Ten Tips for Surviving a Wage and Hour Audit
- The Fair Labor Standards Act is Archaic.
The FLSA was enacted in 1938 with only minor amendments since then. It doesn’t fit into today’s economy. For example, Overtime is still described and viewed as a "penalty". It is designed to discourage employers from working employees for more than 40 hours per week and instead encourage them to hire more employees.
- Understand the Mindset of a Wage and Hour Investigator.
The investigator is examining your business with the goal of finding areas of "noncompliance". The DOL publishes a Field Operations Handbook that instructs investigators on FLSA interpretations and how to conduct an audit. Remember, auditors are typically focused on certain compliance areas, industries or are investigating a complaint, but they won’t tell you how you were chosen for an investigation, so don’t waste time asking. They know a lot about the FLSA, just ask them. They generally don’t know much about running a business. They know nothing about employee relations.
- Assess Your Weaknesses.
Businesses should conduct a self-audit to determine areas of risk like those identified in my previous post. Your audit likelihood increases based on two factors:
- if you are in an industry or subject matter area targeted for a compliance initiative by the DOL. Current DOL initiatives are in the following areas:
- if you have recently undergone a messy human resources issue like a termination or organizing campaign and you have an employee who may seek vengeance through a DOL complaint.
- Records are a Business’ only True Defense
The DOL mandates certain recordkeeping and an employer’s failure to keep adequate records of hours worked, wages paid and overtime is a violation of the FLSA. It is also very helpful to have job descriptions that attempt to establish any exemptions from overtime that my be applicable. An absence of documentation seriously undermines a business’ ability to get through an investigation. Absent records, the investigator will interview employees about their hours worked and job duties.
- Control Your Supervisors
Meet with and educate your supervisors in advance of any DOL interview. You also have a right to sit in on any DOL interview of a supervisor so exercise that right. You are not able to sit in on employee interviews, but if the DOL identifies a larger group of employees try suggesting that they use a written survey rather than an interview. This takes the ambiguity out of both the question and the answer.
- Don’t be a Jerk.
As best I can tell, the Wage and Hour Division’s compliance budget is almost $190 million dollars. Don’t make them spend it all on you. If you tell them to get a subpoena, they will. And instead of one investigator, they’ll send five. There are ways to be firm and courteous. Manage the investigation as best you can while still running your business. Here are a few simple tips:
- Establish a point person for dealing with the investigator and have all requests for information go through that person
- Give the investigator a place to work that is out of contact with employees but reasonably comfortable
- Try to get a summary of the audit and the document needs of the auditor, so that you can manage his or her expectations about providing them
- Make employees available for interview during work hours so they are not contacted at home
- Try to wrap up the audit in one or two days, if possible. Don’t let the investigator think up more questions and come back again.
- Investigators Don’t Always Play Fair
Employee interviews are the area where things can go horribly wrong. As every lawyer knows, a leading question is the best way to get the answer you want; particularly, if the witness is in an uncomfortable position of being quizzed by a government enforcement agent. Compare the following two questions and guess which one the investigator will ask your employees if you are a jerk to him:
- How many hours do you normally work in a week?
- You look like a really conscientious person, I bet you work one or two extra hours each week and don’t even tell your employer?
- Let’s Make a Deal
The field investigators have limited ability to compromise a claim when it is reduced to a specific dollar amount based on investigative findings. If things are going badly in an area, you still have the ability to strike a deal before the investigator leaves and does his or her final calculations. Even if the investigator comes up with a number, remember there is a chain of command that you can use for further negotiations. There are Area Administrators, Regional Administrators and the DOL’s legal solicitors.
- Expect Publicity for Noncompliance
As a means of justifying its enforcement activities, the DOL is much more likely use newspaper and website publicity that names the employer and the amount of a settlement.
10. Fix your Mistakes… They’ll be back.
Many settlements with the DOL involve follow up reporting and compliance agreements. In addition, the DOL does re-investigate businesses. Penalties for repeat violations are greater and lead to willful violation findings.