Column: A scramble-free way to prepare for a Labor Department audit

Nothing can shake a government contractor quite like getting an audit notice from the Labor Department (DOL).

Having one or more labor-related “blemishes” on your company record could cost you existing and future government contracts.

The DOL can audit your company at a moment’s notice. Audits typically are triggered by an employee complaint. For example, an employee may make a complaint of not being paid fairly or missing a paycheck. The more employee complaints, the more conspicuous--and audit-prone--you become in the eyes of the DOL, even if the complaints are unfounded.

Being unprepared forces you to scramble and can lead to mistakes. So set up your policies, systems and recordkeeping correctly from the beginning (i.e., now), and you’ll be ready should the DOL come calling.

Get started by using the following tips to understand the audit process and proactively implement procedures.

What do DOL Auditors Usually Want to See?

The records the DOL will ask to review depend on the nature of the complaint that triggered the audit. For example, if the complaint is tied to minimum wage, the DOL auditor may ask for salary information for one person, everyone in that position or even every employee in the company.

If you receive an audit notice, contact the auditor in advance to inquire about the focus of the investigation, the date range for the records you’ll have to pull and to whom they will want to talk within your company. While auditors are not required to give you any details beyond the information provided in the notice, some will, so it makes sense to reach out in advance.

Mind Your Recordkeeping

The best way to stay prepared is to keep accurate, organized and up-to-date employee records. The Fair Labor Standards Act (FLSA), which directly affects government contractors, requires employers to keep certain basic records on file, including:

• Employee’s full name and social security number;
• Address, including ZIP code
• Birth date, if younger than 19
• Gender and job role
• Time and day of week when employee’s workweek begins
• Hours worked each day
• Total hours worked each workweek
• Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, etc.)
• Regular hourly pay rate (if applicable)
• Total daily or weekly straight-time earnings
• Total overtime earnings for each work week
• All additions to or deductions from the employee’s wages
• Total wages paid each pay period
• Date of payment and the pay period covered by the payment

Pay special attention to employees’ I-9 information

When you first process employee information on their first day of work at your company, examine the document(s) employees give you to ensure they reasonably appear to be genuine and correspond to the person presenting them. You are responsible for noticing blatantly questionable details, such as and employee who appears significantly younger or older than the date of birth on his or her driver’s license or other identity card.

Records retention

Payroll Records must be kept for at least three years. And records upon which wage calculations are based should be kept for two years (i.e., time cards and piecework tickets, wage-rate tables, work and time schedules, and records of additions to or deductions from wages). Those are the DOL rules, but also check your local laws. Changes occur frequently, which may impact time frames for records retention in some locations.

Put Proactive Procedures in Place

A few proactive processes will keep you organized and save you from scrambling if the DOL audits you.

• Periodically review your job descriptions, including how much you’re paying people in each role and why. There’s no law that says you must have job descriptions, but there are laws requiring equal pay for equal work. Job descriptions provide proof of that.
• Review your employee hand-books every two years. Policies and handbooks aren’t required by law, but again, when faced with an audit it can help prove that your company intends to treat everyone the same. Ensure you are applying your policies consistently.
• Have a file archival system, whether it’s paper-based or electronic. It is OK to store your files electronically as long as you keep them for the proper duration and can print them easily in the event of an audit. We recommend that you store them in more than one location and/or in the “cloud” so they can always be accessed.
• Keep a calendar of how long each kind of document should be maintained.

Being proactive will help to ensure smooth sailing if the DOL shows up.

Sally Munn is a Business Performance Advisor for Insperity. Insperity is a national company that partners with 500+ small business GovCons, helping them protect margins by creating operational efficiencies and predictable fringe projections, implementing talent training and retention strategies, and providing a turn-key mechanism for labor law compliance across federal, state, and local jurisdictions. Contact her at sally.munn@insperity.com.

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Column: A scramble-free way to prepare for a Labor Department audit

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