NFIB

Surviving a Department of Labor Audit
07/ 24/ 2003

by Charles R. McConnell

The Department of Labor is working on a new system for overtime rules, which have not been significantly updated since the 1950s. The new regulations are expected to simplify overtime rules, making it easier to understand which employees should receive overtime pay. But now or after new regulations are approved, your business could be subject to a wage and hour audit. Here's what you need to know.

Audits can occur if the DOL has received complaints from your employees or if your business is randomly chosen for a routine audit. Whatever the reason, though, the auditors won't identify a complaint's source, nor will they reveal whether they are there for a routine audit or because of a complaint.

A complaint may involve any aspect of wage payment, but the most common complaints concern eligibility for overtime payment. Department of Labor auditors apply their judgment in comparing job duties with definition criteria established by the Fair Labor Standards Act (FLSA) for executive, administrative and professional employees.

For example, one particular practice that has raised flags involves reclassifying secretaries as salaried, and thus exempt from overtime, by raising their pay to an appropriate level (per FLSA requirements) and giving them more responsible-sounding titles such as Executive Assistant. Another common form of this practice involves "managers" who are paid at the lowest levels specified by FLSA requirements and worked excessive hours.

Some companies have made such changes assuming that the pay and title justified exemption from overtime. But when the DOL applies FLSA requirements to the duties of such employees, these positions frequently do not measure up to the defining requirements of true exempt employees.

When such findings result from an audit, DOL will require that for each affected person the hours worked in excess of 40 per week be determined -- often estimated, when records are not available -- and compensated at an overtime rate. If the DOL finds that the overtime misstep wasn't intentional, the company will be ordered to pay imputed overtime for two years past. If it's decided that the company was deliberately avoiding overtime costs, the payment of imputed overtime for three years past is required.

You will likely have little choice as to when an audit occurs. The auditor(s) may call ahead and provide notice or simply show up unannounced. Should your business be subject to a DOL audit, keep the following in mind:

Remember that you are dealing with government officials. Department of Labor auditors are investigators with peace-officer status; you will likely be shown a badge upon first meeting.

You won't be told what prompted the audit, so don't try to pry this information from the auditor. You can be reasonably certain that a present or former employee has complained about a payroll practice that likely concerns overtime.

Avoid establishing an adversarial relationship. Stonewalling or resisting will only prolong the visit and perhaps alienate the auditor.

Provide the auditor with private space for the duration of the audit.

Provide reasonable assistance. This usually involves providing specific records and making employees available for interview. The more help you provide, the sooner the auditor can finish and depart. The typical DOL auditor usually has a significant backlog of work and is likely to look more kindly upon a company whose management makes the audit easier.

Be prepared to comply with the auditor's findings (although this may mean changing some job designations and paying some back overtime). Should you believe you have legitimate reasons to question the findings, don't try to fight it out with the auditor. If you must complain, do it through appropriate channels involving legal counsel.

And after the auditor has departed and the dust has settled, don't take any steps to find out who complained. Doing so could lead to additional attention from the DOL.

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