efforts.

Depending on your organization’s needs, a review can address:

• Payroll and wage-and-hour practices: Minimum wage, overtime, regular-rate calculations, meal and rest periods, wage statements, and expense reimbursement.
• Timekeeping: Off-the-clock work, remote work, travel time, and accurate recording of working hours.
• Handbooks and policies: Current legal requirements and changes needed for 2027.
• Supervisor training and implementation: Whether written policies are understood and followed in daily operations.
• Leaves and accommodations: CFRA, FMLA, disability accommodations, and return-to-work procedures.
• Hiring and separation: Background checks, employment documents, required notices, and final pay.
• Arbitration agreements: Enforceability and developments affecting existing agreements.
• AI and workplace technology: Automated employment decisions, employee monitoring, and privacy obligations.

The scope can be tailored to your business’s size, industry, resources, and particular concerns. A broader employment practices review can address risks beyond PAGA, while a targeted reasonable steps audit focuses on practices relevant to potential PAGA claims.

Start Before Year End

Identifying an issue is only the first step. Starting now gives your business time to make corrections, distribute updated policies, train supervisors, and preserve evidence of those efforts.

Contact your MS&A attorney or our Employment Law Department to schedule a year-end compliance review or targeted PAGA reasonable steps audit.