What Employers Can Expect from State, Federal DOL Audits

The following article first appeared in the Blogs section of Pullman & Comley’s website. It is reposted here with permission.

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Employers should be aware that the federal Department of Labor or its state counterpart can audit their businesses at any time.

While current and former employee complaints often trigger these audits, they can also occur at random.

Department of Labor audits can result in back wage assessments, civil penalties, stop-work orders, individual liability for business owners, and even criminal charges in extreme cases. 

Understanding what documents may be requested and how to prepare for audits can help employers navigate the audit process more effectively and avoid common employer pitfalls and associated penalties. 

What Information Is Requested in Federal Audits?

Section 11(a) of the Fair Labor Standards Act authorizes the Wage and Hour Division of the U.S. Department of Labor to investigate and gather data regarding an employer’s compliance with the wage and hour requirements set forth in the FLSA. 

When conducting an audit, DOL typically follows a standard procedure: an appointment letter notifying the employer of the audit, an opening conference with a company representative, a site visit if needed, a review of records covering a two-year period, employee interviews, and a closing conference to discuss the results of the investigation.

Employers should be prepared to provide a comprehensive set of records during a DOL audit. The following documents are typically requested for inspection:

1. Legal name of the company and all other names used by the company (g., “Doing Business As” names
2. Names, addresses, email addresses, and telephone numbers of all business owners and company officers, including the president, treasurer, secretary, other corporate officers, and members of the board of directors, along with a company organizational chart if available
3. Records demonstrating gross annual dollar volume of sales for the past three years
4. A list of all current and former employees employed during the relevant two-year period, along with their addresses, email addresses, telephone numbers (mobile and landline), hourly rates or salaries, job titles, shifts, and whether the employer considers each employee exempt from overtime pay
5. Payroll and time records for the past two years, including a copy of the most recently completed payroll
6. Timekeeping system daily or weekly time reports for the last two years, including explanations for any manager adjustments to employee time records
7. Birth dates for all employees under the age of 18 who worked during the past 24 months.
8. 1099 Forms and contract documents for any independent contractors, subcontractors, or day laborers
9. Federal Employer Identification Number
10. Vendor invoices from outside the applicable state from the last 30 days
11. Employee handbook

What Records Are Requested in Connecticut DOL Audits?

The Connecticut Department of Labor’s Wage and Workplace Standards Division conducts investigations pursuant to Connecticut General Statutes Section 31-59 to determine employer compliance with record-keeping, minimum wage, overtime, and workers compensation requirements.

The state agency follows a similar investigation process to its federal counterpart. 

When Connecticut investigators conduct an audit, employers are typically required to have the following records for a designated two-year period available for inspection:

1. All employees’ (past and present) names, addresses, and dates of hire
2. Hiring agreements and offer letters
3. Job titles and job descriptions for all employees
4. Weekly time records, timecards, and time sheets
5. All weekly payroll records (paystubs) or payroll ledgers showing net and gross pay for each week
6. Canceled payroll checks (front and back), or verification of direct deposit if applicable
7. A copy of the employer’s Connecticut Workers’ Compensation policy
8. All forms I-9 and W-4 for employees

Tips for Remaining Compliant, Prepared

To be proactive and prepared for a potential audit, employers should consider conducting regular self-audits of their payroll and timekeeping practices, FLSA classifications, and employee-independent-contractor classifications.  

Keeping accurate payroll and time records is essential, and employers should apply recordkeeping policies consistently across the organization.

All records should be complete, and employers should work to resolve any inconsistencies before an audit occurs.

When employers identify areas of concern, they should promptly determine how to address such issues. 

Job descriptions should accurately reflect employee duties. Employers should also ensure that FLSA classifications are correct, as misclassification of nonexempt employees as exempt is a common audit focus.

Employers should apply recordkeeping policies consistently across the organization.

Another common audit focus is the misclassification of employees as independent contractors, so employers should be prepared to defend any independent contractor classifications.

When an audit occurs, employers should designate a company representative to work with the auditor, whether that be legal counsel or a senior manager.

Employers should also designate at least one employee to coordinate and gather records responsive to the audit. During the audit, it is crucial that an employer be courteous with the auditor.

Before, during or after a final conference, employers should ensure that investigators provide a written summary of their investigation results to help review options for resolution if any violations are discovered.

If violations are discovered, employers should consult internal or external legal counsel before reaching any settlements with DOL.

To prepare for state and/or federal Department of Labor audits, employers must understand applicable federal and state laws to ensure they are complying with wage and hour, recordkeeping, and other applicable requirements.

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About the author: Donald Anderson is an associate with Pullman & Comley and focuses his practice on representing employers in diverse workplace matters, including counseling, training, and litigation in state and federal courts and before administrative agencies.