Learning that your company is subject to an audit from the Department of Labor is often stressful, even when you are making every effort to comply with the applicable Connecticut labor laws. Whether you are facing an audit or you’re trying to prepare for one, the employment lawyers at Wofsey Rosen are here to help you through.
The Types of Department of Labor Audits and What Causes Them
There are several reasons your business may be subject to a Department of Labor (DOL) audit.. Some audits result from a complaint that has been filed against your company. Some audits are random. Some of the most common complaints that may trigger an audit are claims for unpaid overtime, claims for unpaid wages, or claims that employees have been misclassified as independent contractors, when they should have been classified as employees.
On other occasions, audits result from honest and good faith mistakes. Examples are errors in filing Form 5550 for retirement plans and late payroll deposits.
Industries More Vulnerable to Auditing
Some of the industries more likely to face an audit are those with high turnover, low wages, or a history of overtime or wage violations. This typically includes fields such as manufacturing, construction, healthcare, and hospitality (such as restaurants and hotels).
Which Agencies Conduct Labor Audits in Connecticut?
Audits can be conducted by the Connecticut Department of Labor or the U.S. Department of Labor. The Connecticut Department of Labor provides labor and workforce support for workers in the state of Connecticut. This typically includes things like handling unemployment insurance, enforcing Connecticut wage standards, and developing apprenticeship programs.
When Federal Agencies Like the U.S. Department of Labor Get Involved
The U.S. Department of Labor may get involved if you are facing accusations of federal labor law violations. This can include violations of the Fair Labor and Standards Act or the Family Medical Leave Act, among others.
What Does the Audit Process Look Like From Start to Finish?
When you know what to expect from the audit process, it often becomes easier and less stressful to undergo. Having a basic understanding of what to expect can also help you better prepare and set you up for a favorable outcome.
Initial Notice and Scope of the Audit
When you are chosen for an audit, the DOL will typically notify you by phone, e-mail, or physical mail, though it the notification is typically done in writing. Audits usually come with minimal warning. The notice will give you a description of the audit’s scope, including the required documentation and the submission deadline. On occasion, you will be notified of the audit for the first time only when the investigator appears at your door.
In the initial stages of your audit, you may also be invited to attend an entrance conference where the relevant parties sit down to discuss the full scope and expectations of the audit.
Document Requests and Deadlines
The notice you receive will likely include a list of the documents the DOL investigator would like to review. These documents may include things like payroll records or time sheets. It is wise to begin gathering documents immediately to avoid missing any deadlines.
Site Visits and Interviews
Depending on the scope of the audit, the DOL might want to do one or more site visits and the DOL may request to speak with certain employees. The purpose of the site visit is to review backup documentation and information to support the statements and documentation you have provided during the audit process.
Final Determination and Findings
You can expect the typical audit to take several months. The final determination and findings typically include a summary of what was reviewed and a list of any violations found. This includes any corrective actions the DOL may require, as well as any sanctions or financial penalties that may be imposed.
What Are the Most Common Violations Found in Labor Audits?
The most common violations discovered during audits are:
- Employee misclassification, which occurs when an employer classifies a worker as a contractor when they should be classified as an employee
- Wage and hour violations in which employees are not paid at least the minimum wage or are not appropriately compensated for all hours worked
- Rounding time irregularities that consistently benefit the employer
- ‘Off the clock’ work
- Improper pay deductions for things like work uniforms
These are some of the more common violations we see clients facing, but you may also find yourself facing additional challenges when other issues are discovered during the audit.
What Penalties Can Employers Face After a Labor Audit?
If your company has been found to be in violation of labor laws, whether federal or state, you may end up facing a variety of penalties and consequences. Examples are:
- Back Wages and Restitution
- Civil Penalties and Fines
- Potential Criminal Liability in Serious Cases
- Ongoing Monitoring or Compliance Agreements
While the DOL is not typically involved in civil lawsuits for illegal treatment, if there are substantiated violations that harmed employees, the affected individuals may be able to pursue civil lawsuits, which could result in additional legal fees and financial exposure.
How Should Employers Respond to a Department of Labor Audit Notice?
If you receive an audit notice from the DOL, do not panic. The first step is to take note of what is requested and to pay attention to all deadlines. It is critical that you preserve the integrity of all requested records and documents. It is often useful to appoint an individual or small group to spearhead the document gathering and information providing process, so that delays are avoided.If you already work with an employment attorney, it is wise to contact them immediately upon receiving notice of the audit for additional guidance and support. If you do not have an existing relationship with an employment attorney, you should contact one with experience in dealing with these issues as soon as possible.
The labor and employment team at Wofsey Rosen has experience in dealing with DOL audits and can help you with the audit process.