SUSAN E. PRINCE, J.D.
Legal Editor, Business & Legal Reports
The U.S. Department of Labor (DOL) has estimated that more than one-half of
employers have incorrectly classified employees under the Fair Labor Standards
Act (FLSA). That might mean you. The number of audits conducted by the DOL on
employers' wage and hour practices is increasing by the day. In fact, in 2003
DOL wage and hour settlements added up to $212 million. Cause for concern? Maybe. If you have just one employee who feels he or she was
incorrectly classified as exempt and should have received overtime for any hours
worked in excess of 40, the DOL may be looking to audit you.
When do audits occur? Audits are usually triggered either when a current
or former employee files a complaint with the DOL or when the DOL targets a
specific industry for investigation.
With the proposed FLSA regulations in the news on a regular basis, employees
are increasingly knowledgeable about their rights under the FLSA. Employees
know they will be heard if they knock on the DOL's door. So, proactive employers
are addressing any incorrect classifications that might exist now, rather than
waiting for that knock on the door or even for the new proposed FLSA regulations
to be finalized.
What are the steps of a DOL audit? If the DOL decides it is going to
audit your company, a DOL representative will visit your facility to conduct
interviews, make sure the required posters are hung, and possibly examine the
time clocks. The DOL will then review up to three years worth of your wage and
hours records and investigate your wage and hour practices. This will include
a review of your pay records, so you must make sure the records are accurate
The DOL will also interview employees to reveal any complaints your employees
may have about the company's wage and hour practices. After the review is complete,
the DOL will let you know that there are either no violations, some borderline
cases, or will set up a meeting to discuss any violations they did find during
the audit process. You then have the choice of settling or litigating.
Avoiding (or making the best of) a DOL audit. There are several steps
an employer or human resources professional can take to help insure that its
company will emerge successfully from a DOL audit:
- Take the time to understand the FLSA, including the proposed regulations.
- Conduct an internal audit. You will preempt the DOL and discover your misclassifications
before it is too late. As part of your audit you should:
- Review job descriptions to determine whether they are still accurate,
reflect the jobs being performed, and reflect the skills necessary to
perform the job.
- Review employees' actual job duties to ensure that they still fall
within the administrative, executive, professional, computer, or outside
- Make sure you have properly calculated overtime for nonexempt employees.
For instance, bonuses and shift premiums should be included in the calculation
of the regular rate of pay.
- Make sure you have the required posters hung in the appropriate places
in the workplace.
- Train your managers so they are fluent in the language of the FLSA.
- Determine whether the state's wage and hour laws conflict with federal
law, then follow the law that is most beneficial to the employee.
- Pay past overtime due to employees you have misclassified. Paying them
now will be far less expensive than paying them in a DOL settlement.
- In the case of an audit by the DOL, assign a representative of your company,
or perhaps legal counsel, to be the main point of communication between the
company and the auditors. This person should have a complete understanding
of the FLSA.
DOL audits vs. private settlements. One advantage of a DOL audit over
a private lawsuit is that if you reach an approved settlement with the DOL,
your settlement is final. On the other hand, if you are sued privately by a
disgruntled employee or class of employees and settle without DOL approval,
the DOL has a right to reexamine your company's wage and hour practices and
you may be under the gun a second time.
Last but not least avoid backlash. The FLSA prohibits retaliation
against employees, including discharge and discrimination, for filing a complaint
with the DOL. In light of this, it is important that employers do not stand
in the way of employees filing complaints or cooperating with the DOL investigators.
For background on the proposed FLSA changes, see another White Paper: Proposed
Changes to Overtime Rules Leave Questions