Human Resources, Payroll

How to Audit-Secure Your Business

An 8 step formula to surviving an audit or lawsuit

Oh my goodness! Will someone please address the problems with FLSA before this whole country explodes!Audit checklist, business concept on blackboard

Have you heard the news lately? Do you know how many lawsuits and DOL cases are pending against employers in the U.S. right now? Ok, I don’t know the exact number, but I did read a blog by a reputable law firm in West Virginia that said employee vs. employer lawsuits have increased by 400% since 2010. They also went on to say that as of June 2014, the number of employment lawsuits had doubled the 2013 total number.

So, what is up you’re asking? Well, the Fair Labor Standards Act is 77 years old this year. It has been amended some over the past 40 years, but not enough. Employees did not have computers and smart phones back in 1938 when the law was born. Over the years, if an employee didn’t come to work no work was performed and no pay was due. If an employee wasn’t standing by a landline telephone in their house, there was no way to engage them after hours or on a day off. So, no work was performed. That is just not the case today.

Employees are working off the clock more than ever and not getting paid. As a matter of fact, the DOL estimates that about 80% of employers are guilty (in some way, shape, or form) of underpaying workers by dismissing this off-the-clock work. Lawsuits and audits are at a high because they are so fruitful. Of course, the government wants employees to be treated fairly. But, an even bigger reason to pursue these cases is the amount of tax revenue that can be swept in when all of the final disbursements are made.

Wage and hour infractions are no joke. Employers may be making innocent mistakes. However, intentions are not always taken into consideration when an action is filed. What an employer can prove is way more important than what the employer ‘thought’ was OK. A well-meaning business owner in one of my recent classes told me he had to pay over $3 million in back wages to 300 employees who had been allowed to eat lunch (off the clock of course) at their desks over the previous three years. He ‘thought’ he was being a kind and flexible employer by allowing this activity at the workstations. After an angry employee made a call to the DOL, he found out he was actually falling just short of running a slave labor camp by causing people to work through lunch for free! Nope! His intentions were not considered. The law is the law. If you are at your desk – even eating- you are getting paid.

Worker misclassification will bring one of the higher settlements across the board. Sadly, when the settlements are paid out, the employees are still not winning in many of these cases. Attorney fees are very high. I had a lady in one of my Payroll Law seminars a few months ago that was a part of the class action suit against Abercrombie and Fitch a few years back. It seems Abercrombie was misclassifying Assistant Managers as ‘exempt’ employees. Under the law, they cannot be exempt as they perform too many of the hands-on duties an associate would also perform. In the end, they were required to pay a $42,000,000 settlement to these employees for unpaid overtime. My attendee said she personally received a check for less than $4.00.

So, what’s an employer to do? Good question. I have 8 steps for you to consider when reviewing your employment law practices. These should be your cornerstones when developing practices for compliance related issues in your organization.

  1. Establish Reasonable Basis: In other words, be able to answer the question that you will be asked, “What made you think you could do it that way?” Hint: Your answer cannot be “I Googled it” or “Suzanne at the other business like mine told me how.”
  1. Use my Rule of 3s: Verify all information 3 times using 3 credible sources.
  1. Establish Written Policies: Cover all state and federal laws. These are changing rapidly. Have you ever heard of Mandatory PAID Bereavement Leave? It exists in some states.
  1. Develop Standard Operating Procedures: Duties related to anything that can be tied to a compliance issue should be written in a step-by-step format and the workers must be trained. Be sure and document your training. The government loves to subpoena SOPs. Few employers have them and the rest wish they had known.
  1. Communicate Effectively: I like to call this one Speaking with One Voice. Your entire organization must have a language. Everyone needs to speak the language. Good active listening skills are key.
  1. Develop a Culture of Compliance: The fabric of your organizational thinking must be woven from the threads of uncompromised obedience to the law.
  1. Educate and Train: Most laws that discuss training employees use the actual term However, on occasion a law will say “education and training” must be provided at least annually. The two are very different. Education is a much deeper dive. In many cases, compliance levels will be increased if the worker understands the why.
  1. Internally Audit: Audits are not always about the math in your payroll department. Annual internal audits of all sorts of practices and documents are a must. Internal corrections must accompany these audits when errors are found. Hint: Don’t ever ace your own audit!

Long story short – If you are an employer, know the law! The Supreme Court of the Unites States ruled that employers who do not follow written policy and procedure, provide training, and consult sources which are credible enough to be quoted in court will stand a much greater chance of losing if ever brought into question. Get educated about the way you must administer employment law in today’s world. Telling an auditor or a judge “This is the way we’ve always done it” or “I didn’t mean it that way” is no longer going to be the defense you want to bring to the table.

Be Audit-Secure,

Lisa Smith



Lisa Smith is CEO of Andere Seminars, LLC and Chief Content Developer at BeAuditSecure.com. Follow her on Twitter, connect with her on LinkedIn, listen to her Small Business Spoonfuls Podcast, and find more from her in Audit-Secure Authority at BeAuditSecure.com.

To learn more look inside.

Smarter is Better

Solutions for a
Smarter Compliance Strategy

Here’s what we’ve got for you:

Click the button below and join now it’s free:

Join Now

Log in or Register to save this content for later.