As a CPA, what can you do from your side of the ledger to assist your business clients in avoiding wage and hour pitfalls with their workers? Employment law, and wage and hour issues specifically, are not your area of expertise, but there are several things that you can safely do that would assist your clients in recognizing the issues so an employment law specialist or HR professional can rectify those deficiencies before they blow up. This is especially true if you provide payroll services. Let’s discuss a few.

Misclassification: Your client likely has both salaried (exempt) and hourly (non-exempt) employees. Only non-exempt employees are eligible for mandated overtime. Misclassification cases arise when the company has paid someone as a salaried employee, but the employee should have been classified as hourly non-exempt and eligible for overtime. This has a cascading damages effect concerning meal and rest break violations and associated penalties. If your client has an overabundance of salaried people, or you are working with an A/P, A/R or payroll person whom you know to be on salary, those are red flags for misclassification. Also, note that federal law and state law differ substantially on this subject, and the more rigid state law takes precedence (as it typically does in 95 percent of wage and hour issues).

The state requires salaried employees to spend more than 50 percent of their time performing higher-level management or senior administrative duties to remain in the exempt category. Federal law doesn’t use a bright line percentage. Think Starbucks store managers. They hire, fire, manage, budget and troubleshoot with customers and generally are indeed managers. But because they spend upwards of 80 percent of their time working on the floor with their team, they cannot be exempt salaried employees (Starbucks found that out the hard way, settling a class action 15 years ago).

If you are overseeing payroll and observe that certain exempt employees are paid a salary that is less than twice California's minimum wage ($68,640 for 2025), that’s a violation of the “salary” test under California law. You can’t include commissions or other forms of compensation in that number.

Time tracking/meals: If you have an opportunity to review client paystubs (and perhaps timesheets during payroll), be on the lookout for how the client’s employees track their time. If you notice that meal breaks are not recorded, tell your client to look into the issue. Meals not noted on timesheets, are shorter than 30 minutes or routinely commence after completing five hours of work, are violations. “Auto-deducting” for meals should never occur. If timekeeping is done electronically, urge your clients to implement daily end-of-shift electronic attestations for hourly employees to acknowledge compliant (or not) meals and rest breaks before they finish clocking out for the day.

Tracking rest breaks: You may have no way of tracking rest breaks, but you may know about the nature of your client’s business and if rest breaks are likely required. Ask whether employees are receiving compliant, paid 10-minute rest breaks, generally twice during an eight-hour shift, for example.

Rounding time: Rounding time, though technically still legal, is an absolute no-no these days, especially if it is handled electronically. Courts take the position that if you can track to the minute, there’s no need to round. Also, when we perform a statistical analysis of whether rounding favors employees or the employer over time, it’s often 80 percent or more in favor of the company.

Expense reimbursement: If your client has business expenses related to employee travel or expense reimbursement for the use of personal phones or other personal equipment, you will be able to see that in the tax work that you do or in the payroll process. Alert clients that they need to reimburse employees for the use of personal equipment, such as using a personal phone to record time on an app. The usage may be minimal, but it still requires reimbursement.

If you have clients in construction or vehicle repair, for example, employees are likely using their personal equipment, such as tool belts, hammers and screwdrivers. If employees are required to provide such personal equipment, the employer must pay them twice the minimum wage ($33/hour for 2025). Otherwise, employees must be reimbursed for the use of that personal equipment. Many employers in these industries have no idea about this law, even though It has been in effect for decades.

Sick time/PTO: Every pay period, employers must provide their workers with the amount of sick time (or PTO) they have available. The amount is typically shown on the pay stub. If it is not there, the employer likely is not providing that information as required. It is also good to know whether workers accrue sick time, or it is “front-loaded.”

Independent contractors v. employees: If your client has 1099 workers beyond obviously legitimate vendors (like you and me), you might give them a heads-up about California’s “ABC test” for engaging independent contractors. State law has tightened up tremendously on who can be an independent contractor. That test is difficult to meet, despite its simplicity: who controls the means of production; is the worker performing work that is outside the regular scope of the company’s business (often the biggest hurdle); and does the worker have an identifiable business of their own? That could be a tough standard in many situations. Inquire about the services performed by those 1099 workers to see if they likely violate the test for independent contractor status.

Bonus “gross-up:” If clients provide bonuses to their hourly people, which will show on pay stubs that you may see during your work, those bonuses likely need to be added into the regular rate of pay for determining the overtime rate, sick time rate and meal/rest break premiums. This will depend on whether the bonuses are “discretionary” or “non-discretionary.” Non-discretionary bonuses are performance-based, but clients are often unclear about what that means in less obvious situations like payment for not using sick time, recruiting bonuses and longevity bonuses. Note that the overtime calculation differs depending on whether the non-discretionary bonus is static or fluctuates.

Commissions: If your client has a commission structure, all such commission agreements must be in writing and signed by both the employee and the client. Those agreements often have vague language about the basis for the commission payment, and what happens if someone departs (regardless of reason) while the commission is “in the pipeline” (sometimes known as “tail commissions”). The client may also have “independent reps” who don’t qualify for that non-employee 1099 designation. There is also a major distinction in compensation between “inside salespeople” versus “outside salespeople” as far as overtime requirements. The definition of outside sales is exacting, and if the employee is performing inside sales, they may well be owed overtime, including on their commissions beyond their base draw, salary or hourly pay.

CPAs, accountants and bookkeepers are not insurers of their clients’ businesses, but they can certainly help protect clients from wage and hour pitfalls. You don’t have to be an expert on the merits of these issues, but alerting the client is a safe way for you to provide value-added service. It will also certainly reinforce your relationship with them for the future as their trusted adviser.