What to know before your business faces fines

Business owners have a lot on their plates, so an audit by the federal government isn’t exactly a desirable prospect.

To have inspectors come in and study your every move—including reviewing historical time and attendance records and interviewing your employees (current and/or former)—is distracting at best. At worst, it can lead to fines, lower team morale and create chaos and confusion.

But there’s always a chance of a Department of Labor (DOL) audit, random or not. This is why it is best to be informed about why you might be audited—as well as what steps it will consist of, what the auditors will be looking for and how you can mitigate damages as much as possible.

The Wage and Hour Division (WHD) is a major player in DOL audits. They oversee United States employers of all sizes. The WHD aims to protect workers and ensure everyone is paid the federal minimum wage (or more, depending on their contract), as well as any overtime due to them.

The WHD has collected more than $1.2 billion in back wages over the past 5 years. A WHD audit consists primarily of these steps, according to the DOL:

  • Examination of records, including time and attendance and payroll records
  • Interviews with certain employees in private
  • A meeting with owner or representative of the company, who has power to make decisions or take corrective actions, to review what violations (if any) have occurred and what steps must be taken (including back wages owed)

How to Avoid an Audit
The best way to avoid an audit is to be proactive, rather than reactive, about maintaining accurate records and paying your employees for what they really worked—including overtime.

It seems obvious, but it is true: make sure your project manager and/or payroll administrator makes you aware of all overtime hours worked on a given week. Make sure your payroll breaks out overtime hours and pay (it should be time and a half of their current pay rate; double time is dictated by state law in certain states, including California).

A mistake regarding overtime or regular pay (i.e. not paying for paid lunches or breaks, or accidentally docking pay for PTO) could mean paying workers double back wages down the road, and additional fines (and they may even decide to sue). If you have more than 20 or 30 employees, these types of errors can really add up.

How do you know you’re doing everything right? Conduct a self-audit. There are self-audit checklists available online, along with other tips that can guide you through the process of an audit.

How to Handle an Audit
Let’s say you have already received notice that you’re being audited. There is still a chance to handle things well and reduce the fallout.

Elizabeth Murphy, employment defense lawyer at Jackson Lewis in Los Angeles, recommends making a call to your auditor prior to their first visit. Starting out on a friendly foot, rather than a combative or defensive one, can only help, Murphy said.

Also, to keep collateral damage to a minimum, you should try to identify any errors in your accounting before the auditor arrives and avoid them in the next payroll.

While this may not prevent the auditor from finding a violation, it will speak well that you have mended the error of your ways. Plus, it can’t hurt to show that you’re taking the audit seriously.

How to Keep Your Records Straight
A digital time tracking system that records workers’ hours to the minute—and saves them in the cloud—ensures records are securely stored long-term and makes them simple to access at any point.

Many time tracking systems also allow you or your supervisors in the field to know “as you go” whether there are any discrepancies in your records and the hours actually worked, and to receive sign-off from employees on their timesheets prior to payday. A trustworthy system automatically saves all records and approvals for simple retrieval.

A recent survey of 300 of time-tracking software customers revealed that 25 percent had been audited, most before they employed the software. But those who were audited in a worker’s comp or other routine audit after employing software noted that it was easy to produce the records the auditor required—and that everything went smoothly.