In the business world, the words ‘labor audit’ can have business leaders breaking into cold sweats. Labor audits, conducted by the Department of Labor (DOL) at either the federal or state level, encompass an in-depth review of an organization’s employment practices and record-keeping procedures in adherence to labor laws. Behind every audit lie triggers that prompt these labor-specific examinations. This article uncovers the most common factors that can trigger a Department of Labor audit.
Employee Complaints
One of the most common triggers for a DOL audit is a complaint from an existing or former employee. These complaints often revolve around wage and hour disputes, discrimination allegations, issues with leave entitlements, safety concerns, or other regulations covered by labor laws.
Errors in Documentation
Inaccurate or incomplete record-keeping is a noticeable red flag to the DOL. This might include errors in overtime pay, misclassifying employees, discrepancies in workers’ compensation, missing documentation, or not keeping proper records on employee hours and wages.
Failure to Comply with Federal and State Labor Laws
Failure to comply with federal or state labor laws such as the Fair Labor Standard Act (FLSA), Occupational Safety and Health Act (OSHA), and the Family and Medical Leave Act (FMLA) could initiate an audit. Violations could range from unpaid minimum wages, unpaid overtime, unsafe work environments to not properly managing employee leaves of absence.
Anomalies in Workers’ Compensation and Unemployment Claims
Higher-than-average workers’ compensation and unemployment claims can signal potential issues within an organization’s labor practices – suggesting mistreatment or mismanagement of employees – and could prompt an audit.
Targeted and Random Audits
The DOL routinely conducts targeted audits on industries where violations are common, such as construction, restaurant, health care, and agriculture. Additionally, a company can also be selected at random for a compliance review.
Inter-agency Referrals
Sometimes audits can also be triggered due to inter-agency referrals. For instance, if the Information Returns Processing department of the IRS realizes during a review that an organization has been misclassifying employees, they could refer the case to the DOL, triggering an audit.
To weather a Department of Labor audit, it is indispensable that organizations have a comprehensive understanding of labor laws and strictly abide by them. Proper documentation and record-keeping, transparent and ethical work policies, coupled with prompt response to employee complaints, can mitigate the chances of an audit.
Companies should also consider regular internal audits and training programs to keep their management teams updated on labor laws. Prompt and proactive measures can not only correct inadvertent mistakes but also cultivate compliance as a part of the company culture, ensuring smoother sailing should a DOL audit occur.
Federal and state labor audits are on the rise. Marzano Human Resources Consulting is well-versed in employment law compliance. We can conduct a comprehensive Human Resources audit, reviewing all employment-related documents, processes and practices. We help mitigate risk, while educating our clients on the complexities of both federal and state employment regulations.
Consider reaching out to us for a no cost initial consultation.