Responding to a Wage and Hour Audit
It’s important for employers and their HR managers to understand how to handle and deal with and create a written response to a wage and hour audit. These audits are conducted by the Department of Labor’s Wage and Hour Division, and most fear them. Jean Scheid walks us through the audit process.
Reasons for a Wage & Hour Audit
The US Department of Labor’s (DOL) Wage and Hour Division does state that payroll audits can be performed via random selection, but that’s usually not the case (but it is possible). Most of these audits are a result of a disgruntled current or former employee. If you are sent a letter from the DOL’s Wage and Hour Division regarding an audit at your premises, you’ll need to prepare for the audit and learn what is entailed in a written response to a wage and hour audit.
If your company is selected for this type of audit and discrepancies are found, you have the right to respond to discrepancies, but you must be able to back up those suspicious issues.
Keep in mind that these types of DOL audits can spawn from discrimination or disability complaints, back pay an employee feels they are due, and even employee lawsuits. Instead of turning to fear, you must be prepared.
If you are chosen for a wage and hour audit, you will be given relatively short notice on when the inspector (auditor) will be onsite; usually within two to three weeks. Most employers fear wage and hour audits, but it doesn’t have to be that way.
The pre-audit letter you receive will offer a list of items the auditor will want to inspect. The list will include items such as:
A list of employees and job descriptions with duties.
- Access to personnel files (they’ll be looking for I-9s to see if your employees are legal to work in the US).
- Payroll ledgers showing payroll in detail including overtime, vacation, and regular hours paid along with detail on salaried employees and bonuses. These detailed payroll ledgers must also show employee deductions for local, state, federal, and social security and Medicare taxes and any garnishments against an employee where you are responsible to deduct dedicated amounts from each pay check.
Work Time Keeping – Many employers fail this part of a wage and hour audit. They assume that for exempt or salaried employees they don’t have to keep a record of hours worked and only have hourly people punch a time card. Employers must keep a work hour record for every employee exempt or otherwise.
- State wage reports to your local Department of Labor showing you have reported wages accurately and that they jibe with your payroll ledgers.
- Possible interviews with certain employees; the letter will not name the employees they want to interview and will most likely be randomly selected.
Once you receive the audit letter, your best bet is to gather everything and have it ready before the auditor arrives at your business. I’ve always said, no matter what type of audit your business is involved in, if you are prepared, that’s less time the auditor will be at your establishment and the shorter, the better.
If You Have Discrepancies
If during your wage and hour audit, the auditor finds some discrepancies on anything—this can include back pay due, inadequate I-9 forms, or if he is unable to decipher your payroll system or ledger, once the audit is over, you will receive a letter from the DOL’s Wage and Hour Division stating your violations with a time period given to resolve issues or pay determined penalties.
This is where you need to be able to prepare a written response to a wage and hour audit, especially if you don’t agree with their findings or assigned penalties.
Once you receive the letter explaining the results of your audit, if you passed the audit, there is usually no further need for contact. If there are some issues they feel you must resolve or penalties assigned, you will have to prepare a written response to your wage and hour audit.
Please click on Page 2 for tips on a written response to a wage and hour audit and tricks for a successful audit.
If you've recently been audited by the Department of Labor, use these tips here and learn how to prepare a written response to wage and hour audit, especially if the auditor finds discrepancies. Learn the written format on how to respond to the Department of Labor's Wage and Hour Division along with tricks and tips for a successful wage and hour audit.
Follow Their Format
A response to the DOL’s Wage and Hour Division, especially if you disagree, is also in essence a form of appeal. Take the audit result letter they sent to you and prepare a letter that addresses every line item in their audit letter. Even if they have a line item where no problem areas were found, acknowledge that in your letter with a simple “not applicable." When preparing the letter, make sure to include documentation for any items you disagree with.
Make your written response to a wage and hour audit businesslike and don’t convey anger. Ask for a review of the items you disagree with and send the letter as soon as possible because the DOL will not wait very long to either collect penalties or address problems such as invalid I-9 forms; and they will be back to check.
If you have witnesses to back up your issue areas, have those witnesses create a statement and include these in your response to the DOL.
It is your right to appeal findings; however, some violations such as improper employee posting requirements or failure to keep time records may be a violation that costs you money. If you truly feel your violations are something you did wrong, pay the fines as soon as possible to avoid interest on those penalties or fines.
If you find you are unable to gather the information needed but still feel you are not in error, you may have to seek the help of a labor law attorney. Weigh the amount of the fine due against what the attorney would charge to defend you; often it’s best just to pay the fine.
Tips & Tricks for Successful Audits
My businesses have been audited by many agencies, including the Department of Labor’s Wage and Hour division (brought on by a disgruntled employee). Over the years, I have found some audit tricks beyond the written response to a wage and hour audit.
Accommodations – You don’t need to offer the auditor anything to eat or drink or take them out to lunch. Show them where the restrooms are and assign them a small area (the smaller the better) with electrical outlets for laptops or calculators. Tell them where the nearest fast food establishment is located.
Too Much Information – Don’t offer up things they don’t ask for in the pre-audit letter. If they ask for something outside of the scope of the pre-audit letter, tell them you weren’t aware they would be requesting that item and you are busy so you may have to send it to them.
Don’t Interfere with Employees – If the auditor chooses certain employees to interview regarding wage practices at your business, don’t tell them what to say. Trust your employees. If you aren’t in violation, you’ll be fine. Don’t worry if one employee (probably the one who brought on the audit) says things detrimental about you or your company. If auditors find “one complainer" they are trained to realize the employee is just trying to make your life miserable.
Close on Time – Don’t offer to stay open if the auditor isn’t finished with the audit by the end of your business day. If they need to come back the next day or another time to complete the audit, that’s up to them.
Never Offer Originals – I guarantee you if you offer original documents, even time cards, the auditor will return them with scribbled notes that may make them hard to reproduce if you need them in the future for a workman’s compensation or insurance audit. Make copies.
Even with your appeal via a written response to a wage and hour audit, you may not win your case. The important part of issuing the letter as soon as possible is it that it will stop additional interest upon interest while the DOL investigates your appeal claims.
Remember, wage and hour audits can be brought on for many different reasons and most of the time, you're probably not at fault. Make sure your business complies with all DOL requirements including wage and hour laws by visiting the office of your local Department of Labor. They can provide you with answers to your compliance questions and have the employee posters you need at no cost.
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