The U.S. Department of Labor (DOL) performs wage and hour audits of employers by selecting them at random, or because they are in targeted industries (usually low-wage), or as a result of a complaint from an employee or former employee. The investigations have increased significantly over the past few years and can result in orders for back wages and penalties. What steps should you take when the DOL comes knocking (generally with no prior notice)? Read on and you’ll learn!
Be Prepared to Cooperate
The DOL may send a letter at the start of an audit and ask for a variety of documentation to perform a “desk audit,” which means they will likely not come into your place of business. You must provide all documentation sought or negotiate a compromise about what will be produced. If you don’t reach a compromise or produce the documents requested, the DOL can obtain a subpoena forcing you to produce them. This usually results in the auditor characterizing the employer as uncooperative, which can result in more aggressive enforcement, including back wages, liquidated damages, “willful” findings, and civil monetary penalties. At that point, you’ve lost your ability to negotiate for less or easier-to-produce data.
The DOL doesn’t always initiate an audit with a letter request for information. Sometimes, an agency investigator will show up unannounced on your doorstep and ask to start looking at data and interviewing witnesses. How do you deal with these potentially costly, disruptive investigations and requests for detailed pay information? Here’s how.
Step 1: Immediately call your employment legal counsel. They will know the process and can provide privileged legal and strategic advice. They may know the auditor and be able to provide useful information on the auditor’s “style.” Your counsel can also help you negotiate a narrower data production than initially requested and get a deadline extension if needed. They can also fill you in on what to expect and where you can “push back.” To reduce your stress, you can request that the agency go through your counsel for everything related to the audit. The auditors are used to this and won’t think you are trying to hide something.
Step 2: Analyze the documentation request. Is it overly burdensome? It always looks that way but often is not. Get your payroll service involved in responding to the requests. Provide the information in a useful format, preferably electronic, that the auditor can easily examine. If documents truly don’t exist or are nearly impossible to provide, explain why and negotiate for alternative information or a format that is easier to obtain. Proposing a narrower scope, if there’s a rational reason, can be successful. The more cooperative you are, the less likely it is that the auditor will insist on a personal visit, disrupting your workplace.
Step 3: If the DOL shows up on your doorstep without notice, you do not have to let them in—at least not that day. Especially if you have a legitimate reason that the audit will not be effective that day, a delay may be acceptable. Operational issues such as a major project or product deadline that day or week, a customer visit that prevents staff from being available, inability to access the data that day or in the preferred format, and absent staff who are necessary for the audit are all valid reasons to propose a delay. On the other hand, if you can make time and have some data available, offer it up and cooperate as much as possible. Offer to reschedule the visit so you can be prepared at a more convenient time, or you can often arrange to provide the information to the auditor in electronic or other more convenient format than is available that day. This may preclude the need for a potentially disruptive site visit.
Step 4: Proactively do your own audit of wage and hour issues. To prevent the self-audit from being accessible by the DOL or a private attorney, it should be done within the framework of the attorney-client privilege, which requires a letter from your counsel and some direction. Cross-check pay records to ensure that all employees have been paid for all time worked. Look for discrepancies in time records vs. hours paid and changed or missed punches, especially if the changes were done by supervisors and not the employee. Have hours been “automatically” reduced by assumptions that all workers took a meal break every day? Ensure that employees are properly classified as exempt or nonexempt. Check to see if salaries for exempt employees haven’t been improperly reduced for missed partial days. Do you have independent contractors who legally do not qualify for contractor status and should be employees? These are all items the DOL will investigate, and you should know the answers before the agency sho
Step 5: Be diplomatic. Apologize for any missing information or delay in providing data. Do not stonewall, and avoid being antagonistic or hostile.
Step 6: Cooperate with witness interview requests. If the DOL wants to interview employees, it’s in your best interest to help set them up on your premises so you know who is being interviewed and can prepare them on what may be asked. The auditor may work with you but not always. Some auditors will request a list of all employees with home contact information to reach them during off-work hours. They will interview a random selection of types of employees, and you won’t know who’s being selected. You may need to explain to all employees what’s going on and that they may be interviewed but are free to accept or decline. Most employees are nervous and reluctant to participate in interviews. They may want counsel present, and you certainly can provide them with counsel. However, the DOL will often refuse such arrangements, and you cannot compel them to allow counsel to be present unless it’s a manager or supervisor. Counsel can and should be present for any management interviews—insist on
Follow these steps, and you’ll have a much better chance of resolving the DOL audit successfully without back wages, liquidated damages, a third year of liability, or civil monetary penalties being assessed.