HR Management & Compliance

How to Handle DOL Wage and Hour Audits

Inspections for wage and hour law compliance by state and federal authorities are increasingly common. Here is what New Hampshire employers need to know.

DOL Audits on the Increase

In fiscal year 2017, the U.S. Department of Labor (DOL) conducted audits in workplaces of all types across the country and found more than $270 million in back wages owed to employees. That is in addition to the civil penalties the agency often assesses when violations are found, which can range from $1,000 to more than $12,000 per employee per violation.

The DOL’s field office in Manchester has been very active in recent years conducting wage and hour audits at New Hampshire workplaces. While the agency is also very active with its workplace investigations, this article is focused on the audits.

Common but Potentially Costly Violations

The most common wage and hour law violations involve youth employment (e.g., hours, days, and types of work), overtime, minimum wage, meal breaks and short breaks, and improper wage deductions. Employers should pay special attention to the laws and regulations and follow them rigorously, which will help to avoid an inspection in the first place. It also will reduce the risk of fines and wage claims if you have an inspection or employees file complaints.

If the Inspector Cometh

Most spot inspections take no more than a few days to complete. Audits that are in response to a significant problem (e.g., a failure to make payroll) and/or are wider in scope can take several days or even a few weeks to finish.

If the inspector takes more than a few days, start to worry—unless you have a significant number of employees or more than one location, your business has been through a merger in recent years, or your payroll and other records are off-site or out of state. All of those situations can create delays in the audit process.

As in all areas of life, first impressions can be the most lasting. Your interactions with the inspector, especially at the outset, can have an impact on the audit’s outcome. The following points can guide your conduct should an inspector show up at your place of business:

Trust but verify. If an inspector appears and asks to see the owner or general manager, it’s important that you are respectful and cooperative and provide access to the person in charge. If the requested company representative isn’t there, get the next person in line in management.

You can ask for identification (many companies require all visitors to sign in), but don’t badger or harass the inspector (i.e., don’t say, “That’s not a real badge. My kid has one of those!”). You also can ask to take a photocopy of the badge or ID for your files.

Generally, inspectors don’t initially disclose the reasons why they are visiting your business besides “to ensure compliance with the [applicable] wage and hour laws.” During an inspection, you may ask about the audit’s focus. At that point, it may already be clear, and sometimes it’s also shared (e.g., an employee complaint, an industry sweep on a particular issue, or a follow-up to an audit from a year or two earlier).

Don’t survey, interrogate, or round up suspects. Do not harass your employees to find out who called the DOL. That could result in a more aggressive audit and inflexible fines. More important, it could result in whistleblower or retaliation claims from employees.

Provide reasonable access. Allow the inspector to have reasonable access to your workplace, documents, and employees. Don’t be difficult or cagey, but you don’t have to be a doormat either. Work with the inspector regarding a reasonable time for the audit.

Refusal of access isn’t an option. Inspectors who are turned away with no alternative date or time for the audit will likely return with a subpoena granting them access to the facility, the requested documents, and your employees on their terms, not yours.

Provide documents. Documents requested as a starting point for a wage and hour audit typically include but are not limited to:

  • Payroll records (dates provided);
  • Timecards/sheets (dates provided);
  • Canceled payroll checks (dates provided);
  • Youth employment certificates;
  • Copies of I-9 forms (in some cases);
  • Copies of postings on wage laws;
  • Written policies regarding fringe benefits;
  • Access to employee personnel files;
  • Workers’ compensation policy; and
  • Employer’s federal tax identification number.

Cooperate within reasonable period of time. Produce the requested documents and information as soon as possible. If any documents aren’t readily available, set a time when they will be. Be realistic, and make sure they are available when promised.

Offer assistance, but don’t go overboard. Offer the inspector a separate, well-lit, and well-ventilated room in which to work, with a chair and a table. It’s both acceptable and wise to offer coffee, soda, water, or access to a restroom. The inspector also should not be interrupted unnecessarily during the audit.

Be sure to promptly produce whatever is requested if possible. When in doubt about the request, contact your legal counsel.

Original documents aren’t typically taken off-site, though you will sometimes be asked to make copies for the inspector. If that happens, don’t request a fee for the photocopying.

Don’t block access to employees. If inspectors want to interview employees, they will likely do so after the initial document reviews, usually on separate days from the reviews. As with access to the facility and your documents or records, you shouldn’t block the inspector’s interactions with employees. You can, however, alert the inspector to shift and scheduling issues so the interviews don’t unreasonably disrupt your business.

The inspector will interview employees in private, and they shouldn’t be interrupted. You cannot sit in on the employee interviews. You should, however, be able to sit in on management-level employee interviews.

Don’t counsel, coach, or coerce employees about how to answer or testify or what to say to the inspector. Employee/inspector interviews are confidential.

Read inspection report before signing. When inspectors are finished, they will usually leave you with a copy of their report. It will include a notice of violations and a calculation of wage adjustments, if applicable. The notice should explain the violations and how to correct the problem(s). You can, and should, ask for an opportunity to correct the alleged violations before the DOL assesses a fine.

You may be asked to sign a receipt of the report. Keep in mind that it is only a receipt, not an admission of wrongdoing or an agreement to make the proposed changes. If you would be comfortable with more assurances, you can note on the report when you sign it: “This is merely an acknowledgment of receipt of the Inspection Report, and it is not an admission of wrongdoing or noncompliance. This is not an agreement to pay the wage adjustment or civil penalties.”

You can certainly pay the adjusted amounts as ordered and make the proposed changes. You should take some time, however, to check the findings and calculations before responding and agreeing to any conclusions or paying any fines or penalties.

Request informal conference. Before paying the assessed amounts, filing an appeal, or otherwise challenging the DOL’s findings, you can ask for a meeting with the agency’s local wage and hour administrator to discuss your inspection and the audit results and try to negotiate a reduction in the fines and penalties. You may have your legal counsel present at the meeting, but it’s also critical to have a company representative who can address the audit findings, speak to corrective measures that have been or will be taken, and has the authority to settle the case.

If the case isn’t resolved and you still object to the findings and fines, the matter will usually be referred to the local DOL solicitor’s office for enforcement. Of course, if possible, it’s better (less expensive) to resolve the case before that happens.

A Word about PAID

You may have read about the DOL’s new Payroll Audit Independent Determination (PAID) pilot program. Under the program, the agency invites employers to voluntarily audit their payroll procedures and disclose any “noncompliant practices.” After reviewing the admissions, the agency reveals what it thinks the employer should pay. The employer then pays its employees, who in exchange sign a release of any Fair Labor Standards Act (FLSA) claims against the employer. Participating employers aren’t subject to civil monetary penalties (only pay wage adjustments) and aren’t required to pay liquidated damages to employees.

The PAID program has been available since the spring of 2018. So far, the reviews from employers and commentators have been mixed because:

  • DOL’s FAQs don’t say what happens if the employer disagrees with the agency’s assessment.
  • Affected employees may reject the settlement and file suit to collect unpaid wages as well as liquidated damages.
  • It isn’t clear that the releases would also cover wage claims under state law.
  • Finally, PAID isn’t available to resolve issues already being investigated by the DOL or raised in a lawsuit or threatened litigation.

While PAID clearly offers some benefits for employers, certain businesses have considered the program and decided they may be better off conducting their own compliance audits and correcting issues without alerting the DOL or waiting for an inspector to show up.

Conclusion

Wage and hour audits are increasingly common. Regardless of whether you’re subjected to a DOL audit, the time you devote to knowing about and complying with the applicable wage laws and regulations is time well-spent.

Jim Reidy is a partner at Sheehan Phinney Bass & Green PA in Manchester and an editor of New Hampshire Employment Law Letter. He can be reached at jreidy@sheehan.com.