Wage Audits for Gyms: Lessons from a $162K Back Wages Ruling and How to Protect Your Staff (and Business)

Wage Audits for Gyms: Lessons from a $162K Back Wages Ruling and How to Protect Your Staff (and Business)

Hook: If the idea of a Department of Labor audit keeps you up at night, youre not alone. For gym owners and trainers juggling schedules, commissions, and off-site sessions, a single payroll mistake can turn into six figures in back wages and liquidated damages  just ask the Wisconsin medical partnership at the center of a recent federal consent judgment.

Why this ruling matters to gyms and personal trainers in 2026

On December 4, 2025, a federal court entered a consent judgment requiring North Central Health Care  a Wisconsin multicounty medical care partnership  to pay $162,486 in back wages and liquidated damages to 68 case managers after a U.S. Department of Labor Wage and Hour Division (WHD) investigation found employees were performing unrecorded, off-the-clock work.

"The departments complaint alleged that between June 17, 2021, and June 16, 2023, North Central Health Care violated overtime and recordkeeping provisions of the Fair Labor Standards Act by failing to record and pay case managers for all hours worked, including overtime."

This is a cautionary tale for fitness businesses. While the employer in question was a healthcare provider, the legal findings  unpaid off-the-clock work, overtime violations, and poor recordkeeping  are strikingly common in gyms, studios, and among personal trainers. In 2024 6 regulators have intensified scrutiny of off-the-clock work and recordkeeping practices, and courts routinely award back pay plus liquidated damages when violations are found.

How payroll pitfalls that sank a medical provider can sink a gym

Gyms and fitness businesses share the same exposure points: hourly staff, commission arrangements, hourly trainers, split shifts, and a mix of in-person and virtual duties. Here are the main pathways from everyday payroll practices to costly litigation.

1. Off-the-clock work: small tasks add up

• Prep time (program design, session planning) not logged or paid
• Required communications: responding to client texts, emails, or logging results after hours
• Travel between clients or to satellite facilities that isnt compensated
• Cleaning, restocking, and opening/closing duties that happen before clock-in or after clock-out

When those minutes become hours across a week, employers can owe overtime at time-and-a-half for hours above 40  and the WHD may find recordkeeping violations.

2. Misclassification: independent contractor vs. employee

Many studios engage independent contractors. Misclassification is one of the top triggers for audits. If a trainers schedule, pricing, marketing, and client assignments are controlled by the gym, courts and regulators may deem them employees  with back pay, taxes, and penalties to follow.

3. Commission and piece-rate complexities

Commissions, bonuses, and class-package splits change the employers obligations under the Fair Labor Standards Act (FLSA). Commissions must be included in the regular rate to calculate overtime. If your payroll system ignores that, you risk underpaying overtime and facing liquidated damages.

4. Rounding and timekeeping errors

Rounding policies that systematically undercount employee time, undocumented edits, or missing clock-ins are common audit targets. If the employer cant produce reliable records, investigators may reconstruct hours in the employees favor.

5. Overtime exemptions misapplied

Managers, directors, and professionally exempt roles must satisfy strict duties and salary tests to be exempt. Paying a flat monthly stipend or giving occasional managerial duties does not transform a front-desk lead or head trainer into an exempt employee. Improper exemption claims frequently result in back pay awards plus liquidated damages.

What the North Central Health Care ruling teaches gyms  three legal takeaways

1. Recordkeeping matters. The FLSA requires accurate records of hours worked. Missing or inconsistent records shift the burden to the employer in an investigation.
2. Off-the-clock time is compensable. If work is required by the employer, it must be paid  even if its done at home or between client sessions.
3. Liquidated damages can double your exposure. Courts commonly award liquidated damages equal to back wages unless employers can prove they acted in good faith and had reasonable grounds to believe their pay practices complied with the FLSA.

2026 trends that increase audit risk for fitness businesses

Keeping up with regulator priorities and tech changes matters. Here are trends through early 2026 that affect gyms.

• Increased WHD focus on off-the-clock work and recordkeeping: Regulators continue to pursue cases where employers cannot produce clear time and wage records.
• State-level wage and overtime shifts: Several states updated wage thresholds and expanded overtime eligibility, making local compliance more complex.
• Hybrid and remote training models: Virtual coaching and hybrid client interactions create new questions about compensable time (prep, video editing, client messaging). Consider how pop-up or converted spaces change obligations and whether a satellite facility model alters control factors.
• Payroll tech and AI scheduling: The same software that improves tracking can introduce new errors if improperly configured  for example, automated shift-swap logic that bypasses approvals and results in unpaid hours. Treat your timekeeping and payroll tools like critical operations and run observability checks on them.
• Heightened scrutiny of worker classification: Regulators and states are tightening tests used to decide who qualifies as an independent contractor.

Actionable, practical checklist: Harden your gym against audits

Use this step-by-step checklist to perform an internal payroll audit and close exposure gaps. Implement the items in phases: immediate fixes (0 30 days), short-term (30 90 days), and ongoing controls.

