Many employers may face a wage and hour audit. If so, they should be knowledgeable about what prompts these audits and how they are conducted by the Department of Labor (DOL).
Triggers and DOL Processes
Often a wage and hour audit is launched after an employee makes a complaint, however, the DOL has begun to target specific industries (e.g., hospitality, restaurants, day care and farming) where wage and hour violations are common. If a business does face a wage and hour audit, it can expect DOL auditors to examine payroll records for the past two years. During their investigation, the auditors review the records for both current and former employees. When a Fair Labor Standards Act (FLSA) is suspected, the DOL will review records going back three years.
Common examples of FLSA violations are:
- Improper classification of salaried employees as exempt from overtime absent of a review of their duties,
- Unlawful wage deduction for items against employees,
- Inaccurate wage payments to immigrant workers and minors which are less than the required minimum wage,
- Failure to maintain records and
- Overtime payments to non-exempt employees, and
- Insufficient tips that fail to make up the difference between the minimum wage.
In the event an employer is found to have violated the law willfully, there is a strong possibility that the Secretary of Labor will file a lawsuit seeking back wages and an equivalent amount in liquidated damages which consist of double damages and civil penalties of up to $1,000 per willful and repeated violation; which can add up to a substantial amount.
Preparing for a DOL Payroll Audit
Employers facing a DOL payroll audit should prepare by designating an individual who will be interviewed by the DOL auditor. This individual should be prepared and able to answer questions pertaining to which job functions are treated as exempt from overtime and the reason behind this status, shift rates and how they are recorded as well as how overtime is paid and whether deductions are made automatically, if and how new employees are paid for training, orientation meetings and medical exam, and how employee wage garnishment decisions are made, calculated, and paid. Based on the outcome of the audit, there may be a follow-up meeting to close the audit.
Other Laws Pertaining to Payroll Compliance
In addition to the FLSA, there are other federal, state, and local laws and regulations affecting payroll compliance. These include State Income Tax Laws, State Unemployment Tax Act, Family Medical Leave Act, and Internal Revenue Service (IRS) guidelines.
To support payroll compliance, employers should invest in a high-quality software program that supports accurate recordkeeping. In addition, those organizations that do not have a qualified payroll professional on their staff should consider contracting a third-party administrator (TPA) with a proven track record in payroll compliance on behalf of their clients.
