Wage and hour compliance can be tricky for employers. Under the Fair Labor Standards Act (FLSA), covered nonexempt employees generally must receive overtime pay at one-and-a-half times their regular rate for hours worked over 40 in a workweek. But certain executive, administrative and professional employees may be exempt if they satisfy applicable salary and duties tests.
Because mistakes can lead to substantial liabilities, it’s in your organization’s best interest to catch problems before an employee or regulator does. One way to do so is to periodically conduct voluntary wage and hour audits.
Methodical review
Under this process, an employer methodically reviews its compensation and labor practices. Employee classification is a good place to start. You want to ensure workers are correctly classified as either employees or independent contractors. For employees, proper classification also requires distinguishing between exempt and nonexempt staff under applicable wage and hour laws.
For example, as mentioned, most employees covered by the FLSA must receive overtime pay after accumulating 40 hours in a workweek unless they qualify for an exemption. The current federal salary threshold for the principal “white-collar” exemption is generally $684 per week, in addition to applicable duties requirements.
In addition, an audit should scrutinize payroll records to verify that you’re:
- Meeting applicable minimum wage requirements,
- Calculating overtime accurately and compensating employees accordingly, and
- Keeping sufficiently detailed and securely maintained records.
It should double-check that your wage deductions comply with applicable laws as well.
An audit also needs to examine your organization’s timekeeping methods to ensure you’re accurately tracking regular work hours and overtime — and that “off-the-clock work” isn’t happening. Confirm that any rest and meal breaks are provided and compensated in accordance with applicable rules, too.
If you uncover certain federal violations, you may want to discuss with your professional advisors whether the U.S. Department of Labor’s (DOL’s) Payroll Audit Independent Determination (PAID) program offers an appropriate path for resolving them. But don’t focus only on federal compliance; some states and municipalities impose even stricter rules.
All it takes
Dedicating time and resources to wage and hour audits may seem burdensome. But inaction carries a high risk: All it takes to trigger an investigation is one employee filing a complaint with a regulatory authority.
At the federal level, the DOL’s Wage and Hour Division (WHD) enforces the FLSA — often in response to worker grievances. The WHD also conducts targeted investigations in industries, geographic areas or workplaces where it identifies potential compliance problems. State labor agencies may investigate complaints involving alleged wage and hour violations under their applicable laws, too.
Even if a regulator finds your wage and hour policies and practices compliant, the process can be lengthy, expensive and disruptive. In the event you’re found liable for violations, your organization may face back wages, liquidated damages and, in some cases, civil money penalties — not to mention potential employee lawsuits and associated legal costs.
Managing risk
Voluntary wage and hour audits are ultimately about managing risk. Conducting them periodically can help identify weak spots and strengthen compliance procedures as laws and workforce arrangements change. Contact us for help gathering and analyzing relevant payroll information, assessing the financial implications of any issues uncovered, and coordinating with legal counsel as appropriate.
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We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you
