As an employer, you may know that the US Department of Labor (DOL) has broad authority to inspect workplaces and bring enforcement actions for violations of the Fair Labor Standards Act (FLSA) and other related wage payment laws. But did you also know that whether you will be investigated and audited by the DOL is not a matter of “if” but “when?”
That note of caution was provided during the American Payroll Association’s Congress Xstream virtual conference by Lori Brown, Finance Director of Payroll Operations at Hanger, Inc., and Stephanie Salavejus, Vice President and COO at PenSoft Payroll Solutions, in their educational session DOL Investigations: How Would You Stack Up?
Why Audits Are on the Rise
According to Salavejus, DOL audits are on the rise “now more than ever.” She explained that one reason is the sudden surge in telecommuting arrangements during the coronavirus (COVID-19) pandemic. Many employers with such arrangements were “unprepared to implement work-from-home platforms,” which has left them “more likely to have gaps in their policies” and more vulnerable to being audited.
However, Brown and Salavejus also pointed out a long list of other hot DOL audit topics, including:
- Pay issues (e.g., minimum wage and overtime calculations; hours worked and adjustments to hours worked; on-call and standby pay);
- Misclassification of workers;
- Improper pay deductions;
- Off-the-clock work (especially for those working from home during COVID-19);
- Breaks and meal periods; and
- Training time compensation.
They also noted several common ways audits arise:
- Employee complaints;
- Reports of alleged violations from competitors;
- Being in a typically high violation industry (e.g., retail, healthcare, construction, hospitality);
- Being identified by the DOL as a repeat offender; and
- Random selection.
Ways to Improve Compliance
Even though achieving a perfect compliance record may be difficult, being proactive is the best avoidance strategy, Brown and Salavejus emphasized. Employers should: “Eliminate procrastinating, conduct an internal review of your employment practices and correct all FLSA issues” before the DOL comes knocking on your door, Salavejus said.
She and Brown also advised conducting manager and employee trainings on all policies and procedures. Taking all of these steps on an annual basis will go a long way toward minimizing both the chance of any wage and hour infractions and the need for related, costly corrective measures.
What’s more, according to Brown, having an electronic time and attendance system in place will reduce compliance issues by enabling employees to more accurately record their time worked. Such systems can also serve as proof of your compliance with the wage and hour laws.
Brown and Salavejus also said that how you interact with DOL investigators can have a major impact on the outcome of the audit. For example, you can:
- Act immediately upon notice of an impending audit;
- Build a respectful and honest relationship with auditors;
- Follow up on verbal communications with auditors in writing; and
- Set up a private and secure location for auditors to work and perform any interviews with employees.
Document Lessons Learned
And finally, if you do become subject to an audit, both speakers advised that you document lessons learned and use them as armor in any future audits. Keep good records of the errors that were identified and how you corrected them so that you can show the next auditor down the road your good faith compliance efforts. These records can also serve as an internal checklist for preventing future violations of the same type.