Any business can be targeted for an audit by the United States Department of Labor (DOL). What's more, these audits are on the rise across all industries, including food service, agriculture and manufacturing, and are often precipitated by a single employee complaint.
Like most things, being proactive and prepared for a DOL audit will help make sure everything goes smoothly when and if one does occur. Read on to learn more about what every business owner should know about DOL audits from the human resources experts at Axcet HR Solutions.
What is a DOL Audit?
The DOL conducts different “types” of audits that look for different violations of the law. The DOL conducts two main types of audits:
- Financial audits to determine whether a business’ financial statements are accurate, and
- Performance audits to evaluate a business’ compliance measures, internal controls, and results.
Some of the most common are employee benefits audits, including 401K plan audits, and Wage and Hour audits. Wage and Hour audits check to see if a business is in compliance with the Federal Labor Standards Act (FLSA). Your business may be targeted for a Wage and Hour audit, if an employee complaint is made, for example, asserting that your business owes its employees time and a half backpay for overtime worked beyond a 40-hour workweek. While a complaint can prompt an audit, a business can also randomly be selected for an audit at any time.
What are DOL Audits Looking For?
The purpose of the audit is to check that your business is in compliance with all Department of Labor regulations. The records reviewed and possible employee interviews conducted will depend on the type of audit being done. This information may or may not be shared with the business being audited. Some of the most common topics of investigation include:
- Employee timekeeping
- Wage and hour compliance, including overtime, rest break, and travel pay
- Child labor law compliance
- FMLA (Family and Medical Leave Act) compliance
- Wage deduction processes
- 401k and employee benefits regulation compliance
- ERISA (Employee Retirement Income Security Act) compliance
- Accurate payroll and recordkeeping systems
What Happens During a DOL Audit?
Knowing what to expect before an audit occurs can help your organization be prepared, and ultimately, make the audit go more smoothly. Here’s a timeline breakdown of what an audited business can expect.
Before the Audit Begins
Your business may or may not be notified by DOL that an audit will occur. Because of this, businesses should always have employee documentation and records organized and ready. Professional Employer Organization (PEO) clients will have access to all records through their provider and can ask an auditor for time to obtain necessary documents from their PEO. The DOL states that its inspectors are allowed access to all “records, reports, audits, reviews, documents, papers, recommendations or other materials related to the audit.” It’s the responsibility of the business being audited to make sure employees are cooperative and documents from at least the last two years are available to inspectors.
During the DOL Audit
If you’ve been notified that your business will be the subject of a DOL audit, you can reach out to the DOL and inquire what the focus of the investigation will be. There is a two-year statute of limitations on overtime and minimum wage claims, so auditors will always go back at least two years, but it could be longer.
Audits can be virtual or in-person. If your DOL audit is in person, you should supply investigators with a clean and private space in which to work.
DOL audits generally will not last more than a few days. Of course, if inspectors uncover a problem that needs more probing – complicated audits may span weeks.
The DOL is permitted to interview your employees during the audit. You may ask for the names of employees to be interviewed so you can ensure that the named employees will be present at work on that day.
After the DOL Audit
Once the audit has concluded, the DOL investigators provide you with a report detailing their findings. The report will cover violations uncovered and suggestions for remediation and compliance. If any back wages, fines or civil penalties are to be assessed, your business will be notified in the report.
If you are not in agreement with the investigation findings, you can schedule a meeting with the DOL’s wage and hour administration to discuss the findings. You may be able to negotiate a reduction in fines and penalties. Some businesses choose to have a lawyer assist them with this process, but it is not required.
If you cannot come to an agreement, you are entitled to appeal the findings and any fines or penalties assessed against your business.
How Can I Prepare for a DOL Audit?
Being proactive is key to preparing for a DOL audit. The best steps to take are to establish a solid record-keeping process for each employee. Records should include hours worked, benefits enrollment and detailed descriptions of any 401k distributions or loans.
Internal auditing is another great way to prepare for a DOL audit and should be done periodically as a way of ensuring compliance boxes are checked. It’s tough for even the most experienced business owners to know the ins and outs of compliance regulations, such as when employees should be compensated for breaks and travel.
Need a Human Resource and Compliance Partner? Meet Axcet HR Solutions
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