Keeping the Department of Labor at Bay When It Comes to Time and Labor Management Audits

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The Department of Labor Wage and Hour Division collected more than $1.2 billion in back wages over the past five years, with more than $266 million in back wages collected in 2016. Of those 2016 awarded back wages, almost $35 million were attributable to minimum wages under the Fair Labor Standards Act (FLSA), while almost $172 million were attributable to overtime under the FLSA, according to the DOL.

HR leaders should take some time to proactively examine their time and labor management processes prior to the Department of Labor coming in to audit. Being proactive could make an audit more fluid, and any assessed penalties much less costly.

How Are Most Audits Triggered?

According to the DOL, many audits are initiated by individual complaints. The DOL keeps all complaints confidential, including the name of the worker, the nature of the complaint and whether a complaint was actually made. Additionally, the DOL selects certain types of industries or businesses for audit, such as low-wage industries. These types of industries, according to the DOL, have a higher rate of violations or egregious violations, employ more vulnerable workers and have more rapid changes in their industries, such as growth or decline. Finally, the Department of Labor may target certain industries by location. Regardless, according to the DOL, "the objective of targeted investigations is to improve compliance with the laws in those businesses, industries, or localities."

10 Ways Your Business Can Prepare for an Audit

1. Put it on your to-do list

Do not wait around to see if you get in trouble first. Start putting together a game plan about how to conduct an internal audit for time and labor management practices, including FLSA practices.

2. Conduct periodic reviews of your classification decisions for FLSA

Include a review of your paper work to back up your decisions.

3. Conduct a review of all of your job descriptions

Compare your job descriptions to each employee's positions and the tasks they actually complete on the job.

4. Do not make assumptions about which employees are "exempt" or "nonexempt"

Pull the regulations out and complete an analysis of your employees' salaries and job tasks against the law.

5. If workers must be reclassified, you may need to consider back-pay

If the employee's previous position was noncompliant, it's possible that such employee may have been entitled to overtime. These situations must be handled quickly, carefully and with counsel.

6. Make sure your definition of compensation is clearly understood, primarily your regular rate compensation

Additionally, make sure that your payroll department understands what the definition of compensation is, and if it differs in certain situations. Slight mistakes in compensation calculations can be significant mistakes in compliance.

7. Classify your contingent workforce, such as independent contractors and leased employees, appropriately

The DOL, as well as the state attorney general offices, look for misclassifications in this area.

8. Stay abreast of the overtime final rule

HR leaders must pay careful attention to the DOL's Overtime Rule and whether it becomes effective or not as it changes many of the parameters of the "exempt" and "nonexempt" definitions under FLSA.

9. Make sure you're keeping up with all federal and state laws in this area, not just the overtime final rule

It's important to know what's going on in this area legally because it will help you keep yourself in order if you know what the agencies and courts are looking for.

10. Most importantly, keep your records up-to-date

This includes payroll, employment, minutes, board resolutions, job descriptions and any policies and procedures related to time and labor management practices.

By keeping your documents up-to-date and current with the law, you've cleared a huge hurdle for audit purposes. However, this alone can be a major internal task, especially if you haven't taken the time to update your documents in a while. The Department of Labor may be more concerned about your process — and that process must be written. Having a written process in order can be a huge task. However, once you have it established, the maintenance and upkeep can be easier. But process is the key to being proactive with the DOL. It's time to get busy — the risk may be too high not to.

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