FLSA overtime violations have replaced discrimination as DOL’s number one target. Do a self-audit and keep investigators at bay.
There’s a war being waged in America’s workplaces.
The aggressors are the Department of Labor’s Wage and Hour Division and employment law attorneys, often pursuing class action suits. Their targets have included some of America’s largest companies, including Wal-Mart, Starbucks, Radio Shack, and Farmers Insurance.
The battle is over alleged violations of the Fair Labor Standards Act (FLSA) and particularly the misclassification of employees’ exempt/nonexempt status to avoid paying overtime. It’s said that DOL now considers this violation number one on its enforcement hit list, replacing discrimination. The Wall Street Journal recently reported on this trend.
Those caught deliberately misclassifying have suffered for it. Forced settlements have been in the millions. But as in any war, there is also “collateral damage”… innocent employers who err through a misreading of the FLSA or because they’re not up on its 2004 revision, which significantly changed exempt/nonexempt criteria.
No matter to DOL. As they say on the cop shows, ignorance of the law is no excuse.
An FLSA Self-Audit Can Be Your Best Defense
The best defense against this happening to you is a good offense, in the form of an FLSA self-audit. Done diligently, it enables you to find and correct errors in your wage/hour program before the investigators do.
Don’t delay doing one if you haven’t already. It takes just one worker complaint to trigger an investigation that–even if you’re innocent–will inundate you with legal bills and distract you for years. The media have been increasing their drumbeats lately about companies cheating workers out of overtime pay. That’s got to have some employees—maybe yours– thinking about lodging that complaint.
If you think an FLSA self-audit takes a law degree or professional training, that’s not so.
It’s completely doable if you have the right tools and guidance. Here are some tips drawn from our own program for doing one, the FLSA Wage & Hour Self-Audit Guide.
—Understand FLSA’s requirements (and especially the 2004 revision.) Understand what employees are covered, and be aware of special situations such as piecework or day laborers. We detail many of these in the Guide.
—Review all your compensation administration policies and program. Make sure all wage and hour requirements are rendered clearly, and that your program addresses anything that could contribute to compensation error.
In this regard, there are many possible pitfalls. One Self-Audit Guide checklist, for example, asks if you maintain a prohibition against workers recording each other’s time. Another takes you through the 20 factors the IRS uses to determine if an independent contractor is really an employee. DOL will use this list in deciding whether to cite you for an FLSA violation.
—Compare Your Job Descriptions with DOL Guidelines. Exempt/nonexempt status is defined by job activities as well as salary. Compare the responsibilities of any given job against the lists of responsibilities DOL has issued for the executive, administrative, professional, computer worker, and other exempt classes. These lists are included in chart form in the BLR Guide. Compare the salary level, salary basis, and especially the list of activities to government criteria.
Checklists are key to a thorough audit
As you go through the above steps, be thorough, as investigators will probe every detail of up to 3 years of back recordkeeping, knowing from experience those aspects employers tend to miss. Our editors say the best way to handle this challenge is “checklists, checklists, checklists!” No one could accuse them of not waking the walk on their advice. They put 40 checklists in the book.
Some of the key categories are:
- Exemptions and job classifications checklists (including all of DOL’s exempt and protected nonexempt classes, and especially those added in 2004.)
- Policies & Procedures checklists, including such factors as impact of break time and training time on any overtime calculation
- Cost impact calculation checklists, should you need to change the status of some employees after the audit is done.
After preparing and completing all the above steps, compare your findings with your current exempt/nonexempt picture. If there are any discrepancies, start corrective action.
One final note: Naturally we are partial to using our book in this process. But whether you use the FLSA Self-Audit Guide or not, we urge you to audit your FLSA compliance as soon as possible. DOL really has gone to war on this one, and we don’t want you caught in the crossfire.