Spring is once again around the corner. As we clean out our closets and pull out our summer gear, what better time than also to dust off the cobwebs of old wage and hour practices. An FLSA audit is an opportunity to examine an agency’s policies and practices to identify any possible FLSA violations. Just like clearing out those old items from the closet each spring, an audit allows your agency to clean out old practices that may be creating FLSA liability. And, an audit can save your agency money.
One important way an FLSA audit can save your agency money is by ensuring that employees are properly classified as exempt or non-exempt from FLSA overtime. For example, the nationwide home improvement store Lowe’s might have avoided litigation if it had conducted an exemption audit. Instead, a federal district court recently certified a class of Lowe’s employees who contended they were unlawfully classified as exempt and made to work overtime without compensation. While the employees all had the job title of “Human Resources Manager,” their actual job duties consisted of operating cash registers, greeting customers and sweeping stores. The employees claimed that their job duties were mainly clerical and that they did not supervise employees or exercise discretion and judgment. One plaintiff claims she worked on average 55 hours per week, but was only compensated for 40 hours. If Lowe’s did in fact misclassify these employees, the employees will be entitled to unpaid overtime for the prior two or three years. Employers can avoid this type of situation by periodically conducting an FLSA audit and examining whether employees are correctly classified.
Exemption analysis is only one example of how an FLSA audit can save money. An audit may also assess whether an agency includes all special pays required by the FLSA in determining an employee’s regular rate of pay. Also, an audit can identify whether an agency’s calculation of hours worked is correct when an employee travels for work or attends a training program. Audits can also examine when employees work off-the-clock hours and can recommend how to reduce liability for uncompensated time worked.
As for limiting future liability, audits may create a defense if litigation arises. An FLSA provision contains an absolute defense against an FLSA lawsuit if an employer relies in good faith upon any formal interpretative bulletins, rulings, and opinion letters by the Department of Labor (DOL). This means that if an agency complies with an audit recommendation that is based on the DOL’s interpretation of the FLSA, the agency has a good faith defense, even if the DOL interpretation later turns out to be wrong.
Similarly, another section provides employers a defense to liquidated damages (double damages) if the employer can show that in good faith it tried to follow the FLSA and was reasonable in believing that it was in fact in compliance. In order to establish this defense, an employer must show that it took affirmative steps to determine it was in compliance with the FLSA. It cannot claim it simply did not know the law.
FLSA audits may examine every applicable wage and hour issue, or may look at one or two pressing concerns. Audits typically involve reviewing various documents, such as payroll records, memoranda of understanding, and agency rules, as well as interviewing agency employees who are familiar with certain practices. Just as cleaning out that closet makes room for spring, so too can bringing your FLSA practices into compliance prepare you for a quiet, carefree summer.