Know the Law: Notification of a Wage and Hour Audit

Published: Union Leader
December 22, 2019

Q. I just received notification from the U.S. Department of Labor that my business’ wage and hour practices are being audited. They have requested a lot of information about my business, including payroll records, bank records and my general ledger, and profit and loss statements. I own a small local restaurant. Do I need to give them everything? What am I in for?

A. I am sorry to hear you are going through this. It can be a challenge, especially for a small business. You actually do need to provide the materials they requested. Although your bank records and general ledger may not seem relevant to wage and hour issues, the Labor Department first needs to determine whether it has jurisdiction over your business.

If you own a restaurant, you are likely engaged in interstate commerce, which gives it jurisdiction to review your records regardless of the size of the business. Simple transactions like accepting online credit card payments or purchasing produce from out of state are enough. Therefore, all businesses need to put some focus on compliance, and there are a lot of laws with which you need to comply with when it comes to your employees.

A Dec. 11, 2019, Union Leader article gives a good example of the ways an employer can be tripped up. The article, ”Bethlehem hotel, bar to pay nearly $88K in back wages, damages,” reports on some of the violations noted by the Labor Department.

Misclassification of employees as independent contractors and paying them flat salaries regardless of the number of hours worked.

Failure to maintain accurate records of time worked.

Child labor violations by allowing children to work more days/hours than allowed by law.

Misclassification of some employees as exempt, resulting in failure to pay overtime.

Failing to combine hours worked in the hotel and restaurant for purposes of overtime calculations.

The above are some fairly common mistakes and can sometimes result simply from a lack of familiarity with the law. The New Hampshire state Department of Labor also conducts similar audits and focuses on some, but not all, of the same issues. Running afoul of the strict state and federal regulations can cost businesses significant amounts of money in payment of back wages to employees along with liquidated damages and civil penalties.

In fact, in recent years, the number of federal audits has increased significantly, so the risk is greater that small local businesses may be visited by investigators. The new year is a good time to conduct an audit of your payroll practices and employee files to ensure compliance.