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Top 3 Payroll Mistakes That Can Cost Your Business BIG!

Are you a business owner or executive responsible for your organization’s payroll system? If so, it’s essential to understand the potential costs of making a costly payroll mistake. We all know that staying up to date and navigating time and attendance regulations can be tricky. But the consequences of overlooking certain payroll challenges can be far more serious than failing to accurately capture work hours on digital employee timesheets. In this article, we will explore some of the top mistakes that could be costing your business big and what solutions are available to prevent them from happening in the future!



1. Improper Classification for Paying People Incorrectly

This is the largest and potentially very expensive oversight that employers can make. When an employee is hired, it is critical that they are correctly classified as salary exempt vs hourly. In the state of California, employers must comply with both state and federal laws when classifying employees as salaried. To classify an employee as salaried exempt, an employer must meet the following requirements:


  • Salary Basis: The employee must receive a salary that is equivalent to at least twice the state minimum wage for full-time employment. As of 2023, the Minimum wage in CA is $15.50 per hour. Salary people must make at minimum 2x minimum wage. In this case $31.00 per hour or $64,480/year, $1,240 per week.

  • Duties Test: The employee's job duties must primarily involve executive, administrative, or professional duties as defined by the Fair Labor Standards Act (FLSA). This means that the employee must have significant discretion and independent judgment in performing their duties and must exercise a high level of responsibility in their role. In addition, California has its own exemptions for certain industries, such as computer software professionals and outside salespersons.

It is important to note that meeting these requirements does not guarantee exempt status, and misclassification can result in significant legal and financial consequences for employers. If your new hire does not meet these requirements, the fines can be hefty and lead to lofty lawsuits for missed wages.


2. Not Providing Proper Meal and Rest Breaks

Are you giving hourly staff proper breaks and lunches AND are you recording them? California labor laws require that hourly employees receive meal and rest breaks based on the number of hours worked in a day. Here's what you need to know:


  • Meal Breaks: If an employee works more than five hours, they are entitled to an unpaid, uninterrupted meal break of at least 30 minutes. If they work more than 10 hours, a second 30-minute meal break is required. The meal break must be given no later than the end of the fifth hour of work and the second meal break no later than the end of the tenth hour. During meal breaks, employees must be relieved of all duties and allowed to leave the workplace.

  • Rest Breaks: Employees who work for at least 3.5 hours are entitled to a paid rest break of at least 10 minutes for every four hours of work. Rest breaks should be given in the middle of each work period, as much as possible. During this time, employees can engage in personal activities like eating, using the restroom, or making personal phone calls.

Failure to provide meal and rest breaks to hourly employees can result in legal penalties for employers, including payment of back wages, interest, and civil penalties. It's important to comply with these regulations to ensure that your employees are being treated fairly and legally.


Not only is it critical that your employees are receiving proper rest and meal breaks, but California employers are required to keep accurate records of the breaks provided to their hourly employees. The California Labor Code and Wage Orders require employers to maintain records of the start and end times of each work period, the start and end times of meal breaks, and the start and end times of rest breaks. These records must be kept for at least three years and made available to employees upon request.


Maintaining accurate records of meal and rest breaks is essential for employers to comply with state labor laws and defend against any claims of wage and hour violations. In the event of a lawsuit or audit, employers may be required to provide documentation of meal and rest breaks provided to employees. Therefore, it is important for employers to establish and follow a clear policy for meal and rest breaks and maintain detailed records to ensure compliance with state labor laws and to avoid huge costly fees.


3. Not Hiring HR Simplistic to Simplify Your Payroll

Running a small business can be overwhelming, it is often difficult to stay on top of the paperwork and regulations that come with managing payroll. California labor laws are especially challenging to abide by – but HR Simplistic has you covered. You don’t know, what you don’t know; and for that reason, it is easy to make a “little” payroll mistake that can cost BIG!


When working HR Simplistic, business owners save time, reduce compliance risks, and leverage expert knowledge and resources. By using their payroll services, small business owners get peace of mind knowing that Paul Hodapp and his team have over 30 years of experience, are local and available to you when you need them, and that your business is always compliant. With features such as automated deposits and taxes taken care of, running a small business becomes easier than ever before. To learn more about how HR Simplistic can make your payroll processes even simpler, please visit our website for more information or call today.


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