DOL Audits on the Rise

Sebaly Shillito + Dyer, A Legal Professional Association
1
Karl R. Ulrich, Esq.
OSBA Board Certified Labor & Employment Law
Specialist

DOL/WHD Audits On the Rise
GAO criticism in 2009 leads to expanded
enforcement.
WHD investigations up 42% from 2011 to 2012.
2

What Triggers a DOL Audit?
 Complaint
 “Directed Investigation” (where no employee complaint
has been filed)
 Random selection
 Follow-up to a prior investigation
.
3

Potential Sanctions for
Noncompliance
Private Actions
 Minimum Wage and Overtime violation – Penalty = amount of
unpaid minimum wage or unpaid overtime compensation, plus
an equal amount as liquidated damages
 Retaliation – Penalty = employment, reinstatement, promotion,
and/or lost wages, plus liquidated damages
 Attorney’s fee and costs
DOL Actions
 Oversees payment to employees of unpaid minimum wages or
overtime
 DOL may bring court action to enforce

Criminal Sanctions
 Willful prohibited act:
Fine of not more than $10,000, and/or
Prison term up to 6 months for repeat offender
 Includes a violation of the recordkeeping requirements
Repeat violations of minimum wage and overtime
provisions
 Civil penalty up to $1,100 for each violation
5

Investigation Tools
The DOL may inspect records, gather data, and
question employees as part of the investigation.
The DOL may also show up unannounced
Administrative subpoena power
6

Subpoena Power is VERY Broad
Issued by the DOL without court involvement
DOL may investigate any fact or matter it deems
necessary or appropriate to determine the existence of
a violation
Subpoenas may relate to any matter under
investigation
7

Recent Local Statistics
 Local WHD Cases from findings ending in the years
2008 through 2013:
 Ohio - 195 cases with Civil Monetary Penalties assessed,
which ranged up to $247,500
 Kentucky – 133 cases with Civil Monetary Penalties
assessed, which ranged up to $57,600
8

Reviewing Your Practices
Four Key Audit Areas
• Overtime
• Exemptions
• Employee vs. Independent Contractor Classification
• Recordkeeping
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Overtime
 Non-exempt employees - overtime for hours
over 40 in a workweek
Overtime rate = 1.5 x “regular rate” of pay
“Regular rate” is calculated by dividing the total
work week pay by the number of hours actually
worked
Example: $600 (total workweek pay)/ 40
(hours actually worked) = $15 regular rate
of pay
10

Your Overtime Practices
What is the “Regular Rate”?
• Usually hourly rate = regular rate.
• Can be different rates for different types of work.
“Regular rate” is then a “weighted average.”
• Can be based upon a salaried rates – fixed amount for
any number of hours less than 40.
• May include things in addition to the typical hourly
rate.
11

Not included in “Regular Rate”:
• Holiday Gifts
• Vacation, holiday, sick pay (pay in lieu of work)
• Reimbursements for expenses
• “Discretionary” bonuses
• Employer contributions to retirement plans
12

Overtime is:
 Calculated per work week (not averaged over two work
weeks)
 Paid whether or not specifically “authorized” or
“directed.” The law says “suffered or permitted” to work.
If employer “knew or had reason to know” that work was
performed, it must be paid.
13

“Know or Reason to Know?”
 Employer actually observes work being performed.
 Employer observes that too much work product exists
for the amount of time actually recorded/authorized.
 Employee is known to have previously engaged in a
pattern of working excess time.
 Employer would NOT “know or have reason to know”
if employee submitted inaccurate timesheets and no
other circumstances exist to put employer on notice of
excess time.
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What is “Time Worked?”
• Only time actually worked is included in meeting the
40 hour threshold.
• Lunch – not compensable only if 30 minutes or more
and relieved of all duties and free to leave duty post.
• Break time (20 minutes or less) is included as hours
worked and is compensable.
Other compensable work time includes time spent
dressing in work gear, training, and work-time traveling
15

