If you’re a small business owner in Los Angeles, there’s one costly mistake that shows up in nearly every PAGA claim: misclassifying workers. Whether it’s calling employees “independent contractors” or labeling hourly staff as “exempt,” this single error can expose your business to a flood of penalties under California’s Private Attorneys General Act (PAGA).

Below, we break down why this happens so often—and what you can do to protect your business from a legal and financial nightmare.

What Is PAGA and Why Should Small Businesses Care?

California’s PAGA law lets employees step into the shoes of the state labor commissioner and sue their employers for labor code violations—not just for themselves, but on behalf of other current and former employees. It’s a favorite tool of plaintiff’s attorneys because it doesn’t require class certification and can result in massive civil penalties.

The Misclassification Trap: Why It’s the #1 PAGA Trigger

Los Angeles small businesses, especially in industries like hospitality, construction, retail, and creative services, often misclassify workers out of habit or to cut payroll costs. But this shortcut can backfire in a big way.

Examples of Misclassification

• Calling hourly workers “independent contractors” to avoid paying overtime, taxes, and benefits

• Labeling employees “exempt” from overtime without meeting California’s strict duties and salary tests

• Hiring “freelancers” for roles that are clearly employee-based under the ABC test

Once one violation is uncovered, a PAGA claim can allege dozens of additional labor code violations—everything from inaccurate pay stubs to missed rest breaks.

How One Misstep Becomes a Dozen Legal Violations

When a worker is misclassified, it triggers a ripple effect of legal issues:

• No overtime pay (Labor Code §§ 510, 1194)

• No meal and rest breaks (Labor Code §§ 226.7, 512)

• Improper wage statements (Labor Code § 226)

• Waiting time penalties (Labor Code § 203)

• Failure to reimburse for business expenses (Labor Code § 2802)

Plaintiff lawyers love PAGA because each of these violations carries a separate penalty, and they stack quickly. For example, $100 per pay period per employee can add up to tens of thousands of dollars in penalties—even for technical mistakes.

Why Small Businesses in LA Are Especially at Risk

Los Angeles is a high-risk area for employment lawsuits. Between aggressive plaintiffs’ firms, a worker-friendly legal environment, and the complexity of California labor law, small businesses often don’t realize they’re making mistakes until it’s too late.

Many companies operate without in-house HR, rely on outdated payroll systems, or follow templates they found online. These shortcuts can lead to non-compliant wage statements, inaccurate classifications, and insufficient documentation—all of which are goldmines for a PAGA claim.

What You Can Do to Avoid a PAGA Lawsuit

Audit Your Worker Classifications
Review every role with a qualified employment law attorney. Ensure that anyone classified as exempt meets both the duties and salary requirements under California law.

Update Your Payroll and Timekeeping Systems
Make sure wage statements are accurate, complete, and compliant with Labor Code § 226.

Reinforce Meal and Rest Break Policies
Train supervisors to schedule and document proper breaks. Use software that records time punches and break confirmations.

Reimburse for Business-Related Expenses
If your employees use personal phones, cars, or equipment for work, reimburse them. Failing to do so violates Labor Code § 2802.

Conduct a PAGA Risk Assessment
Schedule a compliance review to identify and fix issues before a plaintiff’s attorney finds them first.

Final Thoughts

The number one mistake that lands Los Angeles small businesses in PAGA lawsuits is simple—but expensive: misclassification. The good news? It’s also 100% preventable.

By staying proactive and working with experienced legal counsel, you can fix these issues now—before they become a lawsuit later.

Need Help Protecting Your Business?

Rupal Law defends small businesses across Los Angeles and California facing PAGA and labor law claims. Don’t wait for a demand letter. Call (951) 460-0830 or request a consultation today.