Audits Offer Access to Data, Extensive Employee Interviews

Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...

By Howard Perlman  

Audits of payroll records may be conducted by the Labor Department to assess not just whether employees' wage and hour claims have merit but also whether employers have engaged in patterns of noncompliance with federal laws, a department investigator said April 17.

Although Labor Department audits commonly occur to assess the accuracy of employees' complaints, it also may conduct audits in response to congressional inquiries and complaints by competitors, said Hilda King, an investigator with the department's Wage and Hour Division.

Initiatives to enhance compliance of employers in industries with above-average levels of worker misclassification also may prompt audits. The division's investigators are not allowed to tell employers why an audit was initiated, although they may disclose aspects of the process, King said at a meeting of the Washington Metropolitan Area Chapter of the American Payroll Association.

Investigators are not required to provide employers with advance notice that an audit is to occur.

To determine whether violations of the Fair Labor Standards Act or Family Medical Leave Act occurred, investigators often interview employees during audits to supplement the data available from employers' records, King said.

Among the questions that department investigators may ask employees are what duties they perform and how their hours of work and leave are recorded, King said. Answers to these questions may help determine the employees' principal activities, whether employees who were classified as exempt from the FLSA were properly classified and whether employees who sought to use unpaid leave under the FMLA were afforded proper protections, she said.

If employees who were classified as exempt from the FLSA said that their salaries were reduced because they were partially absent from work for a day but were not on FMLA leave, this could be evidence that salary requirements for exemption were not fulfilled, King said.

Improper reductions of salary for partial-day absences that are not repaid by an employer could cause employees whose salaries were improperly reduced and similarly situated employees who work for managers responsible for the improper reductions to not be exempt from the FLSA's minimum wage and overtime requirements during the period when the reductions were made. The employees' coverage under the FLSA for that period could cause an employer to be retroactively liable for overtime premiums.

Interviews conducted for the audit process usually occur on an employer's premises, although employees and retirees could be interviewed at their homes, by mail or by telephone, according to the division's Fact Sheet 44, Visits to Employers.

Proper Pay for Compensable Time

Employers can lessen the chance of being sued for owed wages if they not only ensure that employees are not misclassified as independent contractors or improperly exempted from the FLSA, but do not ask employees to accept employment conditions inferior to those required by law, King said.

Employers do not need to offer meal breaks to employees, but if a meal break is offered and an employer wants to treat the time as noncompensable, the employer must ensure that the break is at least 30 minutes and that employees cannot work during that time, King said. If employees work during meal breaks of at least 30 minutes when they are not supposed to, employers are required to compensate employees for the time worked, she said.

Unlike meal breaks, rest breaks of any duration are compensable under federal law. States' or localities' break provisions that are more favorable to employees than federal provisions regarding breaks generally supersede the federal provisions for employees in those jurisdictions.

If employees are not performing principal activities but are required to be at or near their employer's premises, the hours when they are restricted are compensable on-call time, King said. On-call time is a type of engaged-in-waiting time, which is compensable because employees' activities are restricted by their employer even though they are not performing principal activities. Conversely, time when employees are waiting to be engaged is noncompensable because employees' activities are not restricted by their employer, although to be noncompensable, the time must be long enough that employees can effectively use it for their own purposes.

Overtime premiums must be paid to employees for hours worked in excess of 40 in a week, with limited exceptions, King said. Alaska, California, Colorado, Nevada and Puerto Rico also require overtime premiums for hours in excess of a threshold number of hours worked in a day. 

Request Bloomberg Law for HR Professionals