An exploration of how differing wage laws across municipal, state, and federal regulations create compliance challenges for employers. Understanding these variations is essential to conducting a thorough assessment.
Background
In our last article, we discussed sampling as a way of focusing a labor and employment assessment while still achieving accurate results. We also briefly discussed the types of data necessary to complete a successful pay assessment and some of the considerations regarding different regulations. In this article, we discuss the intersection of state and federal laws in more detail and issues to consider when conducting an assessment.
Federal, State, and Local Considerations
Imagine an employer with operations in various parts of the country, and within each state, the company operates in various cities. There are many variables that the company should consider when conducting a complete and thorough wage assessment.
Minimum Wages
There are a myriad of rules and regulations to take into account.[1] Not only is there a federal minimum wage[2] to consider, but also the minimum wages by state, county, municipality, and industry. Differences could arise due to the geography of the employee, the size of the employer, and the type of work being performed. To do a proper payroll assessment, attention must be paid to the geographical area in which the company is operating or will be operating. For example, in Los Angeles, there are multiple minimum wages to consider depending on the location of the business and the type of work.
- Los Angeles – General: $18.42 per hour[3]
- Los Angeles – Hotel Employees: $25.00 per hour[4]
- Unincorporated Los Angeles County – General: $18.47 per hour[5]
- California – Fast Food Workers: $20.00 per hour[6]
The above four examples represent a small portion of the minimum wage requirements; there are many more. Wages usually change in January or July of each year, so understanding the cadence and which employees can be affected is paramount.
Overtime
For example, the FLSA requires overtime payments for time worked over 40 hours per week, but states, including California,[7] Colorado,[8] and Nevada,[9] also have daily overtime requirements. In California, hours between eight and 12 in a day are paid at the straight time rate plus 0.5 times the regular rate of pay, and for hours greater than 12, they are paid at the straight time rate plus 1.0 times the regular rate of pay. To complicate things further, California has a seventh-day overtime provision as well.[10] In Colorado, the daily overtime provision starts when an employee works more than 12 hours a day, and in Nevada, overtime is owed after eight hours in a day, but only if the employee earns less than 1.5 times the minimum wage; otherwise, overtime is owed after 40 hours in a week.
Regular Rate of Pay
The FLSA also requires that additional compensation (e.g., shift differentials, nondiscretionary bonus payments) be included in an employee’s overtime pay rate.[11] However, California also has a special calculation for flat-rate bonuses,[12] which came from the Alvardo v. DART Container Corporation decision.[13] Both calculations need to be considered when assessing the appropriate rate to pay overtime in California, but not in other states.
Meal and Rest Breaks
There is no federal requirement for meal and rest breaks, although these breaks may be required under state law, local law, or industry regulations.[14] For example, California requires a meal period of no less than 30 minutes by the fifth hour of work for employees who work more than six hours, and Illinois requires a 20-minute period by the fifth hour of work for employees who work more than 7.5 hours in a shift.[15] There are exceptions to these rules that depend on the type of work. For example, healthcare workers in California may have a meal break exception in which only one meal break is necessary for shifts under 12 hours, as long as it is taken before the 10th hour of work.
Other Issues to Consider During a Payroll Assessment
If a company has alternative work schedules, such as 10/4 (10 hours a day, four days a week) or 12/3 (12 hours a day, three days a week), there are additional complications for how overtime is calculated based on actual work time. For example, employees working on a 10/4 work schedule may work four, 10-hour days per week before triggering overtime (e.g. daily overtime is not incurred on hours after the eighth hour of work in the day).
If a manager or group of managers regularly edits employee timecards, then an assessment could inspect the edits to determine if the changes appear to have removed time from an employee’s actual punches. This is known as time-shaving and could suggest that employees were not compensated for all the time worked. (Please note that this issue can affect overtime, such that a series of rounded punches may move an employee’s total time below overtime thresholds.)
If a company uses a timekeeping system that rounds employee-created punch records (e.g., 7:57 am becomes 8:00 am), then an assessment could review the impact of the rounding and if an employee’s total time worked is positively or negatively impacted. (Please note that this issue can also affect overtime, such that a series of rounded punches may move an employee’s total time below overtime thresholds.)
Conclusion
Although the idea of a payroll assessment may be perceived as an unnecessary and added cost, the assessment provides tremendous upside to determine potential liability before litigation has started. Understanding and considering how different rules and regulations intersect is key to a successful assessment. Companies can use this process to identify areas of risk, minimize financial exposure during the acquisition of another company, and/or minimize the potential risk of a future lawsuit and associated penalties or findings of willfulness.
References
[1] The Labor Center at UC Berkley maintains data on minimum wages by location (see here: https://laborcenter.berkeley.edu/inventory-of-us-city-and-county-minimum-wage-ordinances/
[2] https://www.dol.gov/whd/minwage/america.htm
[3] https://wagesla.lacity.gov/sites/g/files/wph1941/files/2025-01/2025%20MWR%20Increase%20Memo%201-31-2025.pdf
[4] http://wagesla21.cityofla.acsitefactory.com/sites/g/files/wph1941/files/2025-09/2025%20CHWMWO%20Wage%20Chart%20ENG%20Final%20Rev%209-08-2025.pdf
[5] https://file.lacounty.gov/SDSInter/dca/242546_LACOuntyMinimumWageOrdinance.pdf
[6] https://www.dir.ca.gov/iwc/MW-2024-FF-SUPPLEMENT.pdf
[7] https://www.dir.ca.gov/dlse/faq_overtime.htm
[8] https://cdle.colorado.gov/dlss/labor-laws-by-topic/wage-and-hour-laws-including-paid-sick-leave
[9] https://labor.nv.gov/About/Frequently_Asked_Questions/Frequently_Asked_Questions_-_About_Us/
[10] For employees who work seven consecutive days, overtime is owed for the first eight hours, and double time is owed for any hours over eight on the seventh day.
[11] https://www.dol.gov/agencies/whd/fact-sheets/56a-regular-rate
[12] https://www.dir.ca.gov/dlse/faq_overtime.htm
[13] https://law.justia.com/cases/california/supreme-court/2018/s232607.html
[14] https://www.dol.gov/whd/state/meal.htm
[15] https://labor.illinois.gov/content/dam/soi/en/web/idol/laws-rules/fls/documents/odrisa-amendments-01-01-2023.pdf
© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC, its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
