March 26, 2015

How to Tell if You’re at Risk for an FLSA Audit

How to Tell if You’re at Risk for an FLSA Audit

By Kit Dickinson on March 26, 2015

IDI_auditor

Law offices have recently discovered that collective FLSA lawsuits can be very profitable, and the Department of Labor (DOL) is increasing enforcement as well. With an estimated 70% of employers in FLSA noncompliance, it’s no wonder legal action has been steadily increasing since 2000.

Every employer, no matter what size and industry, needs to be sure their organization is in compliance with FLSA regulations. Litigation can happen to any business.

Legal action often starts with an audit of the company by the Department of Labor, and the DOL can show up at your office without prior notice. Organizations with the highest risk levels need to conduct regular internal assessments to make sure they’re ready at any time for an audit.

How can you tell if your organization has a higher level of risk for an FLSA audit by the DOL?

Factors that Increase Your Company’s Risk of a DOL Audit

Company size

Large corporations are also under scrutiny, especially by plaintiffs’ lawyers who may be eager to file a collective FLSA action against companies with substantial assets and brand images to protect.

Industry

Companies in the energy, construction and hospitality industries are already in the DOL’s sights. The DOL’s Wage and Hour Division (WHD) is targeting these industries in 2015 for investigating potential wage violations.

The WHD also tends to target low-wage industries and industries where illegal aliens are often employed.

Location

If you’re located in the Southwest region of the United States, be prepared for a bit more heat this year. The WHD is actively addressing worker retaliation in that area of the country in 2015. Worker retaliation relates to cases in which employers are accused of punishing employees who have filed complaints under the FLSA. The WHD is addressing the Southwest region because of a 571% increase in recent retaliation investigations in the area.

Disgruntled employees

Disgruntled workers can easily file a complaint about unfair wages to the DOL, which results in an audit by the WHD. In 2012, companies paid a total of $467 million in settlements, back wages and penalties, with an average of $4.8 million per company to resolve a dispute.

But disgruntled workers aren’t the only source of complaints that the DOL receives. Complaints can come from former employees, unions and even competitors. If you know of employees or third parties with a motive to file a complaint, be prepared.

Out-of-date policies

Your personnel policy manuals should be reviewed and updated by an attorney every two to three years. FLSA laws continue to undergo revisions, and your policies should be updated to accommodate new regulations. Outdated policies put you at greater risk of having complaints filed with the DOL.

The Best Defense Against DOL Audits

Since the FLSA regulations are continually being refined, you can only be sure that you’re in compliance by conducting regular internal assessments. Ideally, we recommend conducting scheduled wage and hour audits once a year. Or, at the very least, perform annual  “check-ups” on your wage and hour practices.

Conducting your own internal audits helps ensure that you can defend your practices and policies at a moment’s notice, on the chance that you do have an unannounced visit from a DOL auditor. It also demonstrates to your employees that you’re ensuring they receive the wages they deserve — and that does a lot to reduce potential complaints to the DOL.

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