A Comprehensive Guide To DOL Audits

The Department of Labor Audits (DOL Audits) is an agency of the United States federal government responsible for occupational safety, wage and hour standards, and unemployment insurance. Recently, they have…

September 2, 2022

Written by John Wonneberger

The Department of Labor Audits (DOL Audits) is an agency of the United States federal government responsible for occupational safety, wage and hour standards, and unemployment insurance. Recently, they have been increasing their efforts to audit businesses for compliance with these regulations.

 

It can be a daunting process if your company is selected for a DOL audit. This blog post will explain what to expect and why it matters to both the company and the employees.

What’s The DOL?

The Department of Labor is a federal agency responsible for enforcing labor laws. This includes minimum wage, overtime pay, record keeping, and child labor laws. The DOL also administers pension and welfare programs. They are tasked with ensuring that workers are treated fairly and have safe working conditions.

What Is A DOL Audit?

A DOL audit investigates whether or not a business is complying with labor laws. The auditor will review payroll records and interview employees to get a sense of the workplace. The DOL may request additional information during the audit.

Why Does It Matter?

Businesses need to comply with labor laws for two reasons: to protect their employees and avoid penalties from the government. Non-compliance can result in fines, jail time, or a loss of business licenses. Employees may also suffer if they are not being paid properly or if their working conditions are unsafe.

IRS vs. DOL Audits

Understanding the distinctions between an IRS and a DOL audit is critical when navigating an audit from either organization.

IRS Audits

An IRS audit is the examination of an organization’s or person’s accounts and financial information to verify that they are reported correctly, in accordance with tax requirements, and that taxes are paid.

DOL Audits

A DOL audit is very similar, but instead of taxes, the focus is on employee wages and benefits. The Department of Labor (DOL) conducts these audits to ensure employers comply with the Fair Labor Standards Act (FLSA), setting standards for minimum wage, overtime pay, recordkeeping, and child labor.

 

The DOL may also consider whether employees are properly classified as exempt or non-exempt from overtime pay. While both audits can be disruptive and time-consuming, a DOL audit is often more comprehensive than an IRS audit.

What To Expect

The first step in a DOL audit is usually the request for documents. If your company is selected for a DOL audit, you will likely receive a letter in the mail requesting a variety of records from your business, including:

 

  • Payroll Records
  • Time Sheets
  • Employee Handbooks
  • Job Descriptions
  • Benefit Plan Documents

 

After the document request, the next step is usually interviews with employees. The DOL will want to talk to a cross-section of employees to get their take on working conditions at your company. They may also ask questions about specific policies, such as overtime or break times.

 

The auditor may request additional documents or information from the business during the audit. They may also interview more employees. The entire process can be time-consuming, so it’s important to be prepared for an audit if your business is selected.

Reasons the DOL Might Audit You

The DOL might audit you for a variety of reasons. Some businesses are selected at random, while others are chosen because of some of these reasons:

 

Employee Complaints: If an employee files a complaint with the DOL, they will investigate whether there is merit to the claim.

 

Previous Violations: If you have been found to violate labor laws in the past, you are more likely to be audited again.

 

High Turnover: The DOL may see this as a red flag if you have a high turnover rate. They may investigate if employees are leaving because of unfair working conditions.

 

Form 5500 Errors: Form 5500 is a report businesses must file annually with the DOL. If there are errors on this form, it may trigger an audit.

 

Late Fees to Service Providers: If you are late in paying your service providers, such as payroll companies, this may trigger an audit.

 

Prohibited transactions:  If the DOL suspects that you are engaging in prohibited transactions, such as using company funds for personal gain, they will audit you.

 

If you are selected for a DOL audit, it is important to cooperate with the auditor and provide any requested documentation. The audit can be time-consuming, but it is worth it to ensure compliance with labor laws.

What Happens If You Don’t Comply?

If the DOL finds that your business does not comply with labor laws, you may be subject to fines, jail time, or the loss of your business license. Employees may also suffer if they are not being paid properly or if their working conditions are unsafe.

 

Non-compliance with labor laws can have serious consequences for businesses. If you are out of compliance, you may be subject to fines, jail time, or the loss of your business license. 

What Happens If You Fail An Audit?

If you fail a DOL audit, you may be subject to fines, jail time, or the loss of your business license, as mentioned above. Employees may also suffer if they are not being paid properly or if their working conditions are not adequate. It is important to comply with labor laws and cooperate with the DOL to avoid these penalties if you are selected for an audit.

Preparing for a DOL Audit

The best way to prepare for a DOL audit is to make sure that you comply with all labor laws. This includes having accurate payroll records and employee handbooks that adhere to federal, state, and local laws. 

 

You should also be prepared to answer questions about your company’s policies and procedures. Accounting Services may be of great help with this. There are also some other steps you can take to be ready for a DOL Audit:

 

Have All Your Documents Ready:  As we mentioned before, the DOL will request various documents during an audit. These may include payroll records, timesheets, employee handbooks, and job descriptions. It’s best to have all these documents gathered in one place so you can easily provide them to the auditor.

 

Know Your Rights:  You have the right to know why the DOL is auditing your business and what they are looking for. You also have the right to have an attorney present during interviews with employees.

 

Be Cooperative:  While you want to be prepared for an audit, it’s also important to cooperate with the auditor. If you are uncooperative or try to hide information, this will only make the process more difficult and result in penalties.

Remain FLSA Compliant: The DOL Audit Process

The Department of Labor’s Wage and Hour Division (WHD) is in charge of enforcing the Fair Labor Standards Act (FLSA). The FLSA sets minimum wage, overtime pay, recordkeeping, and child labor requirements for full-time and part-time employees in the private sector as well as governments at all levels.

 

A good method to prepare for a DOL audit is to ensure you’re FLSA compliant. You may do so by:

 

Establish A Recordkeeping System For Your Employees: This includes maintaining employee time cards or other records that show the number of hours employees worked each day and week.

 

Classifying Employees Correctly: You will need to correctly classify workers as either exempt or non-exempt under the FLSA.

 

Paying Overtime Correctly: If you have non-exempt employees, you must pay them one and a half times their regular hourly rate for any hours worked over 40 in a workweek.

Create A Procedure For Internal Auditing: An internal audit will help you identify and correct any potential problems before the DOL.

Records You Need To Keep In Order

 

The Fair Labor Standards Act (FLSA) requires covered businesses to maintain certain basic records for their non-exempt employees, including the following:

 

  • The name and social security number of the employee.
  • Full Address
  • Birthdate (if younger than 19)
  • Sex and occupation.
  • Time and day when an employee’s workweek begins.
  • Hours worked each day.
  • Hours worked per week.
  • Wages are paid based on an hourly or weekly rate (e.g., “$9 per hour,” $440 per week,” piecework”).
  • Regular hourly pay rate.
  • All changes in and deductions from the employee’s pay.
  • The total amount paid out each pay period.
  • The date of payment and the period for which you will be paying.

What Happens After a DOL Audit?

After the DOL auditor has finished their investigation, they will issue a report with their findings. If they find that your business does not comply with labor laws, they will give you a list of corrective actions that need to be taken. You will typically have 60 days to correct any violations.

 

If you don’t correct the violations, the DOL may take enforcement action against your business. This could include fines, back pay for employees, or even jail time for business owners.

How Nesso Accounting Can Help

It’s important to note that a DOL audit is not the end of the world. If you are found to violate labor laws, you can take corrective action and comply with the law. Nesso Accounting can help you with every step, from preparing for an audit to taking corrective action if necessary.

 

At Nesso Group, we can help you ensure things are done correctly to avoid any audits. We understand that the DOL audit process can be time-consuming, so we will work with you to ensure that the process is as smooth and stress-free as possible. If you have any questions about the DOL audit process or how Nesso Accounting can help, don’t hesitate to contact us today. 

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