“Wage audit.” It’s a phrase that can fill even the heartiest business owner with dread. There is a lot of confusion and a lot of misconceptions about what it means to be audited, with many assuming that undergoing a wage audit is itself a form of punishment, or that all possible outcomes can only be negative.
Neither of these things is true. While it’s true that the Department of Labor has been known to conduct audits as a response to employee complaints, just as often companies are chosen for a wage audit semi-randomly, based on what industry they’re part of.
What exactly is a wage audit?
To better understand your situation, it’s important to know exactly what the DOL does and what the purpose of an audit is. The DOL has many divisions responsible for different aspects of employee protection. The Office of Federal Contract Compliance Programs, for instance, oversees federally contracted businesses, and an OFCCP audit is used to ensure that those businesses comply with affirmative action regulations.
The DOL’s Wage and Hour Division, meanwhile, conducts wage audits to measure compliance with the Fair Labor Standards Act, which mandates that employees be paid at least the minimum wage for all hours worked and receive overtime pay at time and a half their regular rate for all hours worked in excess of forty hours per week.
What happens during an audit?
The first thing you should be mindful of is that the DOL is not required to provide advance notice of a wage audit, so you should be ready for one at all times. While you can request prep time to gather all the required documentation, the amount of time granted is at the discretion of the investigator.
During a wage audit, you will usually be required to turn over timesheet and payroll documents for the past two years, including records for both current and former employees. Investigators will be looking at how legible, accurate, and complete your records are, if your business is in compliance with overtime pay requirements, what procedures are in places to prevent “off the clock” work, and if workers are properly classified as “employees” or “independent contractors.”
What happens after the audit?
At the conclusion of a wage audit, it is up to the DOL investigator to determine whether your business has or has not maintained correct records, as well as whether or not any FLSA violations have occurred. If such violations are discovered, you may be required to pay back wages and liquidated damages, with the possibility of civil money penalties of up to $1000. Criminal prosecution, though, is generally reserved for cases of willful and/or repeated violations.
After the audit the DOL may require follow-up reporting, and it is likely that your business will be re-investigated within a couple years. A business that has a history of violations will suffer stiffer penalties, so it’s important to take the results of your audit seriously and proactively pursue FLSA compliance.