Department of Labor Audit: Be Prepared

When an employer does not fully comply with wage and hour laws, it may result in back pay fines and penalties, which can add up and be costly for employers. In addition, employers can be assessed additional liquidated damages, which can equal thousands of dollars. This article will provide strategies for dealing with the New York State Department of Labor, the New Jersey Department of Labor and Workforce Development, and the U.S. Department of Labor when they audit your organization.

The DOL can audit employers at any time, although typically an audit arises from an employee complaint. Moreover, the DOL targets employers in low-wage industries to discover wage and hour violations. These areas include, day care facilities, restaurants, garment manufacturers, health care agencies, motels and hotels, janitorial services, guard services, and agricultural jobs.

What the DOL is Looking For

When conducting an audit, the DOL’s objective is to discover employer violations. The following list sets forth some examples of what the DOL is looking for:

  • Failure to maintain records of overtime payment to non-exempt employees.
  • “Salaried” employees classified as exempt from overtime.
  • Unlawful deductions against employees from their wages.
  • Insufficient tips that fail to meet employers’ obligations.
  • Inaccurate wage payments to immigrant workers and minors.

The Audit Process

Typically, the DOL provides little notice of an audit and sometimes none at all. However, if notice is given, employers are permitted to request time to gather records. We provide the following tips for employers after receiving notification that the organization will be audited:

  • Contact the auditor to find out specific information, such as: the focus of the investigation (minimum wage compliance, overtime pay compliance, exempt v. nonexempt classification); and the time period for records that the auditor wants to review.
  • Gather records in accordance with the guidance provided by the auditor.
  • Prepare documentation related to the employer’s compensation policies and procedures.
  • Keep copies of the exact information provided during the audit.
  • Be courteous and cooperative with the auditor.
  • If the auditor shows up at your office or facility and the timing presents a problem for you or your employees, you are permitted to ask them to come back at a more convenient time.

The Role of Counsel

For the following reasons, it is best for an attorney to communicate with the DOL Investigator directly:

  • The attorney is knowledgeable about the legal issues.
  • The attorney can control the flow of documents, so that he or she can review the material before they are submitted to the DOL. If explanations are needed, the attorney can supply them.
  • The attorney will have an opportunity to discuss with the client, any additional requests made by the DOL representative.
  • The attorney may have worked with the DOL representatives before, and the previous rapport developed will be helpful in the process.

Proactive Measures Employers Can Take

We suggest that employers proactively comply with wages and hours laws by being sensitive to these areas on an ongoing basis. Below are some important tips:

  • Apply wage policies consistently.
  • Maintain accurate payroll records.
  • Ensure that all required labor law posters and notices are up-to-date and in plain sight.
  • Ensure that time-tracking devices are functioning properly and are being used by employees.
  • Review all payroll records within the past six years.
    • In New York, the DOL may look at records within the past six years; however, they typically only go back three years.
    • In New Jersey, records must be retained and readily accessible at the New Jersey place of business for the current calendar year and for the four preceding calendar years. However, typically the audit will only cover one calendar year unless the DOL discovers issues that could affect other years. The “scheduling letter” lists the time period for which records must be provided.
  • Familiarize yourself with how employee-wage garnishments are calculated.
  • Know whether and how new hires are paid for training time and orientation.
  • Familiarize yourself with how time is recorded and how overtime is paid.
  • Understand the differences between state and federal laws and ensure proper application to the employees.
  • Ensure that the Fair Labor Standards Act (“FLSA”) classifications are correct (exempt vs. non-exempt). Be able to explain which job categories are treated as exempt from overtime and why.
  • Make sure that your job descriptions correctly reflect the requirements of the FLSA exemption that applies to that particular job.
  • Verify with outside counsel your classifications of independent contractors to ensure that they are properly classified. Note that different government agencies have their own tests which determine the proper classification.
  • Confirm that all time and pay records are complete and are preserved for at least six years.

Our firm often conducts an “employment practices audit” for both new and existing clients. Knowing where the liability lies is the first step in becoming compliant, and our comprehensive audit provides employers with this valuable knowledge. The audit covers all workplace issues, including wages and hours.

Jules Halpern Associates LLC

Workplace and Education Law Advisors

Jules Halpern Associates LLC
JULES HALPERN ASSOCIATES LLC is a boutique law firm committed to serving our clients in all facets of their workplace issues. We provide personalized, practical advice that resonates with our clients’ business objectives.
212-658-9313
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Jules Z. Halpern

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Garden City, New York 11530
tel: 516.466.3200 | fax: 212.658.9313

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New York, New York 10111
tel: 212.786.7380 | fax: 212.658.9313

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