Overtime Must be Specifically
Calculated
 Fixed sums of overtime payment are not permitted
under the FLSA
Employers must actually calculate and pay overtime for
each workweek when overtime is worked
Private employers may not offer “comp time” in lieu of
overtime pay; public employers – 480/240 hours caps
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Recommendations
 Establish an accurate and precise timekeeping system
that tracks employee time.
 Institute a policy where supervisors review and sign off
on time cards for each pay period.
 Update policies to clarify what is and isn’t “time
worked” and “regular rate”.
 Monitor overtime for each work week.
 Unauthorized overtime is a disciplinary issue.
17

Exemptions
 Executive
 Administrative
 Professional
 Employees in Computer-Related Occupations
 Outside Sales
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Exemption Requirements
Two basic tests:
 Duties Test
 Salary Basis Test
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“Primary duty” means the principal, main, major or
most important duty that the employee
performs. Determination of an employee’s primary
duty must be based on all the facts in a particular case,
with the major emphasis on the character of the
employee’s job as a whole.
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Primary Duty Test

Salary
Generally, an employer must pay a salaried employee
the full, predetermined salary for each pay period
regardless of the number of hours the employee
worked. Also, the full salary must be paid regardless
of the quality of the work
However, there are exceptions…
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Permissible Deductions From
Salary
• any week in which no work is performed;
• an employee is absent for at least a full day for personal
reasons other than sickness or disability;
• absences of full days for sickness or disability if part of
boni fide plan of compensation replacement;
• may offset jury or witness fees, or for temporary
military duty pay;
22

Permissible Deductions From
Salary
• penalties imposed for safety infractions of major
significance;
• unpaid disciplinary suspensions of at least one full day
for workplace conduct infractions;
• less than one full week of work in the first or last week
of employment; or
• unpaid leave taken under the FMLA.
23

Impermissible Deductions
 Less than full day absence (except incremental FMLA
leave)
 For absences caused by employer, operating
conditions, or lack of work (so long as employee is
otherwise ready willing and able to work.)
24

Recommendations
 Create accurate job descriptions and update them on a
regular basis.
 Have a policy in your handbook which prohibits
improper deductions and which:
 Includes a complaint mechanism; and
 Commits to reimbursing employees for any improper
deductions.
25

Employee vs. Independent
Contractor
 Independent Contractors are not subject to the FLSA
overtime or minimum wage requirements.
 The phrase “1099 Employee” is a misnomer
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The DOL Misclassification Initiative
 2011 – DOL and IRS agree to coordinate enforcement
efforts and share information.
 Formal agreements exist between DOL and 14 state
agencies (Ohio and Kentucky not yet among them).
 However, Ohio Department of Job and Family Services
says it will share information with the IRS.
27

Economic Reality Test
We generally consider the following factors when
determining if a worker is an employee or independent
contractor:
 Is the work an integral part of the employer’s business?
 Does the worker’s managerial skill affect his or her
opportunity for profit and loss?
 Relative investments of the worker and the employer
 The worker’s skill and initiative
 The permanency of the worker’s relationship with the
employer
 Employer control of employment relationship
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Recommendations
Review all independent contractor classifications with
legal counsel.
Contractors should have contracts.
Proper status as contractors should be carefully
documented.
29

Recordkeeping
 No particular form is required, but the records must
include certain identifying information about the
employee and data about hours worked and wages
earned
 Reproductions must be clear and identifiable by date
or pay period
 Extensions or transcriptions of the information must
be made available upon request
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Basic Records an Employer Must Maintain
 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
 Total hours worked each workweek
 Basis on which employee’s wages are paid (e.g., $9 per hour); 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; date of payment and the pay period covered by the payment

Records to be Retained for At Least
3 Years
 Payroll records
 Collective bargaining agreements, plans, trusts, and
employment contracts
 Sales and purchase records – a record of (1) total dollar
volume of sales or business, and (2) total volume of
goods purchased or received

Records to be Retained for At Least
2 Years
 Time cards
 Piece work tickets
 Wage rate tables
 Work and time schedules
 Order, shipping, and billing records
 Records of additions to and deductions from wages

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QUESTIONS?

DOL Audits on the Rise

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