Increased Department of Labor Audits: What to Expect and Ways to Prepare

by Sheila B. Gladstone, Sarah T. Glaser, and Jessica A. Maynard

On February 1, 2022, the United States Department of Labor Wage and Hour Division (“DOL”) announced plans to hire 100 additional investigators to support its compliance and enforcement efforts. DOL oversees the enforcement of several federal laws, including the Fair Labor Standards Act (“FLSA”) and the Family and Medical Leave Act (“FMLA”). We are already seeing a significant increase in on-site DOL audits. With the increase in audits, employers should be proactive in ensuring compliance with federal law because DOL audits can lead to substantial monetary exposure for employers.

What Triggers an Audit

DOL may audit an employer randomly or following an employee complaint. Certain targeted industries are more likely to have random audits, such as food services, construction, agriculture, and healthcare. Additionally, DOL is more likely to randomly audit certain targeted areas, including Texas. Other events that may trigger an audit include union complaints, overlap of W-2 and 1099 forms for the same worker, an unemployment or workers’ compensation claim filed by an independent contractor, or receipt of an IRS SS-8 Form seeking government determination of classification status from an independent contractor. DOL does not typically disclose the reason for an investigation to the employer.

What to Expect During an Audit

A DOL audit generally proceeds as follows:

1. Notice and Investigator Arrival

Although not required, in many cases, the investigator provides advance notice of an audit by calling and sending a letter indicating a date and time for the on-site appointment. The letter usually also lists documents the employer should prepare in advance. If the investigator does not give advance notice, the employer may request a period of 72 hours to comply with any investigative demand, such as document production. The employer can further require that the on-site audit be conducted at reasonable times (generally during normal work hours), in a reasonable manner, and within reasonable limits. This notice also gives the employer time to make sure that all required posters are visible in the workplace.

When an investigator arrives, the employer should verify the credentials of the DOL investigator. Employers have the right to have an attorney present during most of the audit, except during interviews of non-management employees.

2. Opening Conference

The investigator will conduct an opening conference to describe the intended scope and duration of the inspection and to request documents and information (if the request was not included in an appointment letter). During this conference, employers should introduce the investigator to the management team, describe document production and employee interview protocols, arrange a private room for the investigator to work in, and schedule daily update meetings for multiple-day investigations.

3. Document Production

The investigator will request documents (such as payroll records, time records, vendor contracts, and personnel policies) at the beginning of and during the investigation, and the employer must timely produce the documents requested. Employers should keep track of all documents produced, and make and keep duplicates of those records. Employers should avoid creating new documents during an inspection, providing more documents than requested, and leaving documents or information in plain sight. Employers should also take caution and consult with their counsel before volunteering information to the investigator.

4. On-Site Inspection

During the on-site audit, the investigator may walk around the worksite to observe employee duties and look for wage and hour violations. The investigator may also check for safety concerns and confirm the employer has required workplace posters hung correctly. The employer should ensure that a management employee escorts the investigator at all times, and is cordial and professional while ensuring that disruptions to normal business operations are limited.

5. Employee Interviews

The investigator will likely interview employees to gather information related to misclassification or overtime concerns. Hourly employees have a right to a private interview with the investigator, but the employee may request representation at their own discretion. Management employees do not have a right to a private interview because their statements can be attributed to the employer, and legal counsel or high-level management should attend and take notes. Employees who speak with the investigator are protected from retaliation.

6. Additional Investigation

In between the on-site audit and the closing conference, investigators will review documents and interview notes, and may request follow-up documentation and/or employee interviews. The review process can take several months, or longer.

7. Closing Conference

At the closing conference, the investigator will communicate their findings, explain the employer’s post-audit rights, and identify any actions necessary for compliance with federal laws and regulations. This may include a finding that back wages are owed or that the employer must make other changes, such as reclassifying certain employees or updating policies or posters.

During the conference, employers should listen and take detailed notes on the discussion. Employers should avoid agreeing with any observations of violations, conceding admissions, or making promises. Once the investigator concludes, the employer should request clarification (if needed), time to provide supplemental information, and a follow-up conference at a later date.

8. Negotiation/Settlement Conference(s)

After the employer has evaluated its options and provided supplemental information, if appropriate, the employer can engage DOL in informal negotiation and settlement of the alleged violations and penalties. The employer also has the option to appeal the investigator’s findings within DOL, negotiate a formal settlement with DOL’s counsel or proceed to trial in court.

Ways to Prepare for DOL Audits

Employers can take proactive steps to audit their processes to identify red flags or concerns. The following are important steps employers should consider.

• Conduct regular internal audits.
  • Review job descriptions, FLSA classifications (exempt/non-exempt), independent contractor statuses, and time sheet and payroll records.
    • Ensure proper calculations of hours worked, overtime, and off-the-clock work.
    • Ensure accurate timekeeping methods and records, including for remote workers.
    • Review contractor and vendor agreements to ensure proper classification.
  • Review FMLA practices and forms.
  • Ensure workplace posters are complete, up-to-date, and in the right place.
  • Review and resolve inconsistencies in records and address areas of concern.
• Review handbooks regularly for completeness and legal compliance. Every two years is a good general practice. In particular, DOL will audit FMLA and wage and hour policies.
• Train staff on the basics of FMLA, overtime and timekeeping records.
• Train managers on key wage and hour and FMLA concepts, and familiarize them with DOL’s investigation/audit rights.
• Establish a DOL investigation response team and audit protocols.
• Prepare employees for DOL interviews by explaining what to expect, and encouraging truthfulness.

If you have questions about FMLA and wage and hour policies and compliance with federal law, if you wish to conduct an internal audit, or if you are audited by the Department of Labor, contact Lloyd Gosselink’s Employment Law Practice Group.

This article was prepared by Lloyd Gosselink’s Employment Law Practice Group: Sheila Gladstone., Sarah Glaser, and Jessica Maynard. If you would like more information, please contact Sheila at 512.322.5863 or sgladstone@lglawfirm.com, Sarah at 512.322.5881 or sglaser@lglawfirm.com, or Jessica at 512.322.5807 or jmaynard@lglawfirm.com.