Workplace Audit

What Is a Workplace Audit?

A workplace audit is a comprehensive internal review of an organization's employment practices, policies, and records to assess compliance with federal, state, and local labor laws. In California, where employment regulations are among the most complex in the nation, regular workplace audits are essential for identifying and correcting compliance gaps before they become costly legal problems.

Proactive auditing helps employers avoid wage and hour lawsuits, regulatory investigations, and penalties that can total millions of dollars for systematic violations.

Why California Employers Need Workplace Audits

California's employment laws are extensive and frequently updated. Key reasons to conduct regular audits include:

Legal Complexity

Area	California-Specific Requirements
Overtime	Daily overtime after 8 hours
Meal breaks	30-minute duty-free meal breaks
Rest breaks	10-minute paid rest breaks
Pay stubs	Detailed wage statement requirements
Scheduling	Predictive scheduling in some cities
Classification	Strict ABC test for independent contractors

Financial Stakes

The cost of non-compliance far exceeds audit costs:

• Class action settlements: Average $4-6 million for mid-sized employers
• PAGA penalties: $100-$200 per employee per pay period
• Waiting time penalties: Up to 30 days of wages per employee
• Liquidated damages: Double wages owed in many cases
• Attorney's fees: Awarded to prevailing employees

Enforcement Environment

California agencies actively enforce labor laws:

• Labor Commissioner (DLSE): Investigates wage claims and complaints
• Cal/OSHA: Workplace safety inspections
• DFEH/CRD: Discrimination and harassment complaints
• EDD: Misclassification audits

Types of Workplace Audits

Wage and Hour Audit

Focuses on wage-and-hour compliance:

Area	What to Review
Pay rates	Minimum wage compliance, regular rate calculations
Overtime	Daily and weekly overtime calculations
Meal periods	30-minute breaks, premium payments
Rest periods	10-minute breaks, premium payments
Time records	Accuracy, completeness, employee attestations
Pay statements	All required information included
Final pay	Timing and completeness at termination

Classification Audit

Reviews employee and worker classifications:

• Exempt vs. non-exempt: Salary threshold, duties tests
• Independent contractor vs. employee: ABC test compliance
• Full-time vs. part-time: Benefits eligibility
• Manager vs. non-manager: Overtime exemption validity

Policy and Documentation Audit

Examines written policies and procedures:

• Employee handbook completeness and currency
• Required policy notifications
• Acknowledgment records
• Consistency between policy and practice

Payroll Records Audit

Reviews record-keeping compliance:

• Pay period records retention (4+ years recommended)
• Time clock data accuracy
• Deduction authorizations
• Vacation and sick leave accruals
• Wage statement accuracy

Workplace Safety Audit

Assesses Cal/OSHA compliance:

• Injury and Illness Prevention Program (IIPP)
• Safety training records
• Hazard assessments
• PPE compliance
• Emergency procedures

Conducting a Workplace Audit

Step 1: Define Scope and Objectives

Determine the audit focus:

Audit Type	Recommended Frequency	Trigger Events
Comprehensive	Annually	New HR leadership, M&A activity
Wage and hour	Quarterly	Class action trends, new laws
Classification	Semi-annually	Business model changes, DOL guidance
Safety	Quarterly	Incidents, inspection results
Policies	Annually	Legal updates, workforce changes

Step 2: Assemble the Audit Team

Role	Responsibility
HR leader	Coordinate audit, compile documentation
Legal counsel	Identify legal risks, privilege considerations
Payroll manager	Provide pay records, explain processes
Operations manager	Explain scheduling and time-tracking practices
IT support	Extract data from HRIS and time systems

Step 3: Document Collection

Gather key records for review:

Payroll and Time Records

• Timekeeping records (last 4 years)
• Pay stubs/wage statements
• Payroll registers
• Deduction authorizations
• Direct deposit forms

Employee Classifications

• Exempt employee documentation
• Independent contractor agreements
• Job descriptions
• Salary records

Policies and Handbooks

• Current employee handbook
• Policy acknowledgment forms
• Arbitration agreements
• Confidentiality agreements

Workplace Postings

• Labor law poster compliance
• Safety postings
• Local ordinance notices

Step 4: Analyze Findings

Review records against legal requirements:

Time Record Analysis

Check for:

• Missing punch times
• Edited time entries without explanation
• Short or skipped meal periods
• Insufficient rest breaks
• Off-the-clock work indicators
• Unauthorized overtime patterns

Pay Calculation Review

Verify:

• Correct overtime rates used
• All compensation included in regular rate
• Premium payments for missed breaks
• Proper rounding practices
• Accurate vacation/PTO calculations

Classification Validation

Confirm:

• Exempt employees meet salary threshold ($66,560 minimum for 2024)
• Exempt duties tests satisfied
• Independent contractors pass ABC test
• Job titles match actual duties

Step 5: Risk Assessment

Categorize findings by severity:

Risk Level	Criteria	Action Required
Critical	Active violations, high exposure	Immediate correction, legal review
High	Systemic issues, past violations	30-day remediation plan
Medium	Documentation gaps, inconsistencies	90-day improvement plan
Low	Best practice recommendations	Include in annual planning

Step 6: Develop Remediation Plan

Create action items for each finding:

Finding: Meal period violations on 23% of shifts reviewed
Risk Level: High
Root Cause: Supervisors scheduling through meal periods
Remediation Steps:
1. Train supervisors on meal break requirements (Week 1)
2. Update scheduling system to block meal periods (Week 2)
3. Implement meal break attestation system (Week 3)
4. Conduct follow-up audit (Week 8)
Responsible: HR Director
Due Date: [Specific date]

Sample Audit Checklist

Use this compliance checklist as a starting point:

Wage and Hour Compliance

• All employees paid at least minimum wage (state and local)
• Overtime calculated correctly (daily and weekly)
• Regular rate includes all required compensation
• Meal breaks provided and documented
• Rest breaks provided
• Pay stubs contain all required information
• Final pay delivered within legal timeframes
• Time records maintained for required period

Employee Classification

• Exempt employees meet salary threshold
• Exempt employees meet duties tests
• Independent contractors pass ABC test
• Classification reviews documented
• Job descriptions current and accurate

Policies and Documentation

• Employee handbook current
• All required policies included
• Policy acknowledgments on file
• At-will employment language correct
• Arbitration agreements compliant

Workplace Postings

• All federal posters displayed
• All California posters displayed
• Local postings current
• Posters in required languages
• Remote employee access provided

Audit Best Practices

Maintain Attorney-Client Privilege

Consider conducting audits under legal privilege:

• Engage outside employment counsel to direct audit
• Mark documents "Privileged and Confidential"
• Limit distribution of findings
• Use privilege to protect remediation planning

Use Sampling Methods

For large workforces, statistical sampling is appropriate:

Population Size	Sample Size	Confidence Level
Under 100	100%	Full review
100-500	50-75 records	95%
500-1,000	100-150 records	95%
1,000+	200+ records	95%

Focus sampling on high-risk areas:

• Locations with prior complaints
• Departments with high turnover
• Positions with variable schedules
• Jobs with heavy overtime

Document Everything

Maintain audit records including:

• Audit scope and methodology
• Documents reviewed
• Interview notes
• Findings and risk assessments
• Remediation plans
• Follow-up audit results

Create a Regular Schedule

Audit Component	Frequency
Full compliance audit	Annual
Wage and hour spot checks	Quarterly
Poster compliance	Semi-annual
Classification review	Annual or upon changes
Policy review	Annual
Safety inspection	Monthly

Post-Audit Actions

Immediate Corrections

For critical findings:

1. Stop ongoing violations immediately
2. Consult legal counsel on exposure
3. Consider voluntary disclosure options
4. Calculate potential back pay obligations
5. Implement preventive measures

Long-Term Improvements

Build compliance infrastructure:

• Upgrade time and attendance systems
• Enhance supervisor training programs
• Improve policy communication
• Strengthen HR oversight
• Implement ongoing monitoring

Technology Solutions

Modern workforce management tools support audit processes by:

• Maintaining accurate time records automatically
• Enforcing meal and rest break policies
• Calculating overtime correctly
• Generating compliance reports
• Alerting managers to potential issues
• Documenting attestations and acknowledgments

Regular workplace audits are an investment in compliance that protects both employees and employers, reducing legal risk while fostering a fair and lawful workplace.