4/23/2014. Hot Button Topics. Other Issues. Wage and Hour Audits: What to Do When the Department Comes Knocking and Related Hot Buttons in Audits

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1 Wage and Hour Audits: What to Do When the Department Comes Knocking and Related Hot Buttons in Audits Thomas Kennedy Karla Sanchez Hot Button Topics Independent contractor status Exempt non-exempt status Verifying tips Tip credit Fluctuating work week Liquidated damages Other Issues Other potential issues in an audit: Travel time Meals Sleep time On-call time Breaks Training meetings Preliminary and postliminary activities Sandifer v. United States Steel Corp., U.S., No (Jan. 27, 2014) Salary-exempt Deductions from pay 1

2 Other Issues The Department of Labor s most common wage and hour violations are: Misclassification of employees as independent contractors; Misclassification of non-exempt employees as exempt employees; Failure to pay minimum wage; Failure to include missed meals, off the clock work, and meetings in hours worked; and Failure to pay overtime and non-discretionary bonuses to non-exempt employees. How Audits Commence The investigation is often initiated as a result of a complaint by a present or former employee, especially a disgruntled former employee who left under less than favorable circumstances Before the Audit Begins Contact with the Investigator The Department of Labor provides notice of its desire to audit. Its aim is to set a time and date for the audit and to determine your compliance with federal wage and hour law. You may contact the investigator assigned to the case to arrange for a time that is convenient. Often times, the investigator will work with you toward a mutually convenient time and date. Attempt to discover precisely what information and/or records he is seeking so that you can be well prepared. Also seek to determine who the investigator may wish to meet. 2

3 Before the Audit Begins Contact with the Investigator This serves two purposes: It affords an employer the opportunity to meet with the employee(s) beforehand to ascertain his/her knowledge on matters that may be in controversy; and It also provides advance knowledge so that the employee s job duties can be temporarily assumed by another, if the employer consents to the interviews being conducted during the work day. The Steps of An Audit The audit usually has four phases: Opening conference Records review Employee interviews Closing conference Opening Conference Can take place at the employer s establishment or at the attorney s office Consider the pros and cons of the location where you agree to meet with the investigator 3

4 Opening Conference At the opening conference: The investigator completes preliminary paperwork with the employer and/or representative including obtaining the legal name of the employer, number of employees and number of locations The Company identifies the records assembled (or that will be assembled), and a contact person for other requests, if any It is very important to have your payroll records and relevant personnel documentation reviewed prior to the investigator arriving so that you know what are the issues that the investigator may want to address The investigator may name employees he seeks to interview, if this has not previously occurred Opening Conference The employer, in assessing relevant information, must be careful not to go beyond the scope of the information sought by the investigator Don t offer or volunteer information with respect to other facilities or locations that are not part of the audit Avoid Department of Labor fishing expeditions; insist on specificity of documents Opening Conference Review and analyze any employee time records sought thoroughly so that you are well prepared to discuss them Be aware that the investigation is often wall to wall, though the complaining employee(s) may have complained only about one specific issue or one issue of less than plant-wide dimensions 4

5 Consider whether you want the investigator to review any requested records at the employer s facility or whether you would rather provide these documents via other means Issues to consider: If provided at the employer s facility, the investigator may request additional documents The employer has no time to review the documents before the documents are provided to the investigator The investigator might find additional violations If the investigator wants to review the records at the employer s facility, it is wise to set aside an area for the investigator to work. The best practice is to segregate the investigator from the employees so that undue attention is not drawn to his/her presence. Little is typically achieved by making the investigation overly hostile or adversarial. The employer must maintain certain information for each non-exempt worker, thus, the investigator may request the following information: Employee s full name and social security number Address, including zip code Birth date, if younger than 19 Sex and occupation Time and day of week when employee s workweek begins Hours worked each day 5

6 Total hours worked each workweek Basis on which employee s wages are paid (per hour, per week, per piece) Regular hourly pay rate Total daily or weekly straight-time earnings Total overtime earnings for the workweek All additions to or deductions from the employee s wages Total wages paid each pay period Date of payment and the pay period covered by the payment Things to Consider: The investigator is not entitled to leave the premises with original company records, absent the employer s consent Consider not turning over original documents It is often helpful to have an employee acting as a liaison cooperating with the investigator in the production of documents and related personnel records Make sure that the employee is a supervisor/ manager The focal point of the records request is ordinarily to ascertain hours worked There is no requirement that the company enable the investigator to make a copy of the records, but the employer should be mindful of the Department of Labor s authority to subpoena records if they feel their investigation is handicapped by a lack of a full set of records 6

7 If you do not have the Records Requested: The Department of Labor will credit the employee s version The employer must maintain payroll records, collective bargaining agreements, and other employee records for at least 3 years The employer must maintain records on which wage computations are based such as time cards, piece work tickets, wage rate tables, records of deductions for at least 2 years Employee Interviews Employee interviews may be held with or without notice to the employer Note: Many of the interviews may be conducted outside of the employer s premises and without the employer s notice due to the Department s concerns of retaliation The Department does not provide the employer with information concerning which former/current employees it interviewed and what information those employees provided Employee Interviews If the employer is provided with a list of employees the investigator would like to speak with and asks the employer to arrange the interviews: The employer can refuse to permit the interviews to be held on work time, but, refusal to provide access to the employee during work time may cause the investigator to meet with the employee off the property, in interviews which typically last far longer than interviews at the work place One alternative is to attempt to arrange the interviews either before or after the work day so that no work time is lost 7

8 Employee Interviews What you might tell the employee about the interview: Provide the investigator with truthful, honest answers This is simply a routine governmental audit and the audit does not necessarily suggest or indicate any violation of law You may also advise the employee that he/she may be asked to sign a statement at the conclusion of his/her interview with the wage and hour investigator Employee Interviews Do not tell employees (non-management): That they may lose their jobs depending on the outcome of the audit That they must provide you with information of their interviews with the Investigator That they may not talk to their coworkers about the investigation during their non-working time and in nonworking area Employee Interviews Retaliation claims can be born out of an employee s participation in the Department of Labor audit process Accordingly, document carefully any later discipline to underscore the bona fide, non-discriminatory nature of the discipline 8

9 Closing Conference The investigator will typically ask to meet again with the employer and advise of his tentative conclusions and seek resolution Take notes of the investigators comments Closing Conference If you are found to have violated the FLSA: You will receive a Summary of Back Wages Due, outlining the names of employees involved, amounts allegedly due them, and the method of calculation Payment of the wages in a settlement under the auspices of the Department of Labor provides a release from future claims The Department of Labor can go back for two years in a case involving mere employer negligence, but three years in a case involving a willful violation Closing Conference Evaluate these findings and don t be reluctant to seek to negotiate for a more favorable outcome following the conclusion of your revie However, even if you should fail to find common ground with the Department of Labor investigator, there will be other opportunities to discuss settlement with the Department of Labor Absent settlement, the Department of Labor may refer the case to their Solicitor s Office for litigation. The Solicitor s Office tends to be less compromising than the local office of the Department of Labor. 9

10 Closing Conference What you may have to pay: Back pay Fines/penalties Child labor violations Liquidated damages Note: Liquidated damages are assessed in an amount up to and equal to the back pay, potentially doubling what employers must pay to employees The Department of Labor may publicize its settlements and court victories Closing Conference If no violations are found: Ask the Department of Labor investigator to document your compliance with a letter The investigator may decline to do so; in which case it would be advisable to send a self-serving letter to the Department of Labor, confirming the Department s findings of your compliance with wage and hour laws After the First Audit Be vigilant about compliance with wage and hour laws in the future. Usually, the Department of Labor will return. After first investigation, you open the door to willful violations Employees may obtain their own attorney to file a private lawsuit Do not retaliate against those employees you believe assisted in the investigation/audit 10