Conducting an Internal Wage and Hour Audit

Consider it a must to check up on your company’s wage and hour records to ensure and enforce compliance.

To verify that your organization is compliant with FSLA standards, it’s in your company’s best interests to conduct an internal audit examining employees’ wages and hourly requirements. By checking on your own data and files, you’re ensuring that you will be organized in event of a real DOL Wage and Hour Audit.

This process can be challenging to implement, so here are a few tips to guide your internal wage and hourly total audit.

Why Conduct an Audit?

Wage and hour audits serve several purposes—the most prominent of which is the chance to locate and correct flaws in your employees’ classifications, payroll, and weekly hours works. This is your opportunity to determine whether your business’ practices violate the Fair Labor Standard Act or any workplace equality standards.

Questions an Internal Wage and Hour Audit Can Address:

  • Are your employees and contractors appropriately classified?
  • Do you have proper documentation to backup your classifications?
  • Are your exempt vs. non-exempt employees correctly classified?
  • Are your timekeeping records complete and up-to-date, especially for overtime hours?
  • Is all overtime being properly captured and paid? (Don’t forget about bonuses, commission, comp time, etc.)
  • Are your payroll & HR team members up-to-date on all applicable state laws?
  • Do any company written policies need to be updated?
  • Do any hiring managers or supervisors need training or to be notified of legal updates?

Keep in mind that, if your practices do violate FLSA regulations, you’re liable for all kinds of fines, including penalties, attorney fees, and liquidated damages. As such, it’s best to find and eliminate infringements before the Department of Labor has the chance to evaluate your business.

Review Your Contractors

The first thing you should do is make a list of your company’s contractors. Since contractors operate outside the FLSA’s boundaries, doing this will both narrow your search for infractions and give you an idea of who you can exclude from future audits.

That said, you’ll also need to make sure the people you’ve classified as contractors do qualify as such. Failing to accurately represent your employees as full-time may end up resembling an attempt to skirt the FLSA’s regulations, which will likely result in punitive measures. To stay on the safe side, double-check your list of contractors for discrepancies before continuing.

Speaking of adequately classifying employees…

Exempt vs. Non-Exempt Employees

Another differentiation you’ll need to make is that of exempt and non-exempt employees. If you’re paying an exempt employee less than the minimum salary, for example, you either need to bump up their salary or reclassify them as non-exempt. Likewise, failing to pay overtime to non-exempt employees will result in needing to pay back missing wages; it’s best to head these potential infractions off well before an official audit.

This step ties in well with checking your contractors’ status since you’ll invariably have to reclassify some of them as well.

Check Wages

Your employees’ payment records must equal at least minimum wage per hour for each hour worked. In addition, your non-exempt employees need to have overtime pay on record for qualifying hours. This includes holiday pay as well, so make sure you’re looking at the days on which employees worked as well as the number of hours for which they worked.

This is also a good time for you to check in with your employees about their work time habits and their weekly hours. If they’re logging an extra hour here or there that your payroll system isn’t picking up, you need to know about it well before an official audit takes place.

For additional resources to supplement your internal wage and hour audit and verifying DOL compliance, look into the tools available in Abacus Payroll’s HR Help Center.

Internal audits aren’t fun for anybody—least of all you—so let us ensure a thorough and successful audit. For any questions about how you can conduct this process efficient and productive, call Abacus Payroll at (856) 667-6225 today!

Easier, Friendlier Payroll Is In Your Reach

Small businesses are a big deal to us. Eliminate the hassle of over complicated payroll and HR processes by partnering with a local and responsive provider.

Focus on your business and leave the payroll and tax to us. Count on Abacus Payroll.