As a business owner, one of the last things you want is a letter from the Department of Labor (DOL) announcing an audit. These audits can be costly, time-consuming, and stressful. But what exactly triggers a DOL audit?
Understanding the common causes can help you avoid making mistakes that invite unwanted attention.
Common Triggers for a DOL Audit
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Employee Complaints
The most common reason businesses face a DOL audit is due to employee complaints. These complaints are often filed by disgruntled or terminated employees who believe they were treated unfairly, especially in terms of pay. Employees may report violations such as:- Unpaid overtime
- Misclassification as exempt (salaried) instead of non-exempt (hourly)
- Improper payment for missed meal or rest breaks
- Unpaid vacation or sick time at termination
It's important to note that when the DOL receives a complaint, they don’t just look at that one employee’s case—they often widen the investigation to review your practices for all employees.
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Wage and Hour Violations
Mismanagement of overtime pay, failure to meet minimum wage requirements, and other wage-related issues are major red flags for the DOL. If you're not paying your employees correctly or on time, or if your record-keeping practices are inconsistent, you could be at risk for an audit. -
Misclassification of Employees
One of the biggest audit triggers is the misclassification of employees. Many businesses incorrectly classify employees as exempt (salaried) when they should be non-exempt (hourly) and entitled to overtime pay. The DOL closely monitors industries where this is common, such as retail, construction, and healthcare. -
High Employee Turnover
High turnover rates can also raise red flags for the DOL. If employees frequently leave your company, especially on bad terms, the chances of a complaint being filed increase. Businesses with high turnover should be particularly diligent in ensuring compliance with wage and hour laws. -
Frequent Payroll Changes or Inconsistencies
Sudden changes in your payroll—like significant drops in reported wages or large fluctuations in overtime—can trigger an audit. The DOL uses automated systems to track payroll filings, and unusual activity can prompt them to investigate. -
Industry-Specific Risks
Some industries are naturally more prone to DOL audits, particularly those with a high volume of hourly workers, tipped employees, or independent contractors. These include:- Restaurants and food service
- Construction
- Healthcare
- Retail
- Hospitality
If you operate in one of these industries, maintaining strict compliance with wage and hour laws is critical.
How to Avoid a DOL Audit
While you can’t completely eliminate the risk of an audit, there are steps you can take to significantly reduce your chances:
- Ensure Accurate Record-Keeping: Keep meticulous time records for all employees, and store them for at least three years. Digital timekeeping systems can help automate this process and ensure accuracy.
- Classify Employees Correctly: Make sure that all employees are classified properly as either exempt or non-exempt, and that those eligible for overtime are receiving it.
- Pay Employees Correctly and On Time: Follow all federal and state wage and hour laws, including overtime, meal breaks, and final pay upon termination.
- Review Payroll Practices Regularly: Regularly audit your payroll records to identify and correct any discrepancies or potential issues before they become major problems.
And that's it!
The DOL can audit any business at any time, but audits are often triggered by avoidable mistakes such as employee complaints or misclassification of workers. By staying compliant with wage and hour laws, maintaining accurate records, and taking proactive steps to review your payroll practices, you can significantly reduce the risk of an audit.
If you're unsure about your payroll practices or want to avoid the headaches of noncompliance, Baron Payroll can help. Our automated systems make it easy to ensure compliance and keep accurate records, protecting your business from DOL scrutiny.
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