Navigating the complexities of labor laws can be daunting for small business owners and HR managers. At one point or another, businesses may go through an audit by the state Department of Labor. This phrase, the the DOL wage and labor audit, may send shivers down your spine. Here, we’ll go through this process, breaking down what the audit entails, the primary focus areas, and tips to emerge successfully from one. By the time you are finished reading, you should feel a little more at ease should the DOL show up at your door.
Our team at Paper Trails has recent hands-on experience, having assisted numerous clients in successfully maneuvering through these audits. We’re committed to ensuring small business owners are well-informed and equipped to confidently face such evaluations. Continue reading to learn more!
What is a DOL Wage and Labor Audit?
A Department of Labor wage and labor audit is a comprehensive review carried out by an auditor from the state’s Department of Labor. So, what is the primary goal of this review? It is to review whether employers are in full compliance with labor laws, especially those under the Fair Labor Standards Act (FLSA). Think of this as an assessment where DOL representatives evaluate whether businesses are meeting all wage and employment obligations from both the federal and state perspective.
Why is a Business Audited by the DOL?
Understanding the reasons behind why a DOL audit occurs can aid business owners in being better prepared. Here are the primary reasons a business might be selected for audit:
- Employee Complaints: One of the most common triggers for a DOL audit is an employee complaint. Workers who believe they have been wronged for a variety of reasons may file a complaint with the DOL, prompting an investigation.
- Random Selection: The DOL periodically performs random audits as a proactive measure. These are meant to deter non-compliance and ensure that businesses adhere to labor regulations even without specific complaints.
- Industry-Specific Investigations: Certain industries are notorious for labor law violations, especially those reliant on hourly or seasonal workers, like hospitality.
- History of Violations: Companies that have previously been found in violation of labor laws are more likely to face subsequent audits. A track record of non-compliance can put a business on the DOL’s radar.
- Business Size and Nature: Larger businesses or those with complex operations spanning multiple states might be audited more frequently due to the higher potential for varied labor practices and the impact on a more significant number of employees.
What do Auditors Look for?
DOL auditors have a well-defined checklist. Let’s understand some of the main focal points:
- FLSAThe FLSA is foundational. Auditors ensure businesses align with its’ provisions – from minimum wage and overtime pay to child labor laws.
- Payroll Recordkeeping Requirements: Accuracy and transparency are crucial. Employers must keep meticulous records of wages, hours, and other pertinent employment details for a specific period of time.
- Employee Classifications: Misclassification can lead to legal troubles. Auditors discern if workers are aptly classified as W-2 employees or independent contractors, and further, if whether they are exempt or non-exempt employees.
- Minimum Wage: At the core of labor laws is the guarantee that employees receive at least the federal or state minimum wage, which is higher.
- FICA Tip Credit & Tipped Minimum Wage: This is important for businesses in the hospitality sector. Auditors verify that employers using tip credits adhere to regulations on when and where the tip credit is used. Further, they look at whether tipped employees’ total earnings meet or surpass the minimum wage.
- Mandatory Deductions: While payroll deductions are a norm, auditors ensure that only permissible ones are executed according to state and federal laws.
- Piecework: For businesses that compensate workers per task, auditors verify that the sum paid aligns with the federal or state minimum wage, whichever is greater.
- Child Labor Laws: Businesses employing minors must adhere to a specific set of state regulations. Auditors check for any violations in this area.
- Overtime & Blended Overtime: Overtime compensation is a common pain point. The audit evaluates if workers receive correct payment for overtime and if blended overtime and tipped overtime are calculated correctly for those with varying or tipped pay rates.
- FMLA: The Family and Medical Leave Act allows eligible workers to take unpaid leave for specific reasons. Compliance with this act is another critical checkpoint.
Tips to Succeed During an DOL Wage and Labor Audit
Every audit is a different process, but there are some tips to follow which can aid in the process. Some of the big ones are:
- Stay Organized: An organized setup can significantly ease the audit process. Ensure your payroll and employee records are systematic and easily retrievable.
- Be Transparent: Approach the audit with honesty. Cooperate with the auditor, and if there are ambiguities, seek clarification.
- Consult Experts: An audit is not the time for guesswork. Engage legal or professional help. Working with your payroll partner can be invaluable and provide guidance throughout the process.
- Correct Mistakes Promptly: In the event of an error, taking quick action to address them can work in your favor.
- Stay Informed: Labor laws are ever changing and staying updated will help to preempt mistakes.
While the prospect of a DOL wage and labor audit can be intimidating, thorough preparation, awareness, and expert guidance can turn it into a manageable task. With the right approach, it can even serve as a valuable learning experience. Always remember, at Paper Trails, we stand ready to assist, ensuring you’re compliant and confident in all labor practices. Contact our team to learn more!