Overtime and Minimum Wage Audits

Eric Updegraff | Hopkins & Huebner, P.C. | Des Moines Office 

Any business with a significant number of employees may become the subject of a federal Department of Labor audit concerning payroll practices.  Department of Labor audits come from many sources including former employees, current employees, customers, rivals and even independent investigations by the Department itself.  

The keys to surviving a Department of Labor investigation or audit are: 

(1) to prepare in advance with good documentation; and 
(2) to hire competent counsel to assist and advise you throughout the audit period.

Recordkeeping Requirements

Every employer that employs non-exempt workers (hourly workers) must create and retain records that include identifying information about the employee and data about the hours work and the wages earned.  This information must be accurate to defend against an audit.  The Department of Labor requires that an employer maintain the following information for each hourly employee:

1. Employee's full name and social security number.
2. Address, including zip code.
3. Birth date, if younger than 19.
4. Sex and occupation.
5. Time and day of week when employee's workweek begins.
6. Hours worked each day.
7. Total hours worked each workweek.
8. Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
9. Regular hourly pay rate.
10. Total daily or weekly straight-time earnings.
11. Total overtime earnings for the workweek.
12. All additions to or deductions from the employee's wages.
13. Total wages paid each pay period.
14. Date of payment and the pay period covered by the payment.

The employer should maintain payroll records for a period of three (3) years.  The employer must maintain records on which wage computations are based should be retained for two (2) years, i.e., time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.  

The records should be maintained in a manner that is open for inspection for the Department of Labor’s investigators within a reasonable period of time.

Defending the Audit

The audit process typically begins with contact from a Department of Labor investigator seeking information and records concerning payroll history or job classification documentation.  In this situation the best practice is to seek legal counsel immediately concerning the potential investigation and the best method for cooperating with the investigator.  It is important to understand the potential fines and penalties that the Department may levy against you or your business before attempting to respond to the investigator’s requests yourself.  Qualified counsel can help you understand the documents you need to gather and spearhead the analysis of those documents under the law.

A Department of Labor audit may come at almost any time and include information on the past two years of wage payments to ensure employees are being paid minimum wage and appropriate overtime pay.  The audit may also seek information concerning the job responsibilities of employees that an employer claims are salaried employees (exempt employees).  The Department may claim that an employer failed to pay minimum wage or overtime based on either discrepancies in the records or on the misclassification of an employee as salaried as opposed to hourly.

Even if your documentation or practices violate the Department’s laws and regulations, it is important to keep in mind that the Department’s goal is to ensure compliance.  Trained labor lawyers can help you navigate the levying of fines and penalties through either litigation or negotiated settlement.  Often the Department of Labor will work with cooperative employers to minimize the impact on employers and their business if the employer has demonstrated an earnest willingness and desire to comply with Wage and Hour laws and regulations going forward.

We can help you navigate a Department of Labor investigation or audit in a manner that protects you and keeps your business open.