Education Is Good Defense Against Labor Department Investigation


Ignorance of federal labor law on the executive and management level may be a liability for payroll professionals when it comes to Labor Department investigations, a PenSoft executive said May 20.

Payroll professionals should educate executives and management on high-profile violations and best practices to prepare before the investigators come knocking, said Stephanie Salavejus, vice president and chief operating officer of PenSoft.

“I have made a practice of every year sitting down with executive teams and going over the DOL rules, the Fair Labor Standards Act, to make sure everybody is aware of why their payroll department is asking them for certain behaviors and certain payroll processes,” Salavejus said.

Of the high-profile wage and hour violations, supervisors seem to have to most trouble understanding payroll deductions, overtime, and misclassification, Salavejus said that the annual American Payroll Association Congress in Orlando, Fla.

A common issue for payroll is an employer that wants to deduct an amount from an employee’s paycheck that would bring the worker’s hourly rate below the minimum wage, especially when it comes to termination pay, Salavejus said.

Employers may want to deduct from employees’ pay to cover the cost of uniforms, missing cash from the register, or lost or broken company equipment, Salavejus said. Payroll professionals should make sure the employer knows that for the deduction to be made the amount may not bring an employee’s hourly rate under minimum wage and the employee’s written consent is required, she said.

When it comes to overtime, the Labor Department looks for situations in which the employer may have persuaded an employee to amend or not report hours worked that were in excess of 40 in a workweek, Salavejus said. The department is most vigilant about this type of arrangement in regions where unemployment and competition for jobs are high, she said.

Misclassifying employees as independent contractors is another area payroll professionals may clash with employers’ ignorance of labor requirements, Salavejus said.  An employee who retires and returns to work for the employer as an independent contractor is a common violation, she said. 

Preparing Before the Investigation

“An audit is survivable, it is not the end of the world, as long as you are prepared,” Salavejus said. Reviewing company policy, conducting in-house audits, and hiring external auditors are the best ways to prepare ahead of time, she said.

Payroll professionals should check company policies against Labor Department guidance and regulations, Salavejus said. “If you have counsel on staff, have your counsel look at your policies and procedures and make sure they are in line with the DOL.”

Additionally, ensure that executives, department heads, and supervisors know what company policies are and follow them, Salavejus said. “If you have policies in place, and you’re not enforcing them, and the DOL comes in, you might as well have not had the policies at all,” she said.

The resources required for internal and external audits may make them hard to sell management on, but they are worth the cost, Salavejus said.

Internal audits performed by staff may demonstrate due diligence to department investigators, Salavejus said.  “It will go a long way with an investigator if you have demonstrated that you’re putting forth a good effort to make sure your employees are fairly compensated for the work that they do.”

When it comes to the cost of an external audit, think of it as insurance and weigh it against the cost of noncompliance, Salavejus said. “If you need to do a business proposal to get buy-in from management, you need to highlight the value of what they’re going to get in return. Show them the penalties, the litigation, if in fact they’re not in compliance.”

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