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Labor Department Audit

Department of Labor Audits: What to Expect If your company has been the subject of an audit by the Department of Labor (DOL), you're not alone. Of companies responding to our recent survey, Five-Minute Overtime Audit: See How Your Company's Reaction to the New Overtime Rules Measures Up, 15 percent said they had been audited once, and 5 percent said they had been audited between two and five times. DOL audits are often productive: In 2004, the agency collected $197 million in back wages for more than 280,000 workers. Such audits are generally triggered either when a current or former employee files a complaint with the DOL or when the DOL targets a specific industry for investigation. As usual, in 2004, the DOL targeted a variety of low-wage industries including day care, agriculture, janitorial services, the garment industry, healthcare, the hotel and motel industries, restaurants, and temporary help.

DOL's Wage and Hour Division has traditionally targeted low-wage industries with vulnerable, and often immigrant, workforces, and those industries with a history of chronic violations.

If the DOL audits your company, a representative will visit your facility to conduct interviews, make sure the required posters are hung, and possibly examine the time clocks to determine whether your company is in compliance with the Fair Labor Standards Act.

DOL will then review up to 3 years' worth of your wage-and-hour records and investigate your wage-and-hour practices to determine whether you have paid your employees the proper amount of overtime. This will include a review of your pay records, so you must make sure the records are accurate and organized.

It is interesting to note that when comparing the number of audits to the size of the company, BLR's survey showed that the only companies that reported having been audited more than five times were companies with more than 500 employees. For more information about our survey and about self-audits.

One of the most disturbing letters that you may ever receive as a company is a letter from the Department of Labor (DOL) that says that your company has been selected to be audited. When you get this letter, the worst thing that you can do is ignore it and wait for the DOL Investigator to show up at your door. The DOL usually gives you a very short window, usually one to two weeks, between the receipt of the letter and when the audit is scheduled. In order for a company to survive the audit, it is crucial to use this time to your advantage.

First of all you probably want to consider hiring both a labor law attorney and a compensation consultant that has had experience in dealing the Department of Labor before. Even if you decide to go the audit alone, you should call the DOL with the phone number provided in the letter and request an extension. The DOL will usually grant you an additional two to three weeks of time before starting the audit, especially if your attorney is the one making the call. With this extra time you will need to gather and organize all of the data requests that are included in the audit letter, and possibly conduct an internal compliance audit, looking for possible problems.

Gathering the DOL requested data may take a while since the data that they are looking for usually includes all payroll data, time sheets, employment records, job descriptions, I-9 forms, and more for the past two years, and possibly three years depending on what they find. When facing a DOL wage and hour audit, it is important to understand what laws the Department of Labor enforces and which specific violations that they are looking for.

The Wage and Hour Division of the Department of Labor is responsible for enforcing the Fair Labor Standards Act (FLSA), which primarily governs the overtime laws, minimum wage laws, and child labor laws. Therefore it is logical that the violations that the DOL's investigators are looking would fall into one of these categories. However, the primary violation that the DOL discovers deals with overtime violations. Under the FLSA all employees must be eligible for overtime, unless they are earn least $455 a week, are paid on a salary basis, and meet at least one of the predefined exemption rules. If a violation is uncovered, it could get very expensive for the company since the company will be required to correct the pay for all current and former employees affected by the violation, as well as possible fines, damages, and legal fees.

It is not unusual for these violations to end up costing the company millions of dollars in back wages and fines.

One of the primary keys in surviving a Department of Labor wage and hour audit is to limit the amount of time that the DOL investigator spends conducting the audit on your premises. The longer that an investigator spends with you looking at your data and interviewing your employees, the more likely they will uncover discrepancies or potential violations. If you have all of the data organized and available along with any potential staff that the auditor may want to interview, the quicker the investigator can complete the audit. Any audit that lasts for a three days or less would be considered a successful audit. Another key to surviving the DOL audit is to conduct a self audit of your pay practices, primarily looking for exemption violations, invalid pay deductions for salaried employees, timesheet discrepancies, employees working of the clock, and invalid comp time. If you should find some potential violations, it is important that you calculate what the back wages would be for both your active and former employees. It is much better for you to calculate the back wages and give the figures to the DOL, than to have the DOL calculate the back wages and give them to you. If possible you at least want to pay your current employees any moneythat you owe them. The DOL looks favorably on those companies that are taking responsibility and are paying or have paid their employees for any back wages that were due to them. You also want to correct any processes that led to the violations in the first place. The completion of these two items before the DOL investigator comes to the audit will ensure that the audit will go quickly and smoothly.

An excellent way to survive the DOL wage and hour audit is to be fully compliant with the wage and hour laws before the audit begins. Conducting a wage and hour compliance self audit or having an outside consulting firm do one for you is the crucial first step for being compliant. Once the self audit has been completed, you must correct the processes that are causing the violations. Correcting the pay practices that led to the violations is crucial because once the practices have been corrected; the two year statute of limitations clock starts. At this point you don't necessarily need to pay back wages, but you should realize that those back wages would be a liability, and would need to be paid in the event of an audit.

Lastly it is important to take care of your employees and take any complaints that they may have about the companies pay practices seriously. Most Department of Labor audits are precipitated by a complaint by a current or a former employee. Happy and satisfied employees are not the ones filing claims with the Department of Labor, disgruntled employees are. Therefore your employees must believe that you are looking out for them before they will approach you with potential problems instead of contacting the DOL first. Through the use of open communication polices and competitive and compliant pay practices, you can survive a Department of Labor wage and hour audit the absolute best way, to avoid it altogether.