Posted on December 4th, 2018
The U.S. Department of Labor can hit a business with a wage and hour audit at any time. Find out here how you should prepare your business for a DOL audit.
In the last five years, the Department of Labor Wage and Hour Division recovered more than 1.5 billion dollars in back wages. This money gets collected through Department of Labor audits.
Some business owners believe they don’t have to worry about these audits because their line of work isn’t in one of the targeted industries by the DOL. Not conducting business in industries such as food services and agriculture doesn’t exempt you from these audits.
Do you have your own DOL audit preparation plan?
If not, you should get on it as soon as possible.
Don’t know how to develop your plan?
We have you covered.
We’ll discuss must-know basics about US DOL Wage and Hour audits and what you can do to prepare your business today.
Read on to learn more.
What Is a DOL Wage and Hour Audit?
The Department of Labor conducts several types of audits. One of the most common audits is the U.S. DOL Wage and Hour. This audit will investigate your compliance with the Fair Labor Standards Act (FLSA).
This law requires businesses to pay non-exempt employees minimum wage for all hours worked. Also, it requires you pay them overtime at time and a half for all work hours over 40 hours a week.
The DOL may arrive unannounced at your facilities or notify you about the audit.
Either way, you may not prevent the auditor from conducting their investigation.
Some of the most common industries the DOL investigates in Southern California are healthcare providers, restaurants, agriculture, hospitality, and manufacturing.
What to Expect During a Department of Labor Audit?
Every audit is different. Most audits are triggered by an employee complaint. If the DOL receives many complaints from your employees, you will likely end up on the agency’s radar. This could lead to multiple audits and them keeping a close eye on your business.
During a Department of Labor Wage and Hour audit, the investigator will usually review if you are:
Meeting the ERISA requirements; making sure you are giving all the required employee notifications and employees are aware of their rights, your payroll, and employment records.
Most of the time, the auditors request to review your records for the last two years.
They may review the records of your current and past employees. After reviewing and investigating the claim, the auditor will determine if your business didn’t comply with the FLSA.
Failure to comply with the FLSA regulation includes incorrect record keeping, unpaid wages, among other violations. Typical penalties for FLSA violations include the collection of unpaid wages (back wages) and damages up to the amount of unpaid compensation.
If the examiner determines that you willfully violated this law, it is actually possible (but not typical) to be prosecuted criminally for the infraction.
It’s recommended you consult an attorney to learn more about the typical audit process for your type of business. This is because depending on what industry you are in different infractions are more likely due to the nature of the business and work.
How Can You Prepare Your Business for a DOL Audit?
Preparing for a Department of Labor audit may seem impossible. But, it is not the end of the world. If you properly prepare you may get off easy and in the long run your business will stronger because of it.
A U.S. DOL Wage and Hour audit may be more in-depth than other audits your business might’ve been subject to. Remember that these audits often focus on your hourly and overtime compensation.
The Department of Labor will be looking at documents such as your daily schedules, employee exemption status, among other information to check FLSA compliance.
It may seem like a lot but preparing your business is the best way to survive a wage and hour audit.
Here are some measures you can take to prepare your business for a Department of Labor audit:
1. Set Your FSLA Compliant Employee Record Keeping
During a DOL Wage and Hour audit, the investigator will pay close attention to your current and past employee records.
You should prepare your business in advance by having your own FSLA compliant employee recordkeeping system.
Many employers fail to keep accurate timekeeping records for their employee hours.
You should consider having an automated system in place for employees to punch in and out of work. If you use sign-in sheets, make sure your employees are entering accurate times.
Time discrepancies may end up in failure to comply with FSLA regulation.
Also, your employees should sign their weekly time sheets to confirm their weekly hours.
It’s recommended that employers keep employee timesheets for three years.
Remember, DOL auditors may ask for your records for the last two years.
2. Develop Your Own Periodic Internal Audit Procedure
Conducting your own internal audits is a great way to get your organization ready for DOL audits. Your audit should take a look at your timekeeping and labor practices.
You may consider hiring an attorney to conduct your internal audits.
They can provide an unbiased report on your FSLA compliance.
Another preparation audit you may consider is DOL’s Payroll Audit Independent Determination program.
The PAID program provides a method for employers to correct errors voluntarily. If you are in the process of an employee lawsuit or currently being audited by the DOL it won’t be available to you.
We don’t necessarily recommend the PAID program for all circumstances. It would be best to check first with an attorney before using it.
3. Ask the Auditor About the Scope of the Investigation
Many businesses are afraid to ask for more information from the DOL auditor. But, you should ask the DOL investigator about the scope of the investigation.
Asking for more information can help you narrow down what records you should submit to the DOL.
Most of the time, these audits require you to respond in 30 days or less from the notification. This timeframe may be negotiable but it depends on the urgency of the investigation.
It’s important to understand the scope of the investigation to respond on time.
4. Gather and Organize All Your Records for the Audit
After learning the scope of the audit, it’s important to gather and organize all relevant records. Make sure you provide the investigator with the necessary information.
Submitting the right records on time will show your willingness to cooperate in the audit. You may consider sending a letter or meeting with the auditor to explain the scope of the submitted records.
Should You Prioritize Preparing Your Business for a Department of Labor Audit?
Yes, you should prioritize preparing your business for a DOL audit. You shouldn’t wait until the Department of Labor is knocking on your door.
Try to make your business FSLA compliant from the start.
Sometimes, small changes such as an automated timekeeping system can prevent hefty fines for FLSA violations. It’s recommended that you consult an attorney to verify if your business is complying with FSLA.
Need help developing your Department of Labor Audit preparation plan?
We can help. We can send an attorney to your business for a day and go over every aspect one on one with you. This will ensure compliance for any future audits.
Contact us today for your free initial consultation.
