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Defend your Business against a DOL Wage and Hour Audit

Human Resources
Article
09/02/2016

What you’ll learn in this article:

  • What the U.S. Department of Labor (DOL) is auditing
  • Risk factors that may affect your business
  • Tips for preparing for a DOL audit

The U.S. Department of Labor (DOL) holds employers responsible for complying with the many statutes and regulations they enforce—and they are continuing to increase their enforcement efforts. Today, over 90 percent of complex employment litigation involves federal and state class and collective wage and hour claims, according to Lori Brown, Director, Disbursements, CACI International and speaker at the 2016 American Payroll Association Congress.

While recording and reporting employees’ time worked and pay may seem like a straightforward process, there are many situations that can complicate the issue and pose particular risks to your business.

Risk Factors for a DOL Wage and Hour Audit

To help achieve and maintain compliance with applicable wage and hour requirements, it’s important for payroll, HR, legal, and other groups at your company to work together. Consider whether you and your partners need to address the following potential risks in order to help your business avoid a DOL audit.

Exempt vs. Non-Exempt Classifications—The words “salaried” and “exempt” are not synonymous. The DOL will look for misuse of white collar exemptions, especially where individuals classified as exempt do not meet the applicable duties test.

Pay Issues—Does your regular rate of pay include wages, commissions, shift or job differential, premium pay for hazardous work, bonuses and other incentive payments, etc.? Include them in your calculations for overtime where applicable and avoid shortcuts, such as averaging hours over multiple workweeks.

Off-the-Clock Work—Require employees to record all hours worked, including work  performed outside of regular working hours or off work premises even if the work was not authorized or requested. It’s your responsibility to make sure time cards are correct. According to Ms. Brown, “All employees should report time. If an exempt employee doesn’t record hours and it turns out they should’ve been non-exempt, you’d have no records—what they claim is what they worked.”

However, employers should avoid adjusting the weekly salary of an exempt employee due to the quantity of hours worked. Such action would jeopardize the salary basis test and the individual’s exempt status.

Improper Salary Deductions for Exempt Employees—Some examples include: partial-day absence or a full-day of pay because your business was closed due to inclement weather.

Training—Non-exempt employees do not generally need to be compensated for time spent in training if all the following apply: attendance is outside employee’s regular work hours, is voluntary, is not directly related to the employee’s job, and the employee does not perform any productive work.

Breaks and Meal Periods—The federal Fair Labor Standards Act (FLSA) doesn’t require you to provide meal or rest breaks, but some states do. However, if your business does provide rest breaks, the FLSA dictates that employees must be paid for breaks lasting 20 minutes or less and these breaks must also be counted as time worked for purposes of calculating overtime hours for non-exempt employees. If your business provides a meal period (typically 30 minutes or more) it generally does not need to be compensated as work time if the employee is completely relieved from duty and the meal period is generally not counted as time worked.

Travel time—Traveling from home to work and back does not generally count as paid travel time, but travel from one job site to another will likely be compensable and count as time worked for non-exempt employees. For home-based workers, traveling to the office may be considered compensable and time worked.  Other types of travel may also be considered compensable under federal and state wage and hour regulations.

Prepare Now, Relax Later

A common reaction when a business is surprised by a DOL auditor is to claim, “But we’ve done it this way for years!” This is no excuse and generally not a viable defense. Rather than impulsively reacting to an audit, it may be more effective to prepare now.

According to Ms. Brown, preparing for a DOL audit means knowing the laws that affect your business, having a solid and compliant record-retention policy, and understanding your payroll and HR systems—what they do well, where they falter, and how they interact with each other.

Another way to help eliminate issues that might be found in a DOL audit is to use an automated timekeeping system, which may improve data accuracy and encourage employees to correctly record their hours.

Most importantly, you may also consider consulting with legal counsel to perform an annual self-audit under attorney-client privilege in order to help ensure that company policy is in-line with federal and state laws. Pay close attention to details and try not to make assumptions about your processes and procedures, or how they’re being followed.

Your self-audit may also include a review of current job descriptions, job postings and recruiting materials, employee performance reviews.  These materials can be helpful in evaluating primary or essential duties, designing training materials, and classifying employees as exempt or non-exempt under federal and state wage and hour laws.

While the prospect of a DOL audit can be intimidating, taking the appropriate steps to  prepare, can help turn a stressful situation for your entire company into a more manageable, cooperative process.

Next Steps

  • Learn about federal and state employment laws that apply to your business.
  • Review DOL audit risk factors with partners in payroll, HR, legal, and other groups within your company.
  • Research payroll and HR software that could help you prepare for, or avoid, a DOL audit.

 

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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