Lawyers Speak: How to Prepare for a DOL Audit
Keeping accurate records of your employees’ time worked is important. Not only does federal law require you to do so, but in the case that your business is audited, time records will be just one of many records you will need to gather and turn over. We spoke with several lawyers experienced in handling audits – here’s what they think you should know.
“Preparation for a Department of Labor (DOL) wage and hour audit starts well before the DOL comes knocking,” says Edwin Cruz, an attorney at the Fowler White Burnett and the Labor & Employment Practice Group. “Employers should have a system in place to accurately track their employee’s time. A time clock is not necessary, but if weekly written timesheets are used, make sure the employees are accurately reporting their times.”
Cruz notes that sheets full of precise 9:00 AM reported start times and 5:00 PM quitting times are suspicious, and the employer runs the risk of such sheets being deemed inaccurate.
“Employers should also make sure that each weekly time sheet is signed by the employee, who should attest to the accuracy of the time sheets, and should keep the time sheets for three years,” says Cruz. This way, if an employee or former employee files a complaint with the DOL alleging unpaid wages or overtime, the employer would be able to refute those allegations with accurate time sheets, which have been checked for accuracy and executed by the complaining employee.”
Charles Krugel, a management-side labor and employment lawyer & HR counselor, says that verifying the letter’s authenticity is important before when assessing the situation. “Many complaints are unofficial threatening letters or allegations sent by the actual employee or his/her representative. Often, these unofficial complaints are ‘shakedowns’ because it’s evident that the complainant, or representative, is just looking for some easy money.”
Scope of the Audit Notice
Generally, an audit notice comes in a writing to the employer, and typically, notice of audit may be limited to one person, claim or violation, says Angela Reddock, Employment Law Attorney and Mediator at the Reddock Law Group of Los Angeles.
“Generally, the time to prepare for or to respond to a notice of audit is thirty (30) days or less. In most cases, the timing of the audit can be negotiated; it depends on the urgency and priority of the audit from the perspective of the auditing agency.” An audit may request the following documents and records:
- Copies of any contracts, employment agreements and documents showing the nature of the contracting or employment relationship
- Wage, pay and benefit records
- Time and Attendance records
- Records of any tax payments and withholdings
According to Michael S. Gottlieb of Momentum Law Group, asking the auditor directly for the focus of the audit is important. “If the auditor’s main concern is with a particular class of employee, such as office staff, there is no reason for the employer to provide information on all classes of employees. The employer should never offer documentation or information beyond that which is requested by the DOL,” says Gottlieb.
Instead, Reddock says, the employer should “Review the audit notice to determine if the audit is overboard and overreaching. If so, work with the auditing agency to negotiate a narrowing of the audit scope. Once the scope of the audit is clear, work with the employer to identify, pull and organize all records responsive to the audit.”
Gathering your records
If you use FingerCheck for your timekeeping, your time data will be stored on our secure servers for seven years, making it easy to comply with the auditor’s record requests. Richard Meneghello, a partner at Fisher & Phillips Attorney at Law, suggests designating a representative to assist in preparing for and leading the audit.
“Have a point person accompany the investigator should they request a tour of your facility, as the investigator may want to look at your required postings, the location of your time clocks, and other relevant aspects of your premises,” says Meneghello.
Gottlieb suggests the point of contact being a manager, and he or she should be aware of what documents are available and keep careful records of what is provided to the auditor.
“The auditor should be accompanied by your point of contact while on your premises. Be sure that the point of contact keeps careful notes about the auditor’s activities and the perceived focus of the investigation. All document provided should be copies that are marked confidential and be numbered for document tracking purposes.”
Additionally, he says, preparing is key. “Any document provided should not be prepared while the auditor is present, but rather collected and compiled at a different time to avoid the risk of commingling required documentation with information beyond that which was requested.
Framing the audit
How you respond when being audited is very important, and has the power to impact the way your company is seen, and how cooperative you are. Wright suggests providing the auditor assistance in understanding the nature and scope of the documents and other information produced for the audit.
“This can be done either through a letter to the auditor explaining the nature and scope of documents produced, your meeting with the auditor (possibly including your client or the client designee) to explain the nature and scope of documents produced, or your joining the auditor as he/she reviews the documents and records produced to ensure the auditor’s understanding of the records, and to answer any questions the auditor may have in the moment.”
Also, you will not be the only one participating in this audit – so will your employees. “Hourly employees are the only employees entitled to private interviews,” says Gottlieb. “Employees being interviewed should be informed that they will not be retaliated against for participating in an interview with an auditor.”
Once the audit is complete
After the audit has been completed, following up is crucial. If you’re proactive, Reddock suggests sending a letter to the auditor to re-cap what occurred during the audit and to re-confirm the nature and scope of documents and information provided.
In your communication, be sure to answer any questions or issues that may have arisen during the audit process. In the event that the DOL issues adverse findings, says Gottlieb, “the employer can either pay in full the amount found to be owing or negotiate a settlement. Before paying any amounts or negotiating a settlement, the employer should consider carefully whether the basis for the findings was factually incorrect and/or exaggerated—if so, the employer could fight the findings at trial.”
Audits are never considered a positive event, but all lawyers agree that as an employer, you should not panic. If you are truly worried, seeking legal defense could help to shorten the length of the investigation.
“If you have a lawyer, contact him or her early in the process, says Attorney Robin Solomon, a partner at Ivins, Phillips & Barker’s Employee Benefits practice. “You can handle an audit without counsel, but our clients generally find that it saves money to have a lawyer on your side. Counsel can shorten the length and scope of an audit and can help your company avoid steep penalties.”