Be Prepared for a Department Of Labor Audit Process

A wage and hour audit can occur at any time, with or without prior notice. For that reason, employers should have a plan. It is crucial that you understand the potential scope of the investigation, the type of information that the investigator will review, and the location and condition of that information. Decisions should be made in advance as to how the investigator will be treated, the level of access to records and personnel that will be provided, and the persons who will be responsible for interacting with the investigator.

Both the federal and state departments of labor are empowered to conduct audits. See 29 U.S.C. §211; NH R.S.A. 273:9. Typically, the audit will cover the prior two to three years and will focus on compliance with laws and rules related to payment of wages, minimum wage, child labor and record-keeping. The state and federal wage and hour laws authorize representatives of each department of labor (US DOL and NH DOL) to investigate and gather data from employers concerning wages, hours, and other employment practices.

If the DOL decides to investigate an employer, investigators are permitted to enter and inspect the company’s premises and records, to interview employees, to make initial determinations as to whether the law has been violated, and to determine if money is owed to employees. Both the state and federal DOLs have the authority to levy penalties above the amounts owed to employees and to adjust disputes with employers; or, if a resolution cannot be reached, commence enforcement proceedings.

In many cases, an audit is precipitated by a complaint filed by an employee. Other audits are the result of targeted enforcement of particular industries. Less often, audits are conducted randomly or as a result of an industry wide probe. No matter what the moving force is behind the DOL’s decision to conduct an audit, it will usually proceed according to one or two paths.

The first type of audit is all in writing. The notification of the audit is in writing and is accompanied by a request for copies of certain employer records and the employer is expected to provide a written response. The second and more common type of audit is when an inspector visits the workplace, either with or without advance notice, and asks to review documents and interview witnesses on site. The department may also combine the two different audit methods.

Twelve Steps to a Successful Response to an Audit

1. Be Prepared. Of course, it goes without saying that staying up to date and in compliance with all of the state and federal wage and hour laws before an audit takes place is key to surviving an audit. Also, it is important to have an organized record-keeping system.

2. Don’t Panic! There is no reason to panic, even if you know that there are problems with your records and payroll practices. Make sure that you know your rights going into the investigation and get advice on how to manage the investigation process.

3. Do Not Call Your Legislator/Congressperson! Elected officials should not interfere with administrative agencies activities and your efforts to invoke their assistance will likely backfire.

4. Make Compliance a Goal. Investigators are more likely to work in a collaborative fashion with employers who make clear that it is their goal to achieve and maintain compliance and to act as a responsible corporate citizen.

5. Assign a Company Representative to be the Liaison for the Investigation. This person should be the key contact between the company and the investigator. This person should be knowledgeable of the audit process, the employer’s record-keeping and payroll procedures, and should have access to employer records. Above all, the liaison should be courteous and diplomatic. The investigator should be instructed to communicate through the liaison. Your liaison should keep track of all records reviewed or provided to the investigator, what questions he/she asked, and the response given. The liaison should escort the investigator around the workplace and keep detailed notes of the process.

6. Be Courteous to the Investigator. You should make the investigator feel comfortable in your workplace. Preferably, set them up in an office near the front office. Be aware of where they are physically placed in your workplace, with whom they will come into contact and what they will see.

7. Request a Pre-Investigation Meeting. Everyone benefits from conducting the audit in an organized manner. Find out what the department would like to inspect and how you can help. A short delay in commencing the investigation is often granted if you are courteous.

8. Do the Investigator’s Work for Him/Her. It is important to limit the investigator’s broad access to company records and employee files. Don’t allow a fishing expedition. For example, if the investigator asks for I-9s — don’t hand them the whole personnel file — just hand them the I-9s. Also, do not volunteer information about the company, and if the representative isn’t sure whether you have an obligation to disclose the information, he/she should check with your legal counsel first.

9. Don’t Offer the Investigator Original Documents! This is an important, but oftentimes overlooked step in the process. The investigator will be fine with copies. A best practice is to keep a log of the documents (hard copy or electronic) that you have produced to the government.

10. Protect Proprietary Information. This is an issue that you should discuss with counsel prior to the start of the audit. You must always safeguard confidential company information.

11. Provide Information Requested. The company must be thoroughly compliant with the department’s request — even when you know it is going to lead to a violation.

12. Fix problems. Most employers receive a written finding of a violation of at least one or two rules. In general, and especially where they are on the minor side, the department’s goal is to see that the company is in compliance. So, it is important for the company to quickly and effectively respond to any violations (unless, there is a good faith reason to dispute the finding).

Margaret O’Brien is an attorney at Devine, Millimet, a Silver-level association partner located at 111 Amherst Street in Manchester. She can be reached at 603-695-8631.