SESCO: Rise in Wage and Hour Audits: What Employers Should Know

Rise in Wage and Hour Audits: What Employers Should Know

Calendar year 2024 is expected to be a busy one for federal wage and hour investigators, according to the US DOL and first quarter observations. Penalties can be enforced for violations going back two years, and up to three years if the noncompliance was found to be willful.

The United States Department of Labor – Wage and Hour Division (“DOL WHD” or “WHD”) is the federal agency that enforces the Fair Labor Standards Act (“FLSA”). Specifically, an audit from WHD is intended to confirm that employers adhere to the FLSA requirements, including paying minimum wage and overtime, and keeping accurate records. Common Wage and Hour Mistakes. The following are common wage and hour mistakes which may put employers at risk for findings of violations and assessment of penalties. Such penalties may include backpay and liquidated damages in an amount equal to the assessed backpay penalty (effectively creating a double damages penalty). If an audit proceeds to litigation, attorneys’ fees and personal exposure based on individual liability can accrue as well.

  • Improper Classification: Employers are required to pay all non-exempt employees overtime pay and minimum wage. As a result, proper classification of exempt employees is critical. A determination that an employee is exempt requires an evaluation of both the employee’s job duties and their total compensation.
  • Independent Contractors: Employers that engage independent contractors to perform labor may also face penalties for violations if the contract laborers are found to be employees as a matter of law and are not compensated in accordance with the FLSA. Whether a worker is a contractor or an employee under the FLSA is a fact-specific question which depends on the economic realities of the relationship. The legal test for independent contractor classification was recently updated by the DOL this year and will almost certainly be a focal point for wage and hour auditors this year.
  • Improper Deductions from Non-Exempt Employees’ Pay: Deductions from wages may violate FLSA requirements.
  • Failure to Maintain Records: Employers are required to maintain specific records relating to each of their non-exempt employees.
  • Regular Rate Issues: The FLSA requires employers to pay non-exempt employees overtime pay at one-and-one-half times their “regular rate” for overtime hours worked. This regular rate may be more complex than the employee’s normal hourly rate. It can be easy to inadvertently miscalculate the regular rate.

If you have a Wage & Hour question, members of ACA can ask questions to get clarification through ACA’s HR Hotline. Click here to have a representative contact you.