Immediate fixes (0 30 days)

• Run a spot audit: Pick a random sample of five trainers and reconcile their logged hours, payroll, and client schedules for the last 6 months.
• Collect documentation: Gather contracts, commission agreements, timesheets, and schedules. If records are missing, document why and note corrective steps.
• Stop unpaid off-the-clock requirements: Immediately prohibit managers from requesting work outside logged hours unless pre-approved and compensated.
• Set a temporary rounding policy review: Pause any rounding that understates work time until you can validate accuracy.

Short-term actions (30 90 days)

• Timekeeping upgrade: Deploy or reconfigure a reliable digital timekeeping system that logs time to the minute and captures edits with audit trails.
• Classification review: Have an employment lawyer or experienced HR professional review contractor agreements to confirm independent contractor status or convert to employee status where necessary.
• Regular rate calculations: Ensure payroll computes overtime using the correct regular rate that includes commissions, nondiscretionary bonuses, and certain incentive pay.
• Policy deposits: Publish clear written policies on compensable time, rest-breaks, overtime approval, and after-hours communications.
• Manager training: Train managers on wage rules, timekeeping, and prohibited practices (e.g., requiring employees to work off the clock). See our hiring and ops primer for small teams and managers to align expectations (Hiring Ops for Small Teams).

Ongoing controls (quarterly / annually)

• Quarterly self-audit: Reconcile payroll reports, time records, and tip/commission statements for all staff every quarter.
• Annual legal review: Engage counsel to review classification, exemption tests, and state-specific wage laws each year.
• Third-party payroll oversight: If you use a payroll vendor, require regular reconciliation reports, SOC 2 or similar attestations, and a named contact for payroll disputes. Use a one-page audit to evaluate vendor value and controls.
• Record retention and retrieval: Maintain time and payroll records in a secure, searchable system and be able to produce them promptly if requested.

How to respond if you discover potential violations

Discovering an issue is stressful  but swift, transparent action can limit damage. Follow these steps:

1. Stop the practice immediately. Correct pay practices and make sure affected employees are paid for future work while you investigate past issues.
2. Calculate provisional liability. Run conservative backpay estimates, including overtime and premiums, and set aside reserves.
3. Consider voluntary disclosure. In some instances, voluntarily notifying the WHD and cooperating can reduce enforcement penalties and show good faith  consult counsel first. If a case escalates, employees have templates and instructions to file claims (see Template: Filing a Wage Claim with the DOL).
4. Offer prompt correction to employees. Communicate clearly with affected staff and expedite owed payments where feasible.
5. Document remediation steps. Maintain a remediation log: what you found, how you corrected it, training delivered, and new controls implemented. Keep onboarding and payroll-change documentation handy for audits; marketplace onboarding lessons can help design simpler flows (Onboarding Flow Lessons).

Case study: How a hypothetical gym could face a $120k judgment

To make the math real, imagine a 15-trainer boutique gym where trainers work an average 45 hours per week but are only paid for 40 because the owner doesnt log prep time, travel, or client follow-ups. If the average overtime-eligible pay rate is $30/hour, the unrecorded 5 hours per trainer per week over two years could generate tens of thousands in back wages. Add liquidated damages, potential state penalties, and legal fees, and a mid-sized exposure can quickly rival the Wisconsin case.

Common questions gyms ask (and short answers)

Q: Can we classify trainers as contractors if they set their own schedules?

A: Schedule autonomy is only one factor. Courts look at control over price, client relationships, and whether the work is integral to your business. Most trainers working under the gyms brand and systems are employees.

Q: Do we have to pay trainers for client onboarding and program prep?

A: Yes if the prep is required by the employer. If its truly optional and outside required duties, it may not be compensable  but document expectations carefully.

Q: How do liquidated damages work?

A: Liquidated damages under the FLSA are often equal to back wages. Courts may waive them if an employer shows good faith and reasonable grounds for believing pay practices complied with law  another reason to document policies and seek counsel.

Final checklist  12-point quick scan

• 1. Do you have minute-level digital timekeeping with edit logs?
• 2. Are all clock-ins reconciled weekly by a manager?
• 3. Are prep, travel, and required admin duties included in compensable time?
• 4. Do commission payments feed into regular rate calculations for overtime?
• 5. Have you had a formal classification review in the last 12 months?
• 6. Do managers know they may not ask employees to work off the clock?
• 7. Are exemption claims documented with job descriptions and duty tests?
• 8. Do you retain payroll and time records in searchable form?
• 9. Do you perform quarterly payroll reconciliations?
• 10. Is your payroll vendor contractually required to produce audit reports?
• 11. Do you keep a remediation log for any payroll errors discovered?
• 12. Have you budgeted for potential backpay if an issue emerges?

Takeaway: Treat payroll like a core operational risk  not an afterthought

The North Central Health Care consent judgment is a timely reminder that wage compliance is not optional. For gyms in 2026, the regulatory picture is more complex than ever: state-level changes, hybrid service models, and expanding WHD attention mean that small payroll mistakes can compound into major liabilities. The solution is straightforward: reliable timekeeping, clear policies, regular audits, and prompt remediation when issues arise.

Call to action

Dont wait for an audit letter. Download our free 12-point payroll audit template for gyms, schedule a 15-minute compliance check with our in-house payroll consultant, or subscribe to GetFitNews to receive monthly regulatory updates tailored to fitness businesses. Protect your staff  and your bottom line  before a small mistake becomes a six-figure judgment.

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