Department of Labor Audit Checklist: Wage & Hour Audit

Employers must comply with numerous Department of Labor (DOL) laws concerning employee wages and hours, workplace safety, family and medical leave, and special rights granted to military veterans in the workforce, among others. A DOL audit can focus on any area of employment law. The DOL has the right to audit employers at any time, so employers are wise to be prepared for scrutiny.

In light of pending changes to Wage & Hour rules proposed in the Fair Labor Standards Act, we have put together a checklist to help you steer clear of trouble during a DOL Wage & Hour audit.

To be sure your company maintains compliance, examine the following areas:

  1. Are you maintaining time sheets and payroll records that are legible, accurate, complete, and easy to access, and keeping them for a minimum of three years? Not only is this a requirement under the law, but it will make responding to an audit that much easier.
  2. Is there a timekeeping system in place that accurately tracks hours worked for non-exempt employees? An electronic timekeeping system is not required but tracking hourly employees’ time to the minute can be helpful and is recommended.
  3. Are work hours being calculated properly? Breaks (20 minutes or less spent away from the work area) for non-exempt employees are considered paid hours and must be included in the calculation that determines overtime pay. Training time, time spent changing into and out of work gear, and certain parts of the time employees must travel for work, are also included in hours worked.
  4. Is a non-exempt worker’s “regular rate of pay” being calculated correctly? An employee’s regular pay rate is determined by dividing the total pay for a week by number of hours worked. Included all the following in the calculation:
    • Salary or hourly pay rate
    • Commissions
    • Bonuses
    • On-call pay
    • Tips
    • Nondiscretionary bonuses
    • Shift differentials
    • Reasonable cost of employee room and board
    • Cash payments under a cafeteria plan
    • Piece rate
  5. Are you in compliance with overtime pay requirements? Employers must calculate and pay overtime pay (at 1.5 times regular pay rate) as it is incurred. They may not offer paid time off in lieu of overtime wages or a lump sum payment for varying amounts of overtime hours worked.
  6. Is there a procedure in place that prevents untracked or “off-the-clock” work? It is a violation of the law to require, ask, or allow employees to work without pay, even if it is done without the employer’s knowledge or permission. Employers should have a written policy that requires workers to log all time worked and to prohibit work that is not logged. It is recommended that employers require employees to take meal breaks away from work areas, off the clock, and that employers prohibit working during meal breaks.
  7. Do salaried employees meet the criteria to be exempt from overtime pay? Salaried employees whose salary and actual duties do not meet the exemption test must be paid for overtime hours worked.
  8. Does the exempt employee spend the majority of time doing exempt-level work (per the duties test)? If so, they will probably qualify as exempt.  Be sure to review the exemption test carefully and consult an employment law attorney if in doubt.
  9. Are there accurate job descriptions on file? These can be useful in determining if an employee is exempt or non-exempt. Keep job descriptions updated.
  10. Are exempt employees receiving the full salary every pay period? The exceptions to this requirement are as follows:
    • Absences of one full day or more unrelated to illness or disability
    • Deductions to offset military, jury or witness pay
    • Penalty for infractions of major safety rules
    • Disciplinary suspensions for workplace misconduct
    • During first or last week of employment if employee does not work full week,
    • Unpaid leave under Family and Medical Leave Act
  11. Are workers being properly classified as employees or independent contractors? DOL wage and pay rules do not apply to actual independent contractors. But the classification of workers will be subject to scrutiny during an audit and a worker is considered to be an employee unless the very narrow criteria for independent contractor status are met.
    • The Wage and Hours Division (WHD) of the Department of Labor use the “economic reality” test to determine contractor or employee status. For the purposes of the test, the worker is an employee when he or she depends on the business entity to which he or she renders services, as a matter of economic reality. This can be a complicated determination. Consult an employment law attorney when in doubt.
    • Keep records of the review process to determine contractor vs. employee status. Review the classifications regularly as relationships change.

This document is intended as a sample of the types of questions that can be helpful in preparing for a Department of Labor wage and hour audit. For assistance with a DOL audit or for help with employment law questions, contact Simon Paschal PLLC.

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