Will your overtime payment practices trigger a Fair Labor Standards Act (FLSA) audit?

Many employers are worrying overtime about overtime as the Fair Labor Standards Act is used more aggressively, and against some of the biggest players in business.

Competitors in the retail business have been reluctant to take on Wal-Mart, the world’s biggest retail chain. No such problem for the U.S. Dept. of Labor. The department’s bird dogs have aggressively pursued the huge company, especially about its overtime payment policies, and how well … or poorly … they have lined up with the Fair Labor Standards Act (FLSA.)

That’s indicative of a trend regarding FLSA. More and more companies have been targeted for Fair Labor Standards Act audits, especially concerning their payment, or more correctly non-payment of overtime, when they should have paid it.

In 2003, more than $200 million was paid in Fair Labor Standards Act case settlements. And that was before FLSA, originally enacted in 1938, got some shiny new teeth as its overtime and other regulations were updated in 2004.

“What me worry?” about the Fair Labor Standards Act

Not that many companies seemed concerned at the time. A Hewitt Associates survey, conducted as the regs were about to go into effect, showed only 18% of employers surveyed planned to conduct a FLSA self-audit, an important step that could preclude real trouble if even a single current or ex-employee made a Fair Labor Standards Act complaint. All it takes is one complaint to trigger an audit.

How to conduct a FLSA self-audit

If you’d rather find out for yourself how well you’ve complied with FLSA and its overtime payment and other provisions, rather than hearing it from DOL, here are some key steps to follow:

  • Check out your job descriptions. Be sure those positions you classify as “exempt” really do fall within the administrative, executive, professional, computer or outside sales exemptions.
  • Then check out what employees actually do, regardless of job descriptions. Be sure the work and the way it’s described line up. Modify one or the other until they do.
  • Review your overtime calculations. Be advised that a FLSA audit may look back at up to three years of your records. If you owe your employees, either due to miscalculation or misclassification, pay up immediately. It’s likely to be a bargain compared to the cost of a settlement.
  • Look into whether your state labor laws on matters such as overtime differ from FLSA, which is a Federal law. In such cases, the tougher standard usually prevails.
  • And finally, be sure you have the latest versions of FLSA-mandated posters hanging in plain sight. They’re likely to be the very first thing an inspector looks to see.