Are you ready for a Department of Labor audit?




Surprise! U.S. Department of Labor (DOL) onsite audits have been on the rise over the last few years, and even the most cautious of employers can find itself a target. A recent real-life example may be helpful for employers who don’t want to be vulnerable in an audit.

Vigilant, an organization that advises employers in the Pacific NW and California on employment issues, recently assisted a member company that was subjected to a surprise audit. With only two days’ notice, a team of five DOL Wage and Hour Division investigators came onsite to review company records and interview about 20 percent of the workforce, including the executive team and individuals from each department. The investigators looked into numerous typical trouble spots including:

  • Wage and hour recordkeeping;
  • Ensuring employees were not working “off the clock;”
  • Overtime compliance;
  • Child labor compliance;
  • Proper classification of exempt employees;
  • All employees taking required meal and break periods;
  • Independent contractor status verification; and
  • Family and Medical Leave Act (FMLA) compliance.

The DOL permits an employer’s attorney to be present during interviews with management (to the extent the managers are explaining company policy), but not with employees. Vigilant attorney Lorraine Hoffman assisted the company in preparing for the audit in what little advance notice was available, and was onsite with key management personnel as the interviews took place.

During the meetings with management, the investigators asked for data on all individuals employed during the past two years, including names, (addresses, rates of pay, job titles, shift, exempt status, and phone numbers). They reviewed in detail the recordkeeping for the last payroll, and asked the management team to identify the company’s seven-consecutive-day workweek for purposes of calculating overtime due each week. This gave them the information they needed in order to check the company’s wage and hour recordkeeping against employees’ personal recollections. It also allowed them to verify that the company was properly paying overtime for hours worked over 40 in a workweek. Since this was a federal audit, they didn’t explore whether employees were also entitled to daily overtime under state law or company policy.

To verify compliance with child labor laws on hazardous work and hours of employment, the investigators began by asking the age of the company’s youngest employee. Fortunately, the answer was well above age 18! If the company had employed minors ages 17 or younger, the investigators would have looked into the children’s job duties and work hours.

The investigators wanted to be sure that the company wasn’t improperly classifying individuals as exempt from overtime. One of the questions they asked zeroed in on outside salespeople, specifically how much of their time was spent in the office. The reason is that a salesperson doesn’t qualify for the “outside sales” exemption from overtime unless they spend most of their time out on the road, meeting with clients or prospective clients. Failing to pay overtime to salespeople who spend the majority of their time in the office is a common mistake, unless an employer can show they fit in another overtime exemption such as the “administrative” exemption (which requires a salary of at least $455 per week, the performance of office or nonmanual work directly related to management or general business operations, and a primary duty that involves the exercise of discretion and independent judgment on matters of significance).

Federal law generally does not regulate the taking of meal and break periods, with a couple of exceptions. Under federal regulations, a meal period must be at least 20 minutes long in order to be unpaid. The investigators wanted to know whether employees were getting at least 20 minutes for their meal periods. If not, then the entire time had to be paid. Employers should keep in mind that state laws in California, Oregon, and Washington are much more stringent on the frequency and length of time for meal and rest periods. Also, under federal law, new mothers who are nonexempt from overtime have the right to take reasonable breaks to express breast milk during the first year after the birth of a child. State law may grant additional protections.

The investigators asked about all of the company’s independent contractors, how they came to use their services, how long they had been using them, and asked for copies of their contracts. The investigators wanted to know who prepared the agreements, and what negotiations took place. The aim was to determine whether any of the contractors were actually employees. Correcting misclassifications of employees as independent contractors is a high priority for the DOL, the IRS, and state agencies, since improper classification can result in employees not receiving proper wages, and the government not receiving proper employment taxes. 

According to reported remarks made by the new FMLA compliance chief at a conference, the DOL’s Wage and Hour Division is targeting FMLA compliance in their onsite audits. The investigators asked the managers to describe the FMLA and specify what qualifies for FMLA leave.

The investigators also took photos of all of their employment posters, which must be prominently displayed in an area where employees and applicants can see them. The DOL requires a number of posters, including ones explaining the Employee Polygraph Protection Act, the Fair Labor Standards Act, the Family and Medical Leave Act (for employers with at least 50 employees), job safety (except in states that have their own job safety posters such as California, Oregon, and Washington), and the Uniformed Services Employment and Reemployment Rights Act. Additional posters may also be required by the DOL depending on the nature of the employer’s business and whether it is a federal contractor.

Now is a good time for employers to review their employment practices prior to a call from the DOL, and consider how they would have fared if they had been subjected to the type of audit described here. Vigilant has many Legal Guides to help member employers in complying with employment laws, including two samples that you can download today: “When is an Employee Exempt Under Federal Law?” and “At a Glance: FMLA.” Overwhelmed? Contact Vigilant for assistance.


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