How Do You Protect Your Business from a Department of Labor Audit? Do One Yourself
For Fiscal Year 2022 the Department of Labor asked for a substantial increase in funding and employees to “expand enforcement efforts,” and the Department of Labor has not wasted time expanding enforcement. In one day, October 24, 2022, the Department of Labor announced two investigations resulting in over $202,000 and $86,000 in back wages for a car wash and rehabilitation facility for improper overtime calculations.
As businesses look back at 2022 and ahead to 2023 in this final quarter of the year, a major item on the 2023 “to do list” has to be auditing payroll records, timekeeping records, and job descriptions of employees to ensure that no violations of Federal law exist and addressing any violations that appear. Because the DOL is also looking ahead to 2023—and planning its first audits to ring in the New Year.
How to protect yourself?
Conduct an internal wage and hour audit of your employees. This allows you to discover any discrepancies in wages and overtime and confirm that the business follows all of the necessary laws, before a DOL investigator comes knocking.
To properly protect your business from the fines and penalties that come from a DOL Audit, there are several items that your business can review to decrease the odds that an investigator will find a violation:
Are your exempt employees properly classified as exempt? A common challenge for businesses is the administrative exemption (Hint: having “administrative” in the job title is not enough).
Your business should analyze the written job descriptions of all of your exempt employees and compare them to the duties each employee actually performs. Have the duties changed? Do they supervise more or less employees? Do you have a written job description at all? Make these necessary changes before an investigator appears at your door.
Are you properly calculating applicable bonuses into your employees’ regular rate for overtime? Be sure that your production-based bonuses are properly incorporated into the pay period in which the bonuses are earned.
Does your business require deductions from paychecks for uniforms or other costs? If so, make sure that employee compensation does not drop below minimum wage.
Are your employees taking the exact same lunch break every day because of automation in the time-keeping system? If so, this is a major red flag that the Department of Labor will identify and inspect, because it is likely that these lunch breaks are not accurate. Of course, your employees are not robots, so they will not eat lunch at the exact same time each day. Make sure the time records show the human nature of your employees.
Is your business maintaining the necessary documents? For example, your business needs to maintain the personal information of each employee (name, birthdate, sex and occupation, address, etc.). The business also needs to maintain records showing the regular hourly rate, the basis for the wages (i.e. $10/hour, $440 a week, etc.), and all addition to or deductions from your employees’ wages. Payroll records must be retained for at least 3 years, while timekeeping records and records of deductions or additions to wages must be retained for at least 2 years.
With Halloween still on our minds, there are few things scarier for a business than a DOL investigator. Auditing the wage and hour practices of the business is the best way to ensure that when the DOL investigator appears under the bed, your business has nothing to fear.