If you don’t do an FLSA wage and hour audit, someone else will, says attorney Tom Makris. And it won’t be just the government. These days, it could be a potential business partner … or even your banker.
It started with mergers and acquisitions, says attorney Tom Makris. Now it’s spread to far more routine business operations. What is it? The need to self-audit to be sure you are complying with FLSA wage and hour regulations.
Makris, an attorney with Pillsbury Winthrop Shaw Pittman, LLP, of Sacramento, California, was speaking on the subject at a recent BLR audio conference.
In mergers or acquisitions, Makris explained, potential buyers are looking for places where they can argue about potential lawsuits. That gives them leverage for reducing the purchase price or asking for big holdbacks.
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But now Makris is seeing the same trend moving into more routine transactions such as business lending. FLSA audits have become part of due diligence in funding transactions. If problems are discovered, they can interfere with your organization’s ability to raise capital. (There’s something the C-Suite cares about!) In either case, you’d rather be there first with your own audit.
Class Action Lawsuits
Why the sudden upsurge in FLSA concerns? Plaintiffs’ lawyers have found there’s a lot of money in class actions based on wages, because there are lots of employees and relatively straightforward fact scenarios.
Initially, the focus was on fast food restaurant workers, insurance adjusters, and similar jobs. That era is ending, and the attorneys are looking for where next to go. You really have to pay attention now, says Makris, to computer and sales jobs, where many employees are inappropriately classified as exempt under the administrative or computer exemptions, when they’re not.
The bottom line is, if you get sued, you want to be in the position of being able to show that you have made a good faith effort to get it right. A self-audit is an important part of being able to do that.
Time It to Coincide with a Triggering Event
What’s the best time to do such an audit? Have it coincide with a triggering event, says Makris. Say, “Because we’ve [merged/reorganized/downsized/re-evaluated our compensation structure], we’re doing an audit.” It is never good to tell your people ”We don’t know if you’re being properly paid,” Makris maintains.
Involvement of Counsel
One approach that is extremely useful, especially if you suspect problems, is to bring outside counsel in early, and have the audit conducted under their guidance, says Makris. The results of the audit can, then, to a large degree, be protected by attorney-client privilege or the work-product doctrine.
Individual Job Audits
On individual job audits, you want to find out how people spend their time, and how much of it is spent at different levels of work. Remember that jobs can change often. Decision-making may have moved from humans to computers, or new management may be making the decisions at a higher level. Or maybe it’s the opposite–new management pushing decision-making to lower levels. This is all crucial as the ability to make independent decisions is a crucial benchmark in making the exempt/nonexempt judgment for each job.
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Probing is often necessary to get to the real details of the job. Makris’s favorite probe is, “Tell me the three most significant issues on which the person makes decisions.” The answer often shows whether there are substantial decisions being made.
You Never Know What You Will Find
Keep your eyes open during the audit, says Makris, because interesting situations develop, even outside FLSA issues. For example, one HR manager found why his managers paid little overtime. They were bringing in temps instead. The temps cost more, but it came from another budget, and management had demanded that they “cut overtime expenses.”
In the next Advisor, we’ll see what Makris has to say about responding to the audit results, and we’ll look at a unique program to make FLSA self-auditing easy.