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White Paper: Are You Prepared for a Department of Labor Audit?
A Department of Labor (DOL) audit is the “monster under the bed” for many payroll and business professionals. You don’t want to believe in it. You don’t think you’ll ever see it. But it could pop up at any time, and if it does, it might not look pretty.
With governmental regulations constantly evolving, school districts need to validate their records and check every inch of their practices to make sure they’re not at risk in the case of a DOL audit.
How will I know if my district will be audited by the Department of Labor?
An auditor’s job is to ensure that employees are being paid according to FLSA regulations, as well as other federal and state laws, and that any workers under 18 are being paid according to child labor provisions.
In order to guarantee that these standards are being met in everyday situations, auditors may arrive at your district without prior notice. Generally they will provide a few weeks’ notice to allow you to gather your records, but they’re not required to notify you, and they may choose not to if an employee files a complaint about unlawful pay or practices.
When auditors do arrive, they will request an extensive list of records for a random group of employees from a random timeframe during the last few years. The auditor will review these records to see if there are any violations or inconsistencies. If you fail to provide the requested documentation, your district will likely fail the audit and be subject to DOL penalties.
What happens if we fail the Department of Labor Audit?
After fully evaluating your records, your auditor will send an official letter stating whether you’ve passed or failed, as well as any reparations that you’ll need to make if you do fail. What exactly your punishments could look like will vary depending on the context of your infringement.
If ten “exempt” employees complain that they ought to have received overtime pay for the last two years and the auditor confirms this complaint, you’ll need to provide back pay, under the supervision of the WHD, for those ten employees for those two years and pay an equal amount as liquidated damages, plus any attorney and court fees.
Obviously you could incur crippling fines depending on the scope of your infringement. And in the worst of situations, where violations were knowingly incurred, the DOL has stated that “Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment.”
These penalties get far worse if your district employs minor students and violates any child labor laws.
What should my district be doing to protect itself?
Validate Your Classifications
Your district’s employee classification is one of the first things auditors will validate. Classifying employees as exempt from overtime simply because they’re paid on a salary basis is not compliant with FLSA regulations, but this is a common error in many school districts. You can visit the DOL website to see what constitutes different types of employees as exempt.
Organize Your Paperwork
Another key requirement to preparing for an audit is to make sure you’re storing the required information, and that it is accessible if the auditor requests it. You can download the full white paper to see the list of records the DOL requires districts to keep.
Make sure you never offer the original records to the auditor. Instead, give them a copy. They can and may keep any records you give them.
Improve Your Time and Attendance Tracking
Organization — or disorganization — makes an impression on an auditor. You don’t want to be left scrambling for missing pieces of paper, or worse, telling an auditor that you can’t find certain records.
Cary Herring, Payroll Specialist from Montgomery ISD, said this about her prior, paper-based process: “If you had to pull from past time, you didn’t know where the [former] payroll person had put the timesheets. You have secretaries at different locations figuring out time; some of them are rounding, some of them are not rounding — you have very inconsistent figuring of the time. . . . When we’ve tried to go back and find things from prior times, there were some times you couldn’t find them.”
That’s why Montgomery ISD switched to a web-based time and attendance program to track and manage their records. “With [the web-based program], everything was set — you have control of it. We knew everything was very consistent — there’s no messes there.”
In addition to improving record keeping and workflows, implementing web-based time and attendance system will automate how overtime, the biggest FLSA offender, is calculated. Districts waste a ton of time and put themselves at great risk of human error if they have payroll workers manually calculating pay totals and hand-keying those numbers into payroll systems. In fact, businesses overpay an average of 1.2% based on human error.
It’s an auditor’s job to notice these things.
Track Hours for the Affordable Care Act
The Affordable Care Act (ACA) has obviously been a hot-button issue over the last couple years. Hopefully, your district has taken steps to protect itself from ACA infringement, but if it hasn’t, it needs to start now.
The blog post outlines how districts can determine their number of Full-Time Equivalents (FTE’s) and “large” employer status, as well as how to calculate whether an employee has qualified for health benefits during a look-back measurement period, and other ACA regulations and penalties.
Don’t Wait to be Audited
Finally, one of the best ways to prepare yourself for an audit is to perform regular, voluntary audits. (In fact, regular audits may be required. Familiarize yourself with your state regulations and how they override or supplement federal regulations.) Many school districts hire outside auditors to evaluate their processes annually or biannually.
These audits go a long way in validating compliance and preventing fines potentially incurred during a surprise DOL audit. Not only will regular audits verify the legality of your classifications, payment and practices, but the overall experience of the audit will confirm whether you’re managing your records in a reliable and efficient way.
After experiencing several voluntary audits, then transitioning to a web-based time and attendance program, Cary Herring said, “It does affect a lot of people. [Before] it took maybe eight hours to pull the documentation. This last time it was very quick. It probably took an hour this time.”
FLSA and ACA audits are on the rise, and they don’t show any signs of slowing down. School districts need to act now just to be secure in case of an audit three years from now.
If you checked your mail this morning and found a report from the Department of Labor, would you be confident in your processes, or would your gut sink because it would already be too late?