The New Math of PAGA: 15% vs. 100%
PAGA stands for the Private Attorneys General Act.
Enacted in California in 2004, this law “deputizes” employees to act as private attorneys general. This means an individual employee can sue their employer on behalf of themselves, other employees, and the State of California to recover civil penalties for Labor Code violations, essentially doing the job that a state agency would normally do.
Quick Breakdown of PAGA:
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The Purpose: It was designed to help the state enforce labor laws even when government agencies (such as the Labor Commissioner’s Office) lack sufficient staff or resources to investigate every claim.
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The Penalties: Unlike a standard lawsuit, in which the employee receives all the money, PAGA penalties are split. Following the 2024/2025 reforms, in most new cases, 65% goes to the state for labor law enforcement, and 35% goes to aggrieved employees.
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Representative Action: A PAGA claim is often referred to as a “quasi-class action” because one employee can seek penalties for violations affecting a group of coworkers.
The 2024/2025 reforms marked a major turning point, introducing the “Right to Cure” and significant reductions in penalties for employers that conduct proactive audits.
The 2024-2025 legislative cycle introduced a powerful incentive: The Penalty Cap.
For the first time, employers who proactively identify and correct their own mistakes can significantly reduce their exposure.
- Proactive Compliance (The 15% Cap): If you conduct a “reasonable” audit and take steps to comply before receiving a PAGA notice, your maximum penalty is capped at 15% of the standard amount.
- Reactive Compliance (The 30% Cap): If you take those same steps within 60 days after receiving a notice, your penalty is capped at 30%.
- The Default (100%): If you have no record of audits or proactive “reasonable steps,” you face the full brunt of penalties, which often reach seven or eight figures for mid-to-large companies.
Why 2025 is the “Audit Year”
The reformed statute defines “all reasonable steps” to include periodic payroll audits and taking action based on those results. To qualify for the 15% cap for a claim filed in 2026, you must demonstrate a pattern of compliance that began well before the litigation started.
The “Standing” Shift
Starting in 2026, plaintiffs must have personally suffered the specific violation they are suing for. A 2025 audit helps you identify “high-risk” employees or departments and resolve issues, such as missing meal-period premiums or incorrect overtime rates, before a disgruntled employee becomes a representative plaintiff.
Expanded “Right to Cure“
Employers can now “cure” more types of violations than ever, including violations related to meal/rest breaks, minimum wage, and overtime. However, “curing” isn’t just saying sorry; it involves:
- Paying all unpaid wages for the last three years.
- Paying 7% interest and liquidated damages.
- Covering reasonable attorney fees.
By auditing in 2025, you can handle these “cures” internally and quietly, rather than under the supervision of the Labor and Workforce Development Agency (LWDA) or a court-appointed evaluator.
Actionable Summary:
Your 2026 Shield Checklist
To secure the maximum legal protections available under the new PAGA regime, your 2025 strategy must include these four pillars:
- Conduct a comprehensive review of timecards, paystubs, and premium payments for the last 12 months. Establishes “Reasonable Steps” to trigger the 15% penalty cap.
- Update: Review and redistribute your employee handbook. Ensure meal/rest break policies are legally compliant. Proves prospective compliance, helping to dismiss “willful” violation claims.
- Train: Provide documented wage-and-hour training for all supervisors and managers.Shields the company from liability arising from “rogue” managers’ disregard for the law.
- Correct: If the audit finds errors (e.g., missing $0.10 in an overtime calculation), pay it out immediately with interest. Eliminates the “standing” of potential plaintiffs and fixes the issue for a fraction of a PAGA fine.
The era of “set it and forget it” payroll is over in California. In 2026, the courts will not ask whether you intended to comply with the law; they will ask for the timestamped results of your 2025 audit. If you can’t produce them, you are essentially handing a blank check to plaintiff attorneys.
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