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The Auditors Are Coming…The Auditors Are Coming

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in Office Management

It's no secret that the Obama administration is taking a tougher approach to violations of the Fair Labor Standards Act (FLSA) than its predecessor. Jani Eager, Workforce Management Consultant for Workforce Insight, Inc., and Ruben Rosalez, Department of Labor (DOL), Deputy Regional Administrator, Western Region, gave a crash course to attendees at the American Payroll Association's Annual Congress that highlighted common FLSA trouble areas and how you can survive an audit.


What hits the spot. According to Eager, there are three main audit triggers — employees who complain to the DOL, technological advancements that make employees more aware of their rights (e.g., the Internet and blogs), and the targeting of certain industries by the DOL. But auditors can just show up at your business. Eager highlighted some common FLSA violations.

  • Exempt misclassification, especially the administrative exemption. Hint: If employees must get permission to do something, they haven't exercised independent judgment. Recommendations: Centralize the classification process with someone who knows the law; keep orderly records.

  • Work suffered or permitted, which loosely translates into working off the clock. Hint: An employee checks her e-mail at home before coming into the office. Recommendations: Train managers and employees to work only the requested hours; pay to punches; discipline and document.

  • Time shaving, which can also encompass working off the clock. Hint: Look for employees who work through lunch or arrive early without punching in. Recommendations: Pay to punches; enforce meal break policies; follow up with disciplinary action.

  • Failing to include all pay in employees' regular rates. Hint: Performance bonuses, on-call pay, and referral bonuses are often omitted from the regular rate calculation. Recommendations: Review your overtime policies and computations; communicate overtime policies to employees (informed employees complain less).

  • Failing to include all overtime hours at all locations. Hint: Employees work in different departments during the week. Recommendations: Implement a documentation process; ensure that all hours worked count toward overtime.

  • Wage deductions cut into overtime or the minimum wage. Hint: Employees can't pay for required tools and ask for loans, which they pay back through withholding. Recommendations: Identify current deduction practices and ensure that they meet federal and state standards; document those efforts.

  • Inadequate record-keeping. Hint: Look for time sheets that don't accurately reflect hours worked. Recommendations: Provide training to managers and Payroll staff; self-audit for accuracy.

What to expect when you're expecting. The DOL usually gives audit targets 72 hours to get their paperwork in order, Rosalez said. But the DOL is willing to be flexible, if you're cooperative, he noted. The DOL has subpoena power, Rosalez reminded the audience. Auditors will first sample your data to determine whether the two-year statute of limitation applies or the three-year statute of limitations applies (in other words, auditors believe you've acted willfully). After that, they will tabulate your records. They can also interview employees to get their perspective on how they're being paid and your pay policies, Rosalez stressed. Auditors will discuss their findings with the company, and will develop a plan of action to correct mistakes.


Eager gave these five essential audit survival tips.

  1. Select a representative to deal with the auditors.

  2. Provide the auditors with the information and documents they've requested, but review those documents beforehand. Provide the auditors with privacy.

  3. Prepare your managers and supervisors, and ease accessibility of on-duty employees to the auditors.

  4. Comply with the auditors' findings.

  5. Document everything.

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