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Avoiding Big Brother: Keeping the DOL Away
Posted on July 11, 2012 in Compliance, Consulting
The Department of Labor can and will show up at your business unannounced. Most often, a disgruntled current or former employee spurs the audit with a phone call. That call nearly always leads to either a letter announcing the audit or a surprise visit from a DOL investigator. Once the DOL has arrived, they will not go away until they have reviewed (in most cases) two years’ worth of payroll data searching for any violations of the Fair Labor Standards Act (the “FLSA”) – the federal law that mandates a minimum wage and overtime pay. While an employer cannot stop the DOL from auditing its business, an employer can take smart measures to decrease the likelihood of a DOL audit and, in doing so, ensure compliance with the FLSA.
Rarely, if ever, dock an employee’s pay
Nothing will spur an employee’s call to the DOL faster than taking money out of a paycheck. The typical scenario involves an employer seeking to take money out of a final check because an employee owes money on an advance or failed to return company property. The decision to withhold money should be done on a case by case basis with careful thought about the situation. The company should ask itself: (i) did the employee authorize the deduction in writing as required by the Texas Payday Act; and, if so, (ii) is there anything the employee knows about the company’s payroll practices that would concern the DOL. Sometimes, it is best to just let the bad apple employee go peacefully and be thankful that he or she is some other employer’s concern.
Along similar lines, employers should almost never dock a salaried employees pay. The DOL has very specific rules for docking a salaried-exempt employee, and rarely do those circumstances arise. That is a topic for another newsletter, however.
Ban “comp time”
In the mid-1970s, Congress amended the FLSA to permit public entities (i.e., federal, state, and local government) to offer time-off in lieu of overtime pay. The DOL instituted regulations to govern “comp time.”
Somewhere along the way, the notion of “comp time” crept into the private sector without legal foundation. A private sector employer may never provide time-off in lieu of overtime owed to an employee. A non-governmental employer must pay a non-exempt employee overtime wages for any time worked over 40 hours in a work-week — no exception.
An employer that tries to use “comp time” might very well spur a DOL audit.
Pay for unauthorized overtime
A common component of an employer’s wage and hour policy is to require that employees have permission from their supervisor to work overtime. This common policy is designed to limit payroll costs that can be quickly inflated with too much overtime worked. When an employee works overtime without prior authorization, that employee may be subject to disciplinary action for violating the policy. However, all overtime hours, even hours worked in violation of company policy, must be paid at the appropriate overtime rate.
Employers should be very careful when disciplining employees for violating a work rule against unauthorized overtime to avoid a phone call to the DOL that spurs an audit.
Avoid unusual compensation schemes
There is little room for creativity in compensation policies. Employees are accustomed to being paid on a salary, hourly, or commission basis and any diversion from these customs may encourage an employee to contact the DOL for guidance. An employer should certainly seek legal guidance whenever deviating from normal payroll procedure, and for that matter, every business could benefit from an internal audit of its payroll practices.
Count your contractors
On a periodic basis, at least twice a year and better yet at the end of each quarter, a business should take a look at its relationships with independent contractors. True independent contractors are not covered by the FLSA, but simply reporting income to a worker on a 1099 rather than a W-2 does not make the person exempt from FLSA coverage. Instead, the business must apply the appropriate legal analysis to determine if the worker can truly be treated as an independent contractor. (See my March 2011 newsletter. Pitfalls with 1099 Workers.)
The DOL (as well as other government agencies) are very interested in correcting employer misclassification of 1099 workers. An employer with a large number of contractors as compared to its regular employee workforce is ripe for a DOL audit.
I hope you found this post useful and share the link with